As filed with the Securities and Exchange Commission on June 3, 1996.
Registration No. 333-3376
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
GRANITE BROADCASTING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 4833 13-3458782
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
767 Third Avenue, 34th Floor
New York, New York 10017
(212) 826-2530
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
W. DON CORNWELL
Chief Executive Officer
GRANITE BROADCASTING CORPORATION
767 Third Avenue, 34th Floor
New York, New York 10017
(212) 826-2530
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------
Copies to:
Russell W. Parks, Jr., P.C.
William A. Bianco, Esq.
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1333 New Hampshire Avenue, N.W.
Suite 400
Washington, D.C. 20036
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------------
If any of the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
GRANITE BROADCASTING CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION IN THE PROSPECTUS
OF INFORMATION REQUIRED BY ITEMS ON FORM S-4
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION PROSPECTUS CAPTION
-------------------------------- ------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus............................. Outside Front Cover Page; Cross Reference Sheet
2. Inside Front and Outside Back Cover Pages of
Prospectus................................................. Inside Front Cover Page; Available Information
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information...................................... Prospectus Summary; Risk Factors
4. Terms of the Transaction................................... Outside Front Cover Page; Prospectus Summary; The
Exchange Offer; Certain U.S. Tax Considerations;
Description of New Notes
5. Pro Forma Financial Information............................ Prospectus Summary; Pro Forma Condensed Consolidated
Statement of Operations
6. Material Contracts With the Company Being Acquired......... *
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be Underwriters.............. Plan of Distribution
8. Interests of Named Experts and Counsel..................... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification of Securities Act Liabilities.............. *
10. Information with Respect to S-3 Registrants................ *
11. Incorporation of Certain Information by Reference.......... *
12. Information with respect to S-2 or S-3 Registrants......... *
13. Incorporation of Certain information by Reference.......... *
14. Information with Respect to Registrants Other than
S-3 or S-2 Registrants..................................... Inside Front Cover Page; Prospectus Summary; Risk
Factors; Capitalization; Selected Consolidated
Financial Data; Management's Discussion and Analysis
of Financial Condition and Results of Operations;
Business; Financial Statements
15. Information With Respect to S-3 Companies.................. *
16. Information With Respect to S-2 or S-3 Companies........... *
17. Information With Respect to Companies Other than
S-2 or S-3 Companies....................................... *
18. Information if Proxies, Consents or Authorizations
are to be Solicited........................................ *
19. Information if Proxies, Consents, or Authorizations
are not to be Solicited, or in an Exchange Offer........... Inside Front Cover Page; The Exchange Offer;
Management; Certain Transactions; Ownership of
Capital Stock
</TABLE>
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* Not applicable.
<PAGE>
OFFER TO EXCHANGE
ALL OUTSTANDING
9 3/8% SERIES A SENIOR SUBORDINATED NOTES
DUE DECEMBER 1, 2005
($110,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
9 3/8% SENIOR SUBORDINATED NOTES
DUE DECEMBER 1, 2005
OF
GRANITE BROADCASTING
CORPORATION
-----------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON JULY 3, 1996, unless extended
Granite Broadcasting Corporation, a Delaware corporation ("Granite" or the
"Company"), hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 9 3/8% Senior Subordinated Notes due
December 1, 2005 (the "New Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement (as defined herein) of which this Prospectus is a part,
for each $1,000 principal amount of the outstanding 9 3/8% Series A Senior
Subordinated Notes due December 1, 2005 (the "Old Notes") of the Company of
which $110,000,000 principal amount is outstanding. The New Notes and the Old
Notes are together referred to herein as the "Notes."
Granite will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m. New York City time, on the date the Exchange
Offer expires, which will be July 3, 1996, unless the Exchange Offer is extended
(the "Expiration Date"). The exchange of New Notes for Old Notes will be made
(i) with respect to all Old Notes validly tendered and not withdrawn on or prior
to 5:00 p.m. New York City time, on June 17, 1996 (the "Early Exchange Date"),
within two business days following the Early Exchange Date, and (ii) with
respect to all Old Notes validly tendered and not withdrawn after the Early
Exchange Date and on or prior to the Expiration Date, within two business days
following the Expiration Date. Tenders of Old Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date, unless
previously accepted for exchange. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions which may be waived by the
Company. See "The Exchange Offer." Old Notes may be tendered only in
denominations of $250,000 and integral multiples of $1,000 in excess thereof.
The Company has agreed to pay the expenses of the Exchange Offer.
(CONTINUED ON NEXT PAGE)
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is June 3, 1996
<PAGE>
The New Notes will be obligations of the Company issued pursuant to the
Indenture under which the Old Notes were issued (the "Indenture"). The form and
terms of the New Notes are identical in all material respects to the form and
terms of the Old Notes except (i) that the New Notes have been registered under
the Securities Act, (ii) that the New Notes are not entitled to certain
registration rights which are applicable to the Old Notes under a registration
rights agreement (the "Registration Rights Agreement") between the Company and
Goldman, Sachs & Co., BT Securities Corporation and Lazard Freres & Co. LLC, the
initial purchasers of the Old Notes (the "Initial Purchasers") and (iii) for
certain contingent interest rate provisions. See "The Exchange Offer."
The New Notes will bear interest from June 1, 1996, the most recent
interest payment date on the Old Notes. Holders of Old Notes whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued from June 1, 1996 to the
date of the issuance of the New Notes. Interest on the New Notes is payable
semi-annually on June 1 and December 1 of each year, commencing December 1,
1996, accruing from June 1, 1996 at a rate of 9 3/8% per annum.
The New Notes will be redeemable in the event that on or before February
22, 1999 the Company receives net proceeds from the sale of its Capital Stock
other than Disqualified Stock (each as defined herein) in one or more offerings,
in which case the Company may, at its option, use all or a portion of any such
net proceeds within 75 days of receipt thereof to redeem Notes in a principal
amount of at least $5,000,000 and up to an aggregate amount equal to 33% of the
original principal amount of the Notes at a redemption price of 109.375% of the
principal amount thereof plus accrued interest to the date of redemption;
PROVIDED, HOWEVER, that Notes in the amount equal to at least 67% of the
original principal amount of the Notes remains outstanding. In addition, the New
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after December 1, 2000, at the redemption prices set forth herein
plus accrued interest to the date of redemption. In the event of a Change of
Control, the Company will be required to offer to purchase all outstanding New
Notes at 101% of the principal amount thereof plus accrued interest to the date
of repurchase. The New Notes will be issued only in registered form in minimum
denominations of $1,000 and integral multiples thereof.
The New Notes will be general unsecured obligations of the Company and will
be subordinated in right of payment to all existing and future Senior Debt (as
defined herein) and will rank PARI PASSU with all senior subordinated debt and
senior to all subordinated debt of the Company. The Company's Credit Agreement
(as defined herein) permits revolving credit borrowings of up to $60,000,000,
all of which constitutes senior debt. At May 31, 1996, there were $5,000,000 of
outstanding revolving credit borrowings under the Credit Agreement and the
aggregate principal amount of outstanding senior subordinated debt of the
Company was approximately $344,455,000 (including the Old Notes). The incurrence
of additional Senior Debt is limited by the "Limitation on Debt" covenant
contained in the Indenture and by the Credit Agreement (as defined herein).
Old Notes initially purchased by qualified institutional buyers were
initially represented by a single, global Note in registered form, registered in
the name of a nominee of The Depository Trust Company ("DTC"), as depository.
The New Notes exchanged for Old Notes represented by the global Note will be
represented by one or more global New Notes in registered form, registered in
the name of the nominee of DTC. New Notes in global form will trade in DTC's
Same-Day Funds Settlement System, and secondary market trading activity in such
New Notes will therefore settle in immediately available funds. See "Description
of New Notes -- Form, Denomination and Book -- Entry Procedures." New Notes
issued to non-qualified institutional buyers in exchange for Old Notes held by
such investors will be issued only in certificated, fully registered, definitive
form.
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a "Restricted Holder," being (i) a
broker-dealer who purchases such Old Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act
or (ii) a person that is an affiliate of the Company within the meaning of Rule
405 under the Securities Act), without compliance with the registration and
prospectus delivery provisions of the Securities Act, PROVIDED that the holder
is acquiring the New Notes in the ordinary course of its business and is not
participating, does not intend to
2
<PAGE>
participate and has no arrangement or understanding with any person to
participate, in a distribution of the New Notes. Eligible holders wishing to
accept the Exchange Offer must represent to the Company that such conditions
have been met. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that it will make
this Prospectus available to any broker-dealer for use in connection with any
such resale for a period from the date of this Prospectus until 180 days after
the consummation of the Exchange Offer, or such shorter period as will terminate
when all Old Notes acquired by broker-dealers for their own accounts as a result
of market-making activities or other trading activities have been exchanged for
New Notes and resold by such broker-dealers. See "The Exchange Offer" and "Plan
of Distribution."
The Company will not receive any proceeds from this offering, and no
underwriter is being utilized in connection with the Exchange Offer. See "Use of
Proceeds."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
Prior to the Exchange Offer, there has previously been only a limited
secondary market and no public market for the Old Notes or the New Notes. If a
market for the New Notes should develop, the New Notes could trade at a discount
from their principal amount. The Company does not intend to list the New Notes
on a national securities exchange or to apply for quotation of the New Notes
through the National Association of Securities Dealers Automated Quotation
System. There can be no assurance that an active public market for the New Notes
will develop.
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE NEW
NOTES, SEE "RISK FACTORS," BEGINNING ON PAGE 17 OF THIS PROSPECTUS.
3
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Commission. The reports
and other information filed by the Company with the Commission can be inspected
and copied at the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the following regional offices of the
Commission: 7 World Trade Center, Suite 1300, New York, New York 10048; and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-
2511. Copies of such information can be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. The Company's Common Stock (Nonvoting), par value $.01 per
share, and Cumulative Convertible Exchangeable Preferred Stock, par value $.01
per share, are quoted on the Nasdaq National Market and such reports and other
information can be inspected and copied at the National Association of
Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006. In
addition, the Company intends to furnish registered holders of the Notes with
annual reports containing consolidated financial statements audited by
independent certified public accountants and with quarterly reports containing
unaudited financial information for each of the first three fiscal quarters of
the Company's fiscal year.
The Company has filed with the Commission a Registration Statement (which
term shall include any amendment, exhibit, schedule and supplement thereto) on
Form S-4 under the Securities Act for the registration of the New Notes offered
hereby. This Prospectus, which constitutes a part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain items of which are omitted as permitted by the rules and regulations of
the Commission. For further information with respect to the Company and such
securities, reference is hereby made to the Registration Statement, including
the exhibits and schedules thereto. Statements made in this Prospectus
concerning the contents of any contract, agreement or other document referred to
herein are not necessarily complete. With respect to each such contract,
agreement or other document filed with the Commission as an exhibit to the
Registration Statement, reference is hereby made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference. The Registration Statement
and the exhibits and schedules thereto filed by the Company with the Commission
may be inspected at the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Company has agreed that, if it is not subject to the informational
requirements of Sections 13 or 15(d) of the Exchange Act at any time while the
Notes constitute "restricted securities" within the meaning of the Securities
Act, it will furnish to holders and beneficial owners of the Notes and to
prospective purchasers designated by such holders the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act to permit
compliance with Rule 144A in connection with resales of the Notes.
4
<PAGE>
TABLE OF CONTENTS
PAGE
Available Information................................................... 4
Prospectus Summary...................................................... 6
Risk Factors............................................................ 17
Use of Proceeds......................................................... 21
The Exchange Offer...................................................... 22
Capitalization.......................................................... 29
Selected Consolidated Financial Data.................................... 30
Pro Forma Condensed Consolidated Statement of Operations................ 33
Management's Discussion and Analysis of Financial
Condition and Results of Operations...... ............................ 37
Business................................................................ 44
Management.............................................................. 65
Ownership of Capital Stock.............................................. 74
Certain Transactions.................................................... 77
Description of New Notes................................................ 78
Description of Certain Debt Instruments................................. 98
Description of Preferred Stock.......................................... 103
Certain U.S. Tax Considerations......................................... 106
Plan of Distribution.................................................... 109
Experts................................................................. 109
Legal Matters........................................................... 110
Index to Financial Statements........................................... F-1
5
<PAGE>
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONNECTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS AND
NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. SEE "RISK FACTORS" FOR A
DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT
IN THE NEW NOTES. UNLESS THE CONTEXT REQUIRES OTHERWISE, REFERENCES TO THE
"COMPANY" OR "GRANITE" INCLUDE GRANITE BROADCASTING CORPORATION AND ITS
SUBSIDIARIES.
THE COMPANY
Granite is a group broadcasting company which owns and operates nine
network-affiliated television stations. The Company's stations are diverse in
geographic location and network affiliation and serve communities representing
approximately 5.7% of the total television households in the United States. For
the twelve months ended March 31, 1996, after giving pro forma effect to its
recently consummated acquisitions and new network affiliation agreements, the
Company would have had net revenue, broadcast cash flow and operating cash flow
of $125,353,000, $58,128,000 and $54,818,000, respectively.
The Company's goal is to identify and acquire properties that management
believes have the potential for substantial long-term appreciation and to
aggressively manage such properties to improve their operating results. Since
its inception, the Company has grown significantly, primarily as a result of a
series of carefully selected acquisitions involving network affiliated
television stations in increasingly larger markets and also as a result of the
implementation of the Company's operating strategies. During the year ended
December 31, 1995, Granite's net revenue, broadcast cash flow and operating cash
flow increased by 59%, 77% and 80%, respectively, from the previous year. During
the three month period ended March 31, 1996, Granite's net revenue, broadcast
cash flow and operating cash flow increased by 74%, 82% and 91%, respectively,
from the same period in 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The following table sets forth general information for each of the
Company's stations:
<TABLE>
<CAPTION>
PRO FORMA YEAR ENDED
DECEMBER 31, 1995(a)
--------------------
YEAR NETWORK MARKET STATION NET REVENUE PERCENTAGE
STATION ACQUIRED AFFILIATION RANK(b) RANK(b) (IN THOUSANDS) OF TOTAL
------- -------- ----------- ------- ------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Duluth, Minnesota -
Superior, Wisconsin.......... KBJR 1988 NBC 134 2 $ 3,969 3.2%
Peoria - Bloomington,
Illinois..................... WEEK 1988 NBC 109 1 10,345 8.3
Fort Wayne, Indiana........... WPTA 1989 ABC 103 1 10,109 8.1
San Jose - Monterey -
Salinas, California.......... KNTV 1990 ABC 122 3 16,898 13.6
Syracuse, New York............ WTVH 1993 CBS 69 3 11,373 9.1
Fresno - Visalia,
California................... KSEE 1993 NBC 56 2 12,026 9.6
Austin, Texas................. KEYE 1995 CBS(c) 64 2(tie) 12,861 10.3
Grand Rapids - Kalamazoo -
Battle Creek, Michigan....... WWMT 1995 CBS 38 1(tie) 19,830 15.9
Buffalo, New York............. WKBW 1995 ABC 39 1(tie) 27,338 21.9
-------- -----
$124,749 100.0%
======== ======
</TABLE>
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6
<PAGE>
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(a) Pro forma net revenue information reflects actual 1995 net revenues of the
stations adjusted to reflect negotiated increases in network compensation
revenue and decreases in sales commissions paid to a national
representative at certain stations.
(b) "Market rank" refers to the size of the television market or Designated
Market Area ("DMA") as defined by the A.C. Nielsen Company ("Nielsen").
"Station rank" represents the rank of a station in its DMA, based on
sign-on to sign-off station audience share of such station. All market rank
and station rank data is from the Nielsen Station Index, dated February
1996, unless otherwise noted.
(c) KEYE-TV ("KEYE"), formerly KBVO, a Fox Broadcasting Company ("Fox")
affiliate, became a CBS, Inc. ("CBS") affiliate on July 2, 1995.
A key element of the Company's strategy to improve the operating results of
its stations is expanding each station's local news franchise. Seven of
Granite's nine stations are ranked either first or second in their respective
markets in share of viewing audience during the total day and a majority of the
stations are ranked either first or second in the key news dayparts and produce
as many or more local news programs than their principal competitors. The
Company also develops innovative sales and marketing techniques using exclusive
in-depth audience research, mass-market community events, special local
programming and targeted promotional campaigns. Granite's strategy also involves
aggressively managing station operating expenses, including staffing levels and
programming expenditures, in order to achieve significant broadcast cash flow
margins. For example, at stations WTVH-TV and KSEE-TV, acquired by the Company
in December 1993, broadcast cash flow margins increased from 13% in 1993 to
greater than 38% in 1994. For the five years ended December 31, 1995, Granite's
broadcast cash flow margin averaged more than 40%.
Granite's long-term objective is to acquire additional television stations
and to pursue acquisitions of other media and communications-related properties.
On February 8, 1996, the Telecommunications Act of 1996 was enacted. The
legislation amends major portions of the regulatory framework applicable to the
television industry. See "Business -- FCC Licenses" and "-- Proposed Legislation
and Regulations."
The Company's Principal Executive Offices are located at 767 Third Avenue,
34th Floor, New York, New York 10017, telephone number (212) 826-2530.
RISK FACTORS
The New Notes offered hereby involve a high degree of risk. See "Risk
Factors."
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7
<PAGE>
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SUMMARY OF TERMS OF THE EXCHANGE OFFER
The Exchange Offer relates to the exchange of up to $110,000,000 aggregate
principal amount of Old Notes for up to an equal aggregate principal amount of
New Notes. The New Notes will be obligations of the Company issued pursuant to
the Indenture. The form and terms of the New Notes are identical in all material
respects to the form and terms of the Old Notes except (i) that the New Notes
have been registered under the Securities Act, (ii) that the New Notes are not
entitled to certain registration rights which are applicable to the Old Notes
under the Registration Rights Agreement and (iii) for certain contingent
interest rate provisions. The Old Notes and the New Notes are together referred
to herein as the "Notes." See "Description of New Notes."
THE EXCHANGE OFFER............. $1,000 principal amount of New Notes
will be issued in exchange for each
$1,000 principal amount of Old Notes
validly tendered pursuant to the
Exchange Offer. As of the date hereof,
$110,000,000 in aggregate principal
amount of Old Notes are outstanding. The
exchange of New Notes for Old Notes will
be made (i) with respect to all Old
Notes validly tendered and not withdrawn
on or prior to the Early Exchange Date,
within two business days following the
Early Exchange Date, and (ii) with
respect to all Old Notes validly
tendered and not withdrawn on or prior
to the Expiration Date, within two
business days following the Expiration
Date. The Old Notes were originally
issued in a private placement. As a
condition to the purchase of the Old
Notes, the Initial Purchasers required
that the Company make a registered offer
to exchange the Old Notes for other
securities substantially similar to the
Old Notes. The Exchange Offer is being
made to satisfy this contractual
obligation of the Company.
RESALE.......................... Based on an interpretation by the staff
of the Commission set forth in no-action
letters issued to third parties, the
Company believes that New Notes issued
pursuant to the Exchange Offer in
exchange for Old Notes may be offered
for resale and resold or otherwise
transferred by holders thereof (other
than any Restricted Holder) without
compliance with the registration and
prospectus delivery provisions of the
Securities Act, PROVIDED that such New
Notes are acquired in the ordinary
course of such holders' business and
such holders are not participating, do
not intend to participate and have no
arrangement or understanding with any
person to participate, in the
distribution of such New Notes. See
"Mary Kay Cosmetics, Inc.," SEC
No-Action Letter (available June 5,
1991); "Morgan Stanley & Co.,
Incorporated," SEC No-Action Letter
(available June 5, 1991); and "Exxon
Capital Holdings Corporation," SEC
No-Action Letter (available May 13,
1988). Each broker-dealer that receives
New Notes for its own account in
exchange for Old Notes, where such Old
Notes were acquired by such
broker-dealer as a result of
market-making activities or other
trading activities, must acknowledge
that it will deliver a prospectus in
connection with any resale of such New
Notes. See "Plan of Distribution."
If any person were to participate in the
Exchange Offer for the purpose of
distributing securities in a manner not
permitted by the preceding paragraph,
such person (i) could not rely on the
position of the staff of
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
the Commission enunciated in "Exxon
Capital Holdings Corporation" and (ii)
must comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a
secondary resale transaction. Therefore,
each holder of Old Notes who accepts the
Exchange Offer must represent in the
Letter of Transmittal that it meets the
conditions described above. See "The
Exchange Offer -- Terms of the Exchange
Offer."
EARLY EXCHANGE DATE............. All Old Notes validly tendered and not
withdrawn on or prior to 5:00 p.m. New
York City time, on June 17, 1996 (the
"Early Exchange Date") will be exchanged
for New Notes within two business days
following the Early Exchange Date.
EXPIRATION DATE................. 5:00 p.m., New York City time, on July
3, 1996 unless the Exchange Offer is
extended, in which case the term
"Expiration Date" means the latest date
and time to which the Exchange Offer is
extended. See "The Exchange Offer --
Expiration Date; Extensions;
Amendments."
ACCRUED INTEREST ON THE NEW NOTES
AND THE OLD NOTES............. The New Notes will bear interest from
June 1, 1996, the most recent interest
payment date on the Old Notes. Holders
of Old Notes whose Old Notes are
accepted for exchange will be deemed to
have waived the right to receive any
payment in respect of interest on such
Old Notes accrued from June 1, 1996 to
the date of the issuance of the New
Notes. See "The Exchange Offer
--Interest on the New Notes."
CONDITIONS TO THE EXCHANGE
OFFER......................... The Company will not be obligated to
consummate the Exchange Offer if the New
Notes to be received will not be
tradeable by the holder, other than in
the case of Restricted Holders, without
restriction under the Securities Act and
the Exchange Act and without material
restrictions under the blue sky or
securities laws of substantially all of
the states of the United States. This
condition may be waived by the Company.
See "The Exchange Offer -- Conditions."
No federal or state regulatory
requirements must be complied with or
approvals obtained in connection with
the Exchange Offer, other than the
registration provisions of the
Securities Act and any applicable
registration or qualification provisions
of state securities laws.
PROCEDURE FOR TENDERING OLD
NOTES......................... Each holder of Old Notes wishing to
accept the Exchange Offer must complete,
sign and date the Letter of Transmittal,
or a facsimile thereof, in accordance
with the instructions contained herein
and therein, and mail or otherwise
deliver such Letter of Transmittal, or
such facsimile, together with the Old
Notes (unless such tender is being
effected pursuant to the procedures for
book-entry transfer described below) to
be exchanged and any other required
documentation to the
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9
<PAGE>
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Exchange Agent (as defined herein) at
the address set forth herein and
therein. See "The Exchange Offer --
Procedure for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL HOLDERS............ Any beneficial holder whose Old Notes
are registered in the name of his
broker, dealer, commercial bank, trust
company or other nominee and who wishes
to tender in the Exchange Offer should
contact such registered holder promptly
and instruct such registered holder to
tender on his behalf. If such beneficial
holder wishes to tender on his own
behalf, such beneficial holder must,
prior to completing and executing the
Letter of Transmittal and delivering his
Old Notes, either make appropriate
arrangements to register ownership of
the Old Notes in such holder's name or
obtain a properly completed bond power
from the registered holder. The transfer
of record ownership may take
considerable time. See "The Exchange
Offer -- Procedure for Tendering."
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Old Notes who wish to tender
their Old Notes and whose Old Notes are
not immediately available or who cannot
deliver their Old Notes (or who cannot
complete the procedures for book-entry
transfer on a timely basis) and a
properly completed Letter of Transmittal
or any other documents required by the
Letter of Transmittal to the Exchange
Agent prior to the Early Termination
Date or the Expiration Date, as the case
may be, may tender their Old Notes
according to the guaranteed delivery
procedures set forth in "The Exchange
Offer -- Guaranteed Delivery
Procedures."
WITHDRAWAL RIGHTS............... Tenders of Old Notes may be withdrawn at
any time prior to 5:00 p.m., New York
City time, on the Expiration Date,
unless previously accepted for exchange.
See "The Exchange Offer -- Withdrawal of
Tenders."
ACCEPTANCE OF OLD NOTES AND
DELIVERY OF NEW NOTES......... Subject to certain conditions (as
summarized above in "Conditions to the
Exchange Offer" and described more fully
in "The Exchange Offer -- Conditions"),
the Company will accept for exchange any
and all Old Notes which are validly
tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on each
of the Early Exchange Date and the
Expiration Date. The New Notes issued
pursuant to the Exchange Offer will be
delivered promptly following each of the
Early Exchange Date and the Expiration
Date. See "The Exchange Offer -- Terms
of the Exchange Offer."
CERTAIN TAX
CONSIDERATIONS................ The exchange pursuant to the Exchange
Offer will generally not be a taxable
event for federal income tax purposes.
See "Certain U.S. Tax Considerations."
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10
<PAGE>
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EXCHANGE AGENT.................. The Bank of New York, the Trustee under
the Indenture, is serving as exchange
agent (the "Exchange Agent") in
connection with the Exchange Offer. The
address of the Exchange Agent is: The
Bank of New York, 101 Barclay Street -
7E, New York, New York 10286, Attention:
Enrique Lopez, Reorganization Section.
For information with respect to the
Exchange Offer, call (212) 815-6333.
USE OF PROCEEDS................. The Company will not receive any
proceeds from the exchange of the New
Notes for the Old Notes pursuant to the
Exchange Offer. The net proceeds from
the sale of Old Notes of approximately
$106,300,000 (after deducting
underwriting discounts and expenses of
the offering) were used to repay all
outstanding term loan and revolving
credit borrowings under the Credit
Agreement and for additions to working
capital. See "Use of Proceeds."
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11
<PAGE>
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SUMMARY DESCRIPTION OF THE NEW NOTES
SECURITIES OFFERED.............. $110,000,000 principal amount of 9 3/8%
Senior Subordinated Notes due December
1, 2005 (the "New Notes").
MATURITY DATE................... December 1, 2005.
INTEREST PAYMENT DATES.......... June 1 and December 1, commencing
December 1, 1996.
OPTIONAL REDEMPTION............. The New Notes will be redeemable in the
event that on or before February 22,
1999 the Company receives net proceeds
from the sale of its Capital Stock other
than Disqualified Stock in one or more
offerings, in which case the Company
may, at its option, use all or a portion
of any such net proceeds within 75 days
of receipt thereof to redeem Notes in a
principal amount of at least $5,000,000
and up to an aggregate amount equal to
33% of the original principal amount of
the Notes at a redemption price of
109.375% of the principal amount of the
Notes plus accrued interest to the date
of redemption; PROVIDED, HOWEVER, that
Notes in an amount equal to at least 67%
of the original principal amount of the
Notes remain outstanding. In addition,
the New Notes will be redeemable at any
time on or after December 1, 2000, in
whole or in part, at the option of the
Company, at the redemption prices set
forth herein plus accrued interest to
the Redemption Date.
CHANGE OF CONTROL............... The Company will be required to offer to
purchase all outstanding Notes at a
price equal to 101% of their principal
amount plus accrued interest to the date
of repurchase in the event of a Change
of Control (as defined in the
Indenture). The Company will also be
required to offer to purchase all of the
10 3/8% Notes and 12.75% Debentures
(each as defined) at 101% of the
principal amount thereof, of which an
aggregate $235,000,000 principal amount
is currently outstanding, upon the
occurrence of a Change of Control. A
Change of Control is also an event of
default under the Credit Agreement. If a
Change of Control were to occur, there
can be no assurance that the Company
would have sufficient funds to repay all
borrowings under the Credit Agreement
and pay the Change of Control purchase
price for all 10 3/8% Notes, 12.75%
Debentures and the Notes tendered by the
holders thereof.
MANDATORY SINKING FUND.......... None.
RANKING......................... The New Notes will be general unsecured
obligations of the Company and will be
subordinated in right of payment to all
existing and future Senior Debt (as
defined in the Indenture) and will rank
PARI PASSU with all senior subordinated
debt and senior to all subordinated
debt. See "Description of New Notes
--Subordination." At May 31, 1996, the
Company had $5,000,000 of Senior Debt
outstanding and the
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12
<PAGE>
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aggregate principal amount of
outstanding senior subordinated debt of
the Company was approximately
$344,455,000 (including the Old Notes).
FORM AND DENOMINATION........... Fully registered as to principal and
interest in minimum denominations of
$1,000 and integral multiples thereof.
The Old Notes initially purchased by
qualified institutional investors were
initially represented by a single,
global Note in registered form,
deposited with a custodian for and
registered in the name of a nominee of
DTC, as depository. The New Notes
exchanged for Old Notes will be
represented by one or more global New
Notes in registered form and deposited
with a custodian for and registered in
the name of the nominee of DTC. New
Notes issued to accredited investors
that are not qualified institutional
buyers will be issued only in
certificated, fully registered,
definitive form. See "Description of New
Notes -- Form, Denomination and
Book-Entry Procedures."
CERTAIN COVENANTS............... The Indenture will contain certain
covenants that, among other things,
limit the ability of the Company and its
subsidiaries to incur debt, make certain
restricted payments, enter into certain
transactions with affiliates, dispose of
certain assets, incur liens securing
subordinated debt of the Company, engage
in mergers and consolidations and
restrict the ability of the subsidiaries
of the Company to make distributions and
transfers to the Company. See
"Description of New Notes."
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13
<PAGE>
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The summary consolidated financial information presented below should be
read in conjunction with the consolidated financial statements and notes thereto
included elsewhere herein and "Selected Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" herein. The acquisitions by the Company of its operating properties
during the periods for which the summary data are presented below materially
affect the comparability of such data from one period to another. The summary
consolidated data for the three months ended March 31, 1995 and 1996 are derived
from unaudited financial statements but, in the opinion of the Company, reflect
all adjustments, of a normal recurring nature, necessary for a fair presentation
of such data. The results of operations for interim periods are not necessarily
indicative of the results to be expected for the full year. The consolidated
summary pro forma data below should be read in conjunction with the unaudited
Pro Forma Condensed Consolidated Statement of Operations and notes thereto
contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
-------------------------------------------------------------- MARCH 31,
1995 (UNAUDITED)
PRO FORMA(a) -----------
1992 1993 1994 1995 (UNAUDITED) 1995 1996
--------- --------- --------- --------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue .................... $ 35,957 $ 37,499 $ 62,856 $ 99,895 $ 124,749 $ 16,456 $ 28,630
Station operating
expenses ..................... 21,638 22,790 37,764 55,399 66,648 10,338 17,518
Depreciation and
amortization ................. 6,262 6,263 8,135 13,844 17,087 2,252 4,424
Corporate expense .............. 1,192 1,374 2,162 3,132 3,132 812 990
Non-cash compensation .......... -- 123 282 363 363 81 115
--------- --------- --------- --------- --------- --------- ---------
Operating income ............... 6,865 6,949 14,513 27,157 37,519 2,973 5,583
Equity in net income of investee -- -- -- (439) -- -- --
Interest expense, net .......... 11,675 10,977 10,707 27,026 36,119 3,710 8,850
Income (loss) before
extraordinary item ........... (4,826) (4,035) 3,047 (783) (730)(f) (831) (3,454)
Extraordinary loss on
extinguishment of debt ....... (5,709) (1,007) -- -- -- (3,510)
--------- --------- --------- --------- --------- ---------
Net income (loss) .............. $ (10,535) $ (5,042) $ 3,047 $ (783) $ (831) $ (6,964)
========= ========= ========= ========= ========= =========
Net loss attributable
to common shareholders ....... $ (10,628) $ (5,278) $ (688) $ (4,333) $ (4,280) $ (1,770) $ (7,845)
========= ========= ========= ========= ========= ========= =========
Loss before extraordinary
item per common share ........ $ (1.22) $ (0.98) $ (0.15) $ (0.73) $ (0.72) $ (0.39) $ (0.51)
========= ========= ========= ========= ========= ========= =========
Net loss per common
share(b) ..................... $ (2.63) $ (1.21) $ (0.15) $ (0.73) $ (0.39) $ (0.93)
========= ========= ========= ========= ========= =========
Weighted average common shares
outstanding .................. 4,041 4,365 4,498 5,920 5,920 4,578 8,464
</TABLE>
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14
<PAGE>
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<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------------------------- 1996
1992 1993 1994 1995 (UNAUDITED)
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets ............. $ 140,948 $ 191,517 $ 189,881 $ 452,221 $ 449,771
Total debt ............... 101,611 99,000 99,250 341,000 344,455
Redeemable preferred stock 1,574 49,139 49,171 45,488 45,488
Stockholders' equity ..... 17,211 12,075 11,729 8,868 1,137
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, TWELVE
---------------------------------------------------------- MONTHS ENDED
1995 MARCH 31, 1996
PRO FORMA(a) PRO FORMA(a)
1992 1993 1994 1995 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Broadcast cash flow(c) ......... $ 14,319 $ 14,709 $ 25,092 $ 44,495 $ 58,101 $ 58,128
Broadcast cash flow margin ..... 39.8% 39.2% 39.9% 44.5% 46.6% 46.4%
Operating cash flow(d) ......... $ 13,127 $ 13,335 $ 22,930 $ 41,364 $ 54,969 $ 54,818
Operating cash flow margin ..... 36.5% 35.6% 36.5% 41.4% 44.1% 43.7%
Cash flows provided by (used in)
operating activities ......... $ (1,001) $ 3,611 $ 5,808 $ 8,806 $ 16,449 $ 19,142
Ratio of:
Operating cash flow to total
interest expense ........... 1.12x 1.21x 2.14x 1.53x 1.52x 1.53x
Earnings to fixed charges(e) . -- -- 1.30x -- 1.02x 1.00x
Long-term debt to operating
cash flow .................. 7.57x 7.33x 4.14x 8.24x 6.28x 6.28x
Capital expenditures ........... $ 1,036 $ 1,089 $ 2,628 $ 7,682 $ 8,221 $ 7,207
</TABLE>
- ---------------
(a) Gives effect to the acquisitions of KEYE, WWMT and WKBW and the
application of the net proceeds used to finance such acquisitions, the new
network affiliation agreements, decreased sales commissions, certain other
adjustments and the application of the net proceeds of the Old Notes as if
such events had occurred January 1, 1995. See "Use of Proceeds" and "Pro
Forma Condensed Consolidated Statement of Operations." During the three
months ended March 31, 1996, the Company wrote-off approximately
$3,500,000 of deferred financing costs associated with the Credit
Agreement in connection with the repayment of the term loan. Such amount
is excluded from the Pro Forma Statement of Operations Data.
(b) Assuming that the then outstanding Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Cumulative Convertible
Exchangeable Preferred Stock were converted into the Company's Common
Stock (Nonvoting), net income (loss) per common share for the years ended
December 31, 1992, 1993, 1994 and 1995 would have been $(1.50), $(0.29),
$0.17 and $(0.05), respectively. Net loss per common share for the three
months ended March 31, 1995 and 1996 would have been $(0.05) and $(0.40),
respectively.
(c) "Broadcast cash flow" means operating income plus depreciation and
amortization, corporate expense and non-cash compensation. The Company has
included broadcast cash flow data because such data are commonly used as a
measure of performance for broadcast companies and are also used by
investors to measure a company's ability to service debt. Broadcast cash
flow is not, and should not be used as, an indicator or alternative to
operating income, net income or cash flow as reflected in the Consolidated
Financial Statements, is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles.
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15
<PAGE>
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(d) "Operating cash flow" means operating income plus depreciation and
amortization and non-cash compensation expense. The Company has included
operating cash flow data because such data are used by investors to
measure a company's ability to service debt. Operating cash flow does not
purport to represent cash provided by operating activities as reflected in
the Consolidated Financial Statements, is not a measure of financial
performance under generally accepted accounting principles and should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(e) For purposes of computing the ratio of earnings to fixed charges, "fixed
charges" consists of interest expense, amortization of deferred financing
charges and the interest component of rent expense, and "earnings"
consists of income before income taxes and fixed charges. Earnings were
insufficient to cover fixed charges for each of the two years in the
period ended December 31, 1993 by $5,297 and $4,507, respectively.
Earnings were insufficient to cover fixed charges for the year ended
December 31, 1995 and the three months ended March 31, 1996 by $228 and
$3,393, respectively.
(f) Excludes a write-off of approximately $3,500,000 of deferred financing
costs associated with the Credit Agreement upon repayment of all term loan
borrowings thereunder with the proceeds of the Old Notes.
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16
<PAGE>
RISK FACTORS
LIMITATIONS ON FINANCIAL FLEXIBILITY; EFFECT OF NON-COMPLIANCE WITH RESTRICTIVE
COVENANTS
The Company has incurred significant indebtedness in connection with the
acquisition of its nine television stations and anticipates incurring additional
indebtedness in connection with future acquisitions. At May 31, 1996, the
Company's long-term indebtedness was approximately $349,455,000. The Indenture
(the "10 3/8% Note Indenture") governing the Company's 10 3/8% Senior
Subordinated Notes due May 15, 2005 (the "10 3/8% Notes"), the Indenture (the
"12.75% Debenture Indenture") governing the Company's 12.75% Senior Subordinated
Debentures, due September 1, 2002 (the "12.75% Debentures") and the Credit
Agreement contain various financial and operating covenants that, among other
things, require the maintenance of certain financial ratios and restrict the
Company's ability to borrow funds and to utilize funds for various purposes,
including investments in certain subsidiaries. See "Description of New Notes"
and "Description of Certain Debt Instruments." These restrictions, in
combination with the leveraged nature of the Company, could limit the ability of
the Company to respond to market conditions or meet extraordinary capital needs,
or could adversely affect the Company's ability to finance its future operations
or capital needs, or engage in other business activities which could be in the
interest of the Company.
The Company's ability to service its debt, including the Notes, the 10 3/8%
Notes, the 12.75% Debentures, borrowings under the Credit Agreement and the
Exchange Debentures (as defined herein), if issued, will depend upon the
Company's future operating performance, which is subject to financial,
political, business, regulatory and other factors, many of which are beyond the
Company's control. Since borrowings under the Credit Agreement bear interest at
rates that will fluctuate with certain prevailing interest rates, increases in
such prevailing interest rates likely will increase the Company's interest
payment obligations with respect to borrowings thereunder and could have an
adverse effect on the Company.
Additionally, if the Company were to sustain a decline in its operating
results, it could experience difficulty in complying with the covenants that are
contained in the Credit Agreement and any other agreements governing future
indebtedness of the Company. The failure to comply with such covenants could
result in an event of default under these agreements, thereby permitting
acceleration of indebtedness incurred pursuant thereto, as well as indebtedness
under other instruments that contain cross-acceleration or cross-default
provisions, including the Indenture, the 10 3/8% Note Indenture and the 12.75%
Debenture Indenture.
SUBORDINATION OF NOTES; PLEDGE OF ASSETS TO SECURE SENIOR INDEBTEDNESS
The Notes are subordinated in right of payment to all existing and future
Senior Debt, including the principal of (and premium, if any) and interest on
and all other amounts due on or payable in connection with Senior Debt. At May
31, 1996, there was $5,000,000 of Senior Debt outstanding. The Credit Agreement
permits $60,000,000 of revolving borrowings thereunder and the Indenture does
not limit the amount of Senior Debt that the Company may incur provided that the
incurrence of Debt is then permitted under the Indenture. By reason of the
subordination of the Notes, in the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company or upon a default
in payment with respect to, or the acceleration of, or if a judicial proceeding
is pending with respect to any default under, any Senior Debt, the lenders under
the Credit Agreement and any other creditors who are holders of Senior Debt must
be paid in full before the holders of the Notes may be paid. The Indenture also
does not limit the amount of debt ranking PARI PASSU with the Notes that the
Company may incur provided that the incurrence of debt is then permitted under
the Indenture. The 10 3/8% Notes and 12.75% Debentures are PARI PASSU in right
of payment with the Notes. If the Company incurs any additional PARI PASSU debt,
the holders of such debt, along with the holders of the 10 3/8% Notes and 12.75%
Debentures, would be entitled to share ratably with the holders of the Notes in
any proceeds distributed in connection with any insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company. This may have
the effect of reducing the amount of proceeds paid to the holders of the Notes.
In addition, no payments may be made with respect to the principal of (premium,
if any) or interest on the Notes if a payment default exists with respect to
Senior Debt
17
<PAGE>
and, under certain circumstances, no payments may be made with respect to the
principal of (premium, if any) or interest on the Notes for a period of up to
179 days if a non-payment default exists with respect to Senior Debt. In
addition, the Indenture permits subsidiaries of the Company to incur debt
provided certain conditions are met. Any debt incurred by a subsidiary of the
Company will be structurally senior to the Notes. See "Description of New
Notes."
The Company has granted to the lenders under the Credit Agreement, security
interests in substantially all of the present and future assets of the Company,
as well as a pledge of all of the issued and outstanding shares of capital stock
of the Company's current and future subsidiaries. In the event of a default on
secured indebtedness (whether as a result of the failure to comply with a
payment or other covenant, a cross-default, or otherwise), the parties granted
such security interests will have a prior secured claim on the assets of the
Company and its subsidiaries. If such parties should attempt to foreclose on
their collateral, the Company's financial condition and the value of the Notes
will be materially adversely affected. In the event of certain Asset
Dispositions (as defined in the Indenture), the Indenture provides that net
proceeds thereof not reinvested as provided in the Indenture must be applied
first to the repayment of Senior Debt and then to offer to repurchase the 12.75%
Debentures and the 10 3/8% Notes prior to offering to repurchase the Notes. As a
result thereof, in the event of one or more such Asset Dispositions, there may
be insufficient proceeds to repurchase the Notes.
DEPENDENCE ON SUBSIDIARIES
Eight of the Company's nine television stations are owned by wholly-owned
subsidiaries of the Company, and future acquisitions will likely be made through
present or future subsidiaries. The Company's cash flow and consequent ability
to service its debt, including the Notes, will be dependent upon the earnings of
its subsidiaries and the distribution of those earnings to the Company, or upon
loans or other payments of funds by those subsidiaries to the Company. The
Company's subsidiaries have no obligation, contingent or otherwise, to make any
funds available to the Company. The Credit Agreement, the 10 3/8% Note
Indenture, the 12.75% Debenture Indenture and the Indenture impose certain
limitations on the ability of subsidiaries of the Company to enter into
agreements restricting their ability to declare dividends or make distributions
or advances to the Company. The claims of holders of the Notes, upon any
distribution of assets of any subsidiary of the Company in the event of the
liquidation or reorganization of such subsidiary, will be subordinate to the
prior claims of present and future creditors of that subsidiary, including
holders of indebtedness and trade creditors thereof.
ABSENCE OF NET INCOME; POSSIBLE CHANGES IN FUTURE UTILIZATION OF NET OPERATING
LOSSES FOR TAX PURPOSES
The Company reported a net loss of $6,964,000 for the three months ended
March 31, 1996 and net losses of $783,000, $5,042,000, $10,535,000 and
$8,295,000 for the years ended December 31, 1995, 1993, 1992 and 1991,
respectively. The losses were primarily caused by the substantial interest
expense on debt incurred by the Company to finance the acquisitions of its
television broadcasting stations (and extraordinary losses of $3,510,000,
$1,007,000 and $5,709,000 incurred in 1996, 1993 and 1992, respectively, on
extinguishment of debt) and depreciation and amortization charges. The 1996
extraordinary loss resulted from the write-off of deferred financing costs
associated with the Credit Agreement in connection with the repayment of the
term loan. There can be no assurances that the Company will not report net
losses in the future. The future utilization of a portion of the Company's net
operating losses for federal income tax purposes is subject to an annual
limitation. In addition, the Company's June 29, 1995 acquisition of WKBW (the
"WKBW Acquisition") could potentially eliminate substantially all of the
Company's net operating losses for federal income tax purposes available for
future utilization, and could result in the Company being in a tax paying
position in present and future years. For financial reporting purposes, in
accordance with Statement of Financial Accounting Standards No. 109, any taxes
paid arising from the consummation of the WKBW Acquisition is considered
additional purchase price and allocated to goodwill.
18
<PAGE>
DEPENDENCE ON KEY PERSONNEL
W. Don Cornwell, the Chief Executive Officer and Chairman of the Board of
Directors of the Company, and Stuart J. Beck, the President and Secretary of the
Company, have each entered into employment agreements with the Company. Each
agreement provides for a two-year employment term and will be automatically
renewed for a subsequent two year term except upon advance notice of nonrenewal
by either party. The current terms under the agreements expire on September 19,
1997. The agreements provide that Mr. Cornwell and Mr. Beck will not engage in
any business activities during the term of such agreements outside the scope of
their employment with the Company unless approved by a majority of the Company's
independent directors. The loss of the services of certain key personnel
currently employed by the Company could have an adverse impact on the Company.
There can be no assurance that the services of such personnel will continue to
be made available to the Company. The Company does not maintain key man life
insurance on any of its employees.
DEPENDENCE ON CONTINUED NETWORK AFFILIATION
Three of the Company's nine television stations are affiliated with the
National Broadcasting Company, Inc. ("NBC"), three of the Company's television
stations are affiliated with the American Broadcasting Corporation, Inc.
("ABC"), and three of the Company's stations are affiliated with CBS (NBC, ABC,
CBS and Fox are referred to herein individually as a "Network" and collectively
as the "Networks"). Under each of the Company's affiliation agreements, the
terms of which range from seven to ten years, the Networks may, under certain
circumstances, terminate the agreement upon advance written notice. The
non-renewal or termination of one or more of the Network affiliation agreements
could have a material adverse effect on the Company's results of operations. No
assurance can be given that the Company's Network affiliation agreements will be
renewed or that such agreements will not be terminated. See "Business --Network
Affiliation Agreements."
RISK OF CHANGE IN GOVERNMENT REGULATION; NECESSITY OF FCC LICENSES
The Company's operations are subject to significant regulation by the
Federal Communications Commission ("FCC") under the Communications Act of 1934,
as amended (the "Communications Act"). The Communications Act prohibits the
operation of television broadcasting stations except pursuant to a license
issued by the FCC and empowers the FCC, among other things, to issue, renew,
revoke and modify broadcasting licenses, adopt regulations to carry out the
provisions of the Communications Act and impose penalties for violation of such
regulations. The Telecommunications Act of 1996, which amends major provisions
of the Communications Act, was enacted on February 8, 1996. The FCC has
commenced, but not yet completed, implementation of the provisions of the
Telecommunications Act of 1996. The FCC has under consideration and the U.S.
Congress and the FCC may in the future adopt new laws, regulations and policies
regarding a wide variety of matters which could, directly or indirectly,
materially affect the operation and ownership of the Company's broadcast
properties. See "Business -- FCC Licenses," "-- Proposed Legislation and
Regulations" "-- The Cable Television Consumer Protection and Competition Act of
1992," and "-- Special Tax Status."
COMPETITION, CHANGES IN THE BROADCAST INDUSTRY AND GENERAL ECONOMIC CONDITIONS
Technological innovation, and the resulting proliferation of programming
alternatives, have fractionalized television viewing audiences and subjected
traditional television broadcast stations to new types of competition. These
changes have had and will continue to have an effect on the broadcasting
industry in general. In addition, the television industry is affected by
prevailing economic conditions. Since the Company relies on sales of advertising
time at its stations for substantially all of its revenues, the Company's
operating results are and will be sensitive to general economic conditions and
regional conditions in each of the local markets in which the stations operate.
The Company cannot predict the future direction of such conditions. See
"Business -- Industry Background" and "-- Competition."
19
<PAGE>
RISK OF INABILITY TO FINANCE CHANGE OF CONTROL OFFER
W. Don Cornwell and Stuart J. Beck, through their ownership of all of the
outstanding shares of the Company's Class A Common Stock, par value $.01 per
share (the "Voting Common Stock"), possess 55% and 45%, respectively, of the
voting power in the Company. As long as Messrs. Cornwell and Beck hold all of
the outstanding shares of Voting Common Stock, they will be able to elect all of
the Company's directors and, under most circumstances, amend the Company's
Certificate of Incorporation and effect a merger, sale of assets or other
fundamental corporate transaction without the approval of the other stockholders
of the Company and will be able to defeat any unsolicited attempt to acquire
control of the Company. See "Ownership of Capital Stock."
In the event of a Change of Control, the Company will be required to offer
to purchase all outstanding Notes at a purchase price equal to 101% of the
principal amount thereof, plus accrued interest to the date of purchase. The
Company will also be required to offer to purchase all of the 10 3/8% Notes and
the 12.75% Debentures at 101% of the principal amount thereof, of which
$235,000,000 principal amount, in the aggregate, is currently outstanding, upon
the occurrence of the Change of Control. A Change of Control is an event of
default under the Credit Agreement. If a Change of Control were to occur, there
can be no assurance that the Company would have sufficient funds to repay all
borrowings under the Credit Agreement and pay the Change of Control purchase
price for all 10 3/8% Notes, 12.75% Debentures and the Notes tendered by the
holders thereof.
NO PUBLIC MARKET FOR THE NOTES
There has previously been only a limited secondary market and no public
market for the Old Notes, and there can be no assurance as to the liquidity of
any market that may develop for the New Notes, the ability of the holders of the
New Notes to sell their New Notes or the prices at which the holders of the New
Notes would be able to sell their New Notes. The New Notes could trade at prices
higher or lower than their principal amount, depending on a number of factors,
including the market for similar securities, the Company's financial condition
and prevailing interest rates. The Company does not intend to list the New Notes
on a national securities exchange or to apply for quotation of the New Notes
through the National Associate of Securities Dealers Automated Quotation System.
CONSEQUENCES OF THE EXCHANGE OFFER ON NON-TENDERING HOLDERS OF THE OLD NOTES
The Company intends for the Exchange Offer to satisfy its registration
obligations under the Registration Rights Agreement. If the Exchange Offer is
consummated, the Company does not intend to file further registration statements
for the sale or other disposition of Old Notes. Consequently, following
completion of the Exchange Offer, holders of Old Notes seeking liquidity in
their investment would have to rely on an exemption to the registration
requirements under applicable securities laws, including the Securities Act,
with respect to any sale or other disposition of the Old Notes.
20
<PAGE>
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes offered hereby,
the Company will receive, in exchange, Old Notes in like principal amount.
The net proceeds of the Old Notes, $106,300,000 (after deducting the
underwriting discounts and estimated expenses of the offering), were used to
repay all outstanding term and revolving credit borrowings under the Credit
Agreement (aggregating $103,900,000) and for additions to working capital.
In connection with the financing of the acquisitions of WWMT and WKBW, on
May 19, 1995, the Company completed its offering of the 10 3/8% Notes and
entered into the Credit Agreement. At February 22, 1996, outstanding borrowings
under the Credit Agreement bore interest at a blended rate of 7.95%. See
"Description of Certain Debt Instruments -- Credit Agreement."
21
<PAGE>
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER
GENERAL
The Old Notes were sold by the Company on February 22, 1996 in a private
placement in reliance on Section 4(2) of the Securities Act and/or Regulation D
of the Securities Act. The Old Notes were sold to the Initial Purchasers who
resold the Old Notes to "qualified institutional buyers" within the meaning of
Rule 144A under the Securities Act and accredited non-qualified institutional
buyers. The Initial Purchasers required as a condition to the purchase of the
Old Notes that the Company grant the purchasers of the Old Notes certain
registration rights pursuant to the Registration Rights Agreement. The
Registration Rights Agreement required the Company to file with the Commission
following the closing of the offering of the Old Notes on February 22, 1996 (the
"Closing"), a registration statement relating to an exchange offer pursuant to
which notes which are substantially identical to the Old Notes would be offered
in exchange for the then outstanding Old Notes tendered at the option of the
holders thereof. The form and terms of the New Notes are identical in all
material respects to the form and terms of the Old Notes except (i) that the New
Notes have been registered under the Securities Act, (ii) that the New Notes are
not entitled to certain registration rights which are applicable to the Old
Notes under the Registration Rights Agreement, and (iii) certain contingent
interest rate provisions applicable to the Old Notes are generally not
applicable to the New Notes. In the event that the applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer, the Company agreed to use its reasonable best efforts to cause to become
effective a shelf registration statement with respect to the resale of the Old
Notes and to keep such resale registration statement effective for a period of
up to three years. The Exchange Offer is being made to satisfy the contractual
obligations of the Company under the Registration Rights Agreement.
The Company has agreed that if (i) the Company failed to file the
registration statement relating to the Exchange Offer within 75 days following
the Closing, (ii) such registration statement (or, if applicable, the resale
registration statement) had not become effective within 150 days following the
Closing, (iii) the Exchange Offer has not been consummated within 30 business
days after the effective date of the Exchange Offer registration statement or
(iv) certain other specified events occur, then the per annum interest rate on
the Old Notes will increase by 0.5% for the period from the occurrence of such
default until such time as no default is in effect (at which time the interest
rate will be reduced to its initial rate). If the Company has not consummated
the Exchange Offer (or, if applicable, the resale registration statement has not
become effective) within 270 days following the Closing, then the per annum
interest rate on the Old Notes will increase by an additional 0.5% for so long
as the Company has not consummated the Exchange Offer (or until such resale
registration statement becomes effective).
The holders of any Old Notes not tendered in the Exchange Offer will not be
entitled to require the Company to file a shelf registration statement. Any Old
Notes remaining outstanding following consummation of the Exchange Offer will be
treated together with the New Notes as one series for purposes of the Indenture.
See "Description of New Notes -- Registration Covenant; Exchange Offer."
An exchange offer shall be deemed to have been consummated upon the earlier
to occur of (i) the Company having exchanged New Notes for all outstanding Old
Notes (other than Old Notes held by a Restricted Holder) pursuant to such
exchange offer and (ii) the Company having exchanged, pursuant to such exchange
offer, New Notes for all Old Notes that have been validly tendered and not
withdrawn on the Expiration Date. In such event, holders of Old Notes seeking
liquidity in their investment would have to rely on exemptions to registration
requirements under applicable securities laws, including the Securities Act.
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all Old
Notes validly tendered prior to 5:00 p.m., New York City time, on the Expiration
Date. The exchange of New Notes for Old Notes will be made (i) with respect to
all Old Notes
22
<PAGE>
validly tendered and not withdrawn on or prior to the Early Exchange Date,
within two business days following the Early Exchange Date, and (ii) with
respect to all Old Notes validly tendered and not withdrawn after the Early
Exchange Date but on or prior to the Expiration Date, within two business days
following the Expiration Date. The New Notes issued pursuant to the Exchange
Offer will be delivered promptly following each of the Early Exchange Date and
the Expiration Date. The Company will issue $1,000 principal amount of New Notes
in exchange for each $1,000 principal amount of outstanding Old Notes accepted
in the Exchange Offer. Holders may tender some or all of their Old Notes
pursuant to the Exchange Offer in denominations of $250,000 and integral
multiples of $1,000 in excess thereof.
Based on an interpretation by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by the holders thereof (other than
a Restricted Holder) without compliance with the registration and prospectus
delivery provisions of the Securities Act, PROVIDED that such New Notes are
acquired in the ordinary course of such holders' business and such holders are
not participating, do not intend to participate and have no arrangement or
understanding with any person to participate in the distribution of such New
Notes. See "Mary Kay Cosmetics, Inc.," SEC No-Action Letter (available June 5,
1991); "Morgan Stanley & Co., Incorporated," SEC No-Action Letter (available
June 5, 1991); and "Exxon Capital Holdings Corporation," SEC No-Action Letter
(available May 13, 1988). Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes, where such Old Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. See "Plan of Distribution."
If any person were to participate in the Exchange Offer for the purpose of
distributing securities in a manner not permitted by the Commission's
interpretation, such person (i) could not rely on the position of the staff of
the Commission enunciated in "Exxon Capital Holdings Corporation" or similar
interpretive letters and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction. Accordingly, each eligible holder wishing to accept the
Exchange Offer must represent to the Company in the Letter of Transmittal that
the conditions described above have been met.
In connection with the issuance of the Old Notes, the Company arranged for
the inclusion of the Old Notes initially purchased by qualified institutional
buyers on the Private Offerings, Resales and Trading through Automated Linkages
(PORTAL) market. The Company also arranged for the Old Notes initially purchased
by qualified institutional buyers to be issued and transferable in book-entry
form through the facilities of DTC, acting as depository, and in DTC's Same-Day
Funds Settlement System. The New Notes will also be issuable and transferable in
book-entry form through the DTC in the Same-Day Funds Settlement System.
As of the date of this Prospectus, $110,000,000 aggregate principal amount
of the Old Notes is outstanding.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of June 3, 1996 (the "Record Date").
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old Notes for the purpose of receiving New Notes from the Company and
delivering New Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date.
23
<PAGE>
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by the Company. The Company has agreed
to pay, subject to the instructions in the Letter of Transmittal, all transfer
taxes, if any, relating to the sale or disposition of such holder's Old Notes
pursuant to the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean July 3, 1996, unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended.
In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time.
The Company reserves the right (i) to delay acceptance of any Old Notes, to
extend the Exchange Offer or to terminate the Exchange Offer and to refuse to
accept Old Notes not previously accepted, if any of the conditions set forth
herein under "-- Conditions" shall have occurred and shall not have been waived
by the Company, by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, and (ii) to amend the terms of the Exchange
Offer in any manner deemed by it to be advantageous to the holders of the Old
Notes. Any such delay in acceptance, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof. If the
Exchange Offer is amended in a manner determined by the Company to constitute a
material change, the Company will promptly disclose such amendment in a manner
reasonably calculated to inform the holders of the Old Notes of such amendment.
Without limiting the manner in which the Company may choose to make public
announcements of any delay in acceptance, extension, termination or amendment of
the Exchange Offer, the Company shall have no obligation to publish, advertise,
or otherwise communicate any such public announcement, other than by making a
timely release to a financial news service.
INTEREST ON THE NEW NOTES
The New Notes will bear interest from June 1, 1996, the most recent
interest payment date on the Old Notes, payable semi-annually on June 1 and
December 1 of each year commencing on December 1, 1996, at the rate of 9 3/8%
per annum. Holders of Old Notes whose Old Notes are accepted for exchange will
be deemed to have waived the right to receive any payment in respect of interest
on the Old Notes accrued from June 1, 1996 until the date of the issuance of the
New Notes.
PROCEDURE FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof and mail or otherwise deliver such
Letter of Transmittal or such facsimile, together with the Old Notes (unless
such tender is being effected pursuant to the procedure for book-entry transfer
described below) and any other required documents, to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date. Signatures on a Letter
of Transmittal or a notice of withdrawal, as the case may be, must be guaranteed
by a member firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States (an "Eligible
Institution") unless the Old Notes tendered pursuant thereto are tendered (i) by
a registered holder who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution.
24
<PAGE>
Any financial institution that is a participant in DTC's Book-Entry
Transfer Facility system may make book-entry delivery of the Old Notes by
causing DTC to transfer such Old Notes into the Exchange Agent's account in
accordance with DTC's procedure for such transfer. Although delivery of Old
Notes may be effected through book-entry transfer into the Exchange Agent's
account at DTC, the Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other required documents, must, in any
case, be transmitted to and received or confirmed by the Exchange Agent at its
addresses set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH ITS PROCEDURES
DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
The tender by a holder of Old Notes will constitute an agreement between
such holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Delivery of all documents must be made to the Exchange Agent at its address
set forth herein. Holders may also request that their respective brokers,
dealers, commercial banks, trust companies or nominees effect such tender for
such holders.
THE METHOD OF DELIVERY OF OLD NOTES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDERS. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN
OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTER OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Only a holder of Old Notes may tender such Old Notes in the Exchange Offer.
The term "holder" with respect to the Exchange Offer means any person in whose
name Old Notes are registered on the books of the Company or any other person
who has obtained a properly completed bond power from the registered holder or
any person whose Old Notes are held of record by DTC who desires to deliver such
Old Notes at DTC.
Any beneficial holder whose Old Notes are registered in the name of his
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender his Old Notes should contact the registered holder promptly and
instruct such registered holder to tender on his behalf. If such beneficial
holder wishes to tender on his own behalf, such beneficial holder must, prior to
completing and executing the Letter of Transmittal and delivering his Old Notes,
either make appropriate arrangements to register ownership of the Old Notes in
such holder's name or obtain a properly completed bond power from the registered
holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by appropriate bond powers which authorize such person
to tender the Old Notes on behalf of the registered holder, in either case
signed as the name of the registered holder or holders appears on the Old Notes.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of a
corporation or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not validly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the absolute right to waive any irregularities or conditions of tender
as to particular Old Notes. The Company's interpretation of the terms and
conditions of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old Notes must be cured
within such time as the Company shall determine. Neither
25
<PAGE>
the Company, the Exchange Agent nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of Old
Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not validly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by the Exchange
Agent without cost to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
By tendering, each holder will represent to the Company that, among other
things (i) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of such holder's business, (ii) such holder is
not participating, does not intend to participate and has no arrangement or
understanding with any person to participate, in a distribution of such New
Notes, (iii) such holder is not an "affiliate," as defined under Rule 405 of the
Securities Act, of the Company and (iv) such holder is not a broker-dealer who
acquired Old Notes directly from the Company to resell pursuant to Rule 144A or
any other available exemption under the Securities Act.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Early Exchange Date or the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Early Exchange Date or the Expiration Date, the Exchange
Agent receives from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery) setting forth the name and address of the holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of Old
Notes tendered, stating that the tender is being made thereby, and guaranteeing
that, within three business days after the date of execution of the Notice of
Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof), together
with the certificate(s) representing the Old Notes to be tendered in proper form
for transfer and any other documents required by the Letter of Transmittal, will
be deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), together with the certificate(s) representing all tendered
Old Notes in proper form for transfer (or confirmation of a book-entry transfer
into the Exchange Agent's account at DTC of Old Notes delivered electronically)
and all other documents required by the Letter of Transmittal are received by
the Exchange Agent within three business days after the date of execution of the
Notice of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date,
unless previously accepted for exchange.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date and prior to acceptance for exchange thereof by the Company.
Any such notice of withdrawal must (i) specify the name of the person having
deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify the Old
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Old Notes), (iii) be signed by the Depositor in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including required signature guarantees) or be accompanied by
documents of transfer sufficient to permit the Trustee with respect to the Old
Notes to register the
26
<PAGE>
transfer of such Old Notes into the name of the Depositor withdrawing the tender
and (iv) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such withdrawal notices will be
determined by the Company, whose determination shall be final and binding on all
parties. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered. Any
Old Notes which have been tendered but which are not accepted for exchange will
be returned by the Exchange Agent to the holder thereof without cost to such
holder as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described above under "--
Procedure for Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company will not
be obligated to consummate the Exchange Offer if the New Notes to be received
will not be tradeable by the holder, other than in the case of Restricted
Holders, without restriction under the Securities Act and the Exchange Act and
without material restrictions under the blue sky or securities laws of
substantially all of the states of the United States. Such condition will be
deemed to be satisfied unless a holder provides the Company with an opinion of
counsel reasonably satisfactory to the Company to the effect that the New Notes
received by such holder will not be tradeable without restriction under the
Securities Act and the Exchange Act and without material restrictions under the
blue sky laws of substantially all of the states of the United States. The
Company may waive this condition.
If the condition described above exists, the Company will be entitled to
refuse to accept any Old Notes and, in the case of such refusal, will return all
tendered Old Notes to exchanging holders of the Old Notes. See "Description of
New Notes -- Registration Covenant; Exchange Offer."
EXCHANGE AGENT
The Bank of New York, the Trustee under the Indenture, has been appointed
as Exchange Agent for the Exchange Offer. Questions and requests for assistance
and requests for additional copies of this Prospectus or of the Letter of
Transmittal should be directed to the Exchange Agent addressed as follows:
By Hand Delivery: The Bank of New York
101 Barclay Street
Corporate Trust Services Window
New York, New York 10286
Attn: Enrique Lopez,
Reorganization Section
By Registered or
Certified Mail: The Bank of New York
101 Barclay Street - 7E
New York, New York 10286
Attn: Enrique Lopez,
Reorganization Section
By Overnight Courier: The Bank of New York
101 Barclay Street
Corporate Trust Services Window
New York, New York 10286
Attn: Enrique Lopez,
Reorganization Section
27
<PAGE>
Facsimile Transmission:
(Eligible Institutions and
Withdrawal Notices Only) (212) 571-3080
Confirm: (212) 815-2742
For Information Call: (212) 815-6333
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone.
The Company will not make any payments to brokers, dealers or other persons
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith.
The registration expenses to be incurred in connection with the Exchange
Offer, including fees and expenses of the Exchange Agent and Trustee and
accounting and legal fees, will be paid by the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered holder of the Old Notes
tendered, or if tendered Old Notes are registered in the name of any person
other than the person signing the Letter of Transmittal, or if a transfer tax is
imposed for any reason other than the exchange of Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the New Notes under generally
accepted accounting principles.
28
<PAGE>
CAPITALIZATION
(IN THOUSANDS)
The following table sets forth the capitalization of the Company as of
March 31, 1996:
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------
<S> <C>
Long-term debt:
12.75% Senior Subordinated
Debentures due September 1, 2002 ............................. 60,000
10 3/8% Senior Subordinated
Notes due May 15, 2005 ....................................... 175,000
9 3/8% Senior Subordinated
Notes net of unamortized discount
of $545 due December 1, 2005 ................................. 109,455
-------
Total long-term debt ........................................... 344,455
Redeemable preferred stock, $.01 par value:
Cumulative Convertible Exchangeable Preferred Stock ............ 45,488
Stockholders' equity:
Common stock: $.01 par value, 41,000,000 shares authorized
consisting of 1,000,000 shares of Voting Common Stock and
40,000,000 shares of Common Stock (Nonvoting); 178,500
shares of Voting Common Stock and 8,298,966 shares of
Common Stock (Nonvoting) issued and outstanding .............. 85
Additional paid-in capital ...................................... 45,982
Accumulated deficit ............................................. (43,554)
Less: unearned compensation ..................................... (1,376)
---------
Total stockholders' equity ................................... 1,137
---------
Total capitalization ......................................... $ 391,080
=========
</TABLE>
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected consolidated financial data below should be read in
conjunction with the consolidated financial statements and notes thereto
included elsewhere in this Prospectus. The acquisitions by the Company of its
operating properties during the periods from which selected data are presented
below materially affect the comparability of such data from one period to
another. The selected consolidated financial data for the years ended December
31, 1991, 1992, 1993, 1994 and 1995 are derived from the Company's audited
consolidated financial statements. The selected consolidated data for the three
months ended March 31, 1995 and 1996 are derived from unaudited financial
statements but, in the opinion of the Company, reflect all adjustments of a
normal recurring nature necessary for a fair presentation of such data. The
results of operations for interim periods are not necessarily indicative of the
results to be expected for the full year. The selected pro forma data below
should be read in conjunction with the unaudited Pro Forma Condensed
Consolidated Statement of Operations and notes thereto contained elsewhere in
this Prospectus.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, THREE MONTHS ENDED
---------------------------------------------------------------------- MARCH 31,
PRO FORMA (UNAUDITED)
1995(a) ---------------------
1991 1992 1993 1994 1995 (UNAUDITED) 1995 1996
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenue ..................... $ 33,426 $ 35,957 $ 37,499 $ 62,856 $ 99,895 $ 124,749 $ 16,456 $ 28,630
Station operating
expenses ...................... 19,953 21,638 22,790 37,764 55,399 66,648 10,338 17,518
Depreciation .................... 2,446 2,279 2,398 3,420 4,514 5,237 805 1,473
Amortization .................... 4,697 3,983 3,865 4,715 9,330 11,850 1,448 2,951
Corporate expense ............... 658 1,192 1,374 2,162 3,132 3,132 812 990
Non-cash compensation ........... -- -- 123 282 363 363 81 115
--------- --------- --------- --------- --------- --------- --------- ---------
Operating income ................ 5,672 6,865 6,949 14,513 27,157 37,519 2,973 5,583
Other expense ................... 730 487 479 309 798 738 94 126
Equity in net income
of investee ................... -- -- -- -- (439) -- -- --
Interest expense, net ........... 13,709 11,675 10,977 10,707 27,026 36,119 3,710 8,850
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
income taxes and
extraordinary item ............ (8,767) (5,297) (4,507) 3,497 (228) 662 (831) (3,393)
(Provision) benefit for
income taxes .................. 472 471 472 (450) (555) (1,392) -- (61)
--------- --------- --------- --------- --------- --------- --------- ---------
Income (loss) before
extraordinary item ............ (8,295) (4,826) (4,035) 3,047 (783) (730)(f) (831) (3,454)
Extraordinary loss
extinguishment of debt ......... -- (5,709) (1,007) -- -- -- (3,510)
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) ............... $ (8,295) $ (10,535) $ (5,042) $ 3,047 $ (783) $ (831) $ (6,964)
========= ========= ========= ========= ========= ========= =========
Net loss attributable
to common shareholders ........ $ (8,335) $ (10,628) $ (5,278) $ (688) $ (4,333) $ (4,280) $ (1,770) $ (7,845)
========= ========= ========= ========= ========= ========= ========= =========
Loss before extraordinary
item per common share ......... $ (20.24) $ (1.22) $ (0.98) $ (0.15) $ (0.73) $ (0.72) $ (0.39) $ (0.51)
========= ========= ========= ========= ========= ========= ========= =========
Net loss per common
share(b) ...................... $ (20.24) $ (2.63) $ (1.21) $ (0.15) $ (0.73) $ (0.39) $ (0.93)
========= ========= ========= ========= ========= ========= =========
Weighted average common
shares outstanding ............ 412 4,041 4,365 4,498 5,920 5,920 4,758 8,464
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------- MARCH 31,
1996
1991 1992 1993 1994 1995 (UNAUDITED)
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets ............. $141,918 $140,948 $191,517 $189,881 $452,221 $449,771
Total debt ............... 111,892 101,611 99,000 99,250 341,000 344,455
Redeemable preferred stock 1,487 1,574 49,139 49,171 45,488 45,488
Stockholders' equity ..... 6,299 17,211 12,075 11,729 8,868 1,137
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, TWELVE MONTHS
------------------------------------------------------------------------ ENDED
1995 MARCH 31, 1996
PRO FORMA(a) PRO FORMA(a)
------------ ------------
1991 1992 1993 1994 1995 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Broadcast cash flow(c) ................... $ 13,473 $ 14,319 $ 14,709 $ 25,092 $ 44,495 $ 58,101 $ 58,128
Broadcast cash flow margin ............... 40.3% 39.8% 39.2% 39.9% 44.5% 46.6% 46.4%
Operating cash flow(d) ................... $ 12,815 $ 13,127 $ 13,335 $ 22,930 $ 41,364 $ 54,969 $ 54,818
Operating cash flow margin ............... 38.3% 36.5% 35.6% 36.5% 41.4% 44.1% 43.7%
Cash flows provided by (used in)
operating activities ................... $ 356 $ (1,001) $ 3,611 $ 5,808 $ 8,806 $ 16,449 $ 19,142
Ratio of:
Operating cash flow to total
interest expense ..................... 0.93x 1.12x 1.21x 2.14x 1.53x 1.52x 1.53x
Earnings to fixed charges(e) ........... -- -- -- 1.30x -- 1.02x 1.00x
Long-term debt to operating
cash flow ............................ 7.44x 7.57x 7.33x 4.14x 8.24x 6.28x 6.28x
Capital expenditures ..................... $ 469 $ 1,036 $ 1,089 $ 2,628 $ 7,682 $ 8,221 $ 7,207
</TABLE>
- ---------------
(a) Gives effect to the acquisition of KEYE, WWMT and WKBW and the application
of the net proceeds used to finance such acquisitions, the new network
affiliation agreements, decreased sales commissions, certain other
adjustments and the application of the net proceeds of the Old Notes as if
such events had occurred on January 1, 1995. See "Use of Proceeds" and
"Pro Forma Condensed Consolidated Statement of Operations." During the
three months ended March 31, 1996, the Company wrote-off approximately
$3,500,000 of deferred financing costs associated with the Credit
Agreement in connection with the repayment of the term loan. Such amount
is excluded from the Pro Forma Statement of Operations Data.
(b) Assuming that the then outstanding Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Cumulative Convertible
Exchangeable Preferred Stock were converted into the Company's Common
Stock (Nonvoting), net income (loss) per common share for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 would have been $(2.71),
$(1.50), $(0.29), $0.17 and $(0.05), respectively. Net loss per common
share for the three months ended March 31, 1995 and 1996 would have been
$(0.05) and $(0.40), respectively.
(c) "Broadcast cash flow" means operating income plus depreciation and
amortization, corporate expense and non-cash compensation. The Company has
included broadcast cash flow data because such data are commonly used as a
measure of performance for broadcast companies and are also used by
investors to measure a company's ability to service debt. Broadcast cash
flow is not, and should not be used as, an indicator or alternative to
operating income, net income or cash flow as reflected in the Consolidated
Financial Statements, is not a measure of financial performance under
generally accepted accounting
31
<PAGE>
principles and should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles.
(d) "Operating cash flow" means operating income plus depreciation and
amortization and non cash compensation expense. The Company has included
operating cash flow data because such data are used by investors to
measure a company's ability to service debt. Operating cash flow does not
purport to represent cash provided by operating activities as reflected in
the Consolidated Financial Statements, is not a measure of financial
performance under generally accepted accounting principles and should not
be considered in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles.
(e) For purposes of computing the ratio of earnings to fixed charges, "fixed
charges" consists of interest expense, amortization of deferred financing
charges, and the interest component of rent expense, and "earnings"
consists of income before income taxes and fixed charges. Earnings were
insufficient to cover fixed charges for each of the three years in the
period ended December 31, 1993 by $8,767, $5,297 and $4,507. Earnings were
insufficient to cover fixed charges for the year ended December 31, 1995
and the three months ended March 31, 1996 by $228 and $3,393,
respectively.
(f) Excludes a write-off of approximately $3,500,000 of deferred financing
costs associated with the Credit Agreement upon repayment of all term loan
borrowings thereunder with the proceeds of the Old Notes.
32
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
The pro forma condensed consolidated statement of operations presented
below is based on the historical financial statements of: (i) the Company; (ii)
Austin Television, the former owner of KEYE (formerly KBVO-TV); (iii) WWMT, a
division of Busse Broadcasting Corporation; and (iv) Queen City Broadcasting,
Inc., the owner of 100% of the issued and outstanding stock of the company that
owns and operates WKBW ("Queen City"). The pro forma condensed consolidated
statement of operations for the year ended December 31, 1995 gives effect to:
(i) the acquisitions of KEYE, WWMT and WKBW and the application of the net
proceeds of the sale of the 10 3/8% Notes, additional borrowings under the
Credit Agreement and certain other adjustments; and (ii) the application of the
net proceeds from the sale of the Old Notes as if such transactions occurred on
January 1, 1995.
The pro forma condensed consolidated statement of operations gives effect
to the acquisitions described above under the purchase method of accounting and
are based upon the assumptions and adjustments described in the accompanying
notes. These pro forma condensed consolidated statement of operations should be
read in conjunction with the Company's Consolidated Financial Statements and the
Financial Statements of Austin Television, WWMT and Queen City appearing
elsewhere in this Prospectus. The pro forma information is not necessarily
indicative of the results that would have been reported had such events actually
occurred on the dates specified, nor is it indicative of the Company's future
results.
33
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended December 31, 1995
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Granite Austin Queen City
Broadcasting Television WWMT Five For the Period
Corporation Year One Month Months ended January 1, Pro Forma
ended December 31, ended January 31, May 31, 1995 to Adjustments
1995 1995 1995 June 28, 1995 for acquisitions
------------------ ----------------- ------------ ------------- ----------------
<S> <C> <C> <C> <C> <C>
Net revenue.................. $99,895 $ 875 $7,934 $12,889 3,156 (a)
Station operating expenses... 55,399 380 4,182 7,577 (805)(b)
(85)(c)
Depreciation expense......... 4,514 32 360 331
Amortization expense......... 9,330 10 253 675 1,681 (d)
Corporate expense............ 3,132 395 (395)(f)
Non-cash compensation........ 363
------- ------- -------- -------
Operating income............. 27,157 453 3,139 3,911
Equity in net income
of investee................ (439) 439 (k)
Interest expense, net ....... 27,026 49 2,933 5,704 (g)
Other expense (income)....... 798 21 (43) (18) (20)(l)
------- ------ -------- --------
Income (loss) before
income taxes and
extraordinary item......... (228) 383 3,182 996
Provision for income taxes... (555) (24) (813)(i)
-------- ------- -------- --------
Loss before extraordinary
item(m).................... $ (783) $ 383 $3,182 $ 972
======== ====== ====== ========
Loss before extraordinary item
attributable to
common shareholders........ $ (4,333)
=========
Loss before extraordinary item
per common share........... $ (0.73)
=========
Weighted average common
shares outstanding(j)...... 5,920
=====
</TABLE>
<TABLE>
<CAPTION>
Pro Forma
Adjustments
for refinancing Pro forma
--------------- ---------
<S> <C> <C>
Net revenue.................. $124,749
Station operating expenses... 66,648
Depreciation expense......... 5,237
Amortization expense......... (99)(e) 11,850
Corporate expense............ 3,132
Non-cash compensation........ 363
---------
Operating income............. 37,519
Equity in net income
of investee................
Interest expense, net ....... 407 (h) 36,119
Other expense (income)....... 738
---------
Income (loss) before
income taxes and
extraordinary item......... 662
Provision for income taxes... (1,392)
---------
Loss before extraordinary
item(m).................... $ (730)
==========
Loss before extraordinary item
attributable to
common shareholders........ $ (4,280)
==========
Loss before extraordinary item
per common share........... $ (0.72)
==========
Weighted average common
shares outstanding(j)...... 5,920
=====
</TABLE>
34
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Adjustments reflected in the pro forma condensed consolidated financial
statement are explained as follows:
(a) Net Revenue. To adjust net revenue to reflect negotiated increases in
network compensation revenue and decreases in sales commissions paid
to national representative companies.
(b) Amortization of Film Contract Rights. To adjust amortization of film
contract rights to reflect the net assets to be acquired based on the
allocation of the purchase price.
(c) Selling, General and Administrative Expenses. To adjust station
operating expenses for reductions of certain employee benefit related
expenses.
(d) Amortization of Intangible Assets and Deferred Financing Costs. To
reflect increased amortization expense as follows:
<TABLE>
<CAPTION>
Year ended
December 31, 1995
-----------------
<S> <C>
(i) Amortization of excess costs of the purchase
price over net assets acquired................ $2,135,000
(ii) Amortization of deferred financing costs
associated with the issuance of the 10 3/8%
Notes and with additional borrowings under
the Credit
Agreement.................................... 474,000
(iii) Elimination of historical amortization
expense in the financial statements of the
stations acquired............................ (928,000)
----------
$1,681,000
==========
</TABLE>
(e) Amortization of Deferred Financing Cost. To reflect amortization of
deferred financing costs associated with the issuance of the Old Notes
and to partially eliminate amortization expense of deferred financing
costs related to the Credit Agreement.
(f) Corporate Expense. To eliminate the historical allocation of corporate
expense charged to the stations acquired.
35
<PAGE>
(g) Interest Expense.
To adjust interest expense to reflect the application of proceeds used
to finance the acquisitions:
<TABLE>
<CAPTION>
Year ended
December 31, 1995
-----------------
<S> <C>
(i) Interest expense on the 10 3/8% Notes at an
interest rate of 10.375%..................... $7,565,000
(ii) Interest expense on the additional borrowings
under the Credit Agreement................... 3,769,000
(iii) Elimination of historical interest expense
on debt not assumed.......................... (5,630,000)
-----------
$5,704,000
==========
</TABLE>
(h) Interest Expense. To adjust interest expense for the sale of the Old
Notes at an interest rate of 9.375% and to eliminate interest expense
on borrowings under the Credit Agreement.
(i) Income Taxes. To adjust the provision for income taxes to reflect
changes in income before income taxes resulting from the acquisitions
and the refinancing.
(j) Weighted Average Common Shares Outstanding. Pro forma weighted average
common shares outstanding for 1995 does not include the conversion of
any convertible preferred stock and the exercise of any outstanding
stock options. The inclusion of such items would be antidilutive.
(k) Equity in Net Income of Investee. To eliminate equity of net income of
Queen City.
(l) Other. To eliminate legal expense incurred by Austin Television
relating to the sale of the station to the Company.
(m) Loss before Extraordinary Item. Excludes a write-off of approximately
$3,500,000 of deferred financing costs associated with the Credit
Agreement upon repayment of all term loan borrowings thereunder with
the proceeds of the Old Notes.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The consolidated financial statements of the Company reflect significant
increases between the years ended December 31, 1995 and 1994 and between the
three months ended March 31, 1996 and 1995 in substantially all line items. The
principal reasons for such increases are the acquisition of KEYE on February 1,
1995, the acquisition of WWMT-TV, the CBS affiliate licensed to serve Grand
Rapids - Kalamazoo - Battle Creek, Michigan ("WWMT") on June 1, 1995 and the
acquisition of WKBW on June 29, 1995. Significant increases between the years
ended December 31, 1994 and 1993 were due to the acquisition of WTVH-TV, the CBS
affiliate licensed to serve Syracuse, New York ("WTVH") and KSEE-TV, the NBC
affiliate licensed to serve Fresno - Visalia, California ("KSEE") on December
23, 1993. It is anticipated that the Company's consolidated financial statements
for the year ended December 31, 1996 will reflect significant increases in
substantially all line items compared to the prior year due to the acquisitions
of KEYE, WWMT and WKBW. In addition, the Company may recognize significant
taxable income as a result of the acquisition of WKBW. Such taxable income could
potentially eliminate substantially all of the Company's net operating losses
for federal income tax purposes available for future utilization, and could
result in the Company being in a tax paying position in present and future
years. For financial reporting purposes, any taxes paid arising from the
consummation of the acquisition of WKBW is considered additional purchase price
and allocated to goodwill.
The Company's revenues are derived principally from local and national
advertising and, to a lesser extent, from network compensation for the broadcast
of programming and revenues from studio rental and commercial production
activities. In 1995, the Company negotiated long-term affiliation agreements for
its stations which the Company expects will provide aggregate additional annual
revenues of approximately $3,300,000 in cash to the Company's stations, only a
portion of which is reflected in the Company's results of operations for the
year ended December 31, 1995. The primary operating expenses involved in owning
and operating television stations are personnel costs, depreciation and
amortization, programming and promotion expenses and news costs. Numbers
referred to in the following discussion have been rounded to the nearest
thousand.
The following table sets forth certain operating data for the three years
ended December 31, 1993, 1994 and 1995 and the three months ended March 31, 1995
and 1996:
<TABLE>
<CAPTION>
Year ended December 31, Three Months Ended
---------------------------------------- March 31,
-------------------------
1993 1994 1995 1995 1996
---------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Operating income........................ $ 6,949,000 $14,513,000 $27,157,000 $2,973,000 $ 5,583,000
Add:
Depreciation and amortization......... 6,263,000 8,135,000 13,843,000 2,252,000 4,424,000
Corporate expense..................... 1,374,000 2,162,000 3,132,000 812,000 990,000
Non-cash compensation................. 123,000 282,000 363,000 81,000 115,000
----------- ----------- ----------- ---------- -----------
Broadcast cash flow..................... $14,709,000 $25,092,000 $44,495,000 $6,118,000 $11,112,000
=========== =========== =========== ========== ===========
</TABLE>
"Broadcast cash flow" means operating income plus depreciation,
amortization, corporate expense and non-cash compensation. The Company has
included broadcast cash flow data because such data are commonly used as a
measure of performance for broadcast companies and are also used by investors to
measure a company's ability to service debt. Broadcast cash flow is not, and
should not be used as, an indicator or alternative to operating income, net
income or cash flow as reflected in the Consolidated Financial Statements, is
not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
37
<PAGE>
The Company believes that the adoption of Statements of Financial
Accounting Standards No. 115 (Accounting for Certain Investments in Debt and
Equity Securities), No. 119 (Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments), No. 121 (Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of) and No. 123
(Accounting for Stock Based Compensation) have not, to the extent in effect, and
will not have a material effect on its financial position and results of
operations.
Three Months ended March 31, 1996 and 1995
Net revenues for the three months ended March 31, 1996 totaled $28,630,000,
an increase of $12,174,000 or 74% compared to $16,456,000 for the three months
ended March 31, 1995. Of this increase, $11,084,000 was due to the inclusion of
one additional month of operations of KEYE and three months of operations of
WWMT and WKBW. The remaining increase of $1,090,000 resulted primarily from
increased network compensation and increased political spending in an election
year. Net revenue at the Company's nine stations (including revenue derived by
KEYE, WWMT and WKBW prior to their acquisition by the Company) increased
$1,621,000, or 6.0% during the three months ended March 31, 1996 as compared to
the same period in 1995.
Station operating expenses totaled $17,518,000, an increase of $7,180,000
or 69% compared to $10,338,000 for the three months ended March 31, 1995. Of
this increase, $6,088,000 was due to the inclusion of one additional month of
operations of KEYE and three months of operations of WWMT and WKBW. The
remaining increase of $1,092,000 resulted from increased news expenses,
primarily associated with the launch of a news operation at KEYE, and increased
promotion expenses. Station operating expenses at the Company's nine stations
(including station operating expenses of KEYE, WWMT and WKBW prior to their
acquisition by the Company) increased $947,000, or 5.7% during the three months
ended March 31, 1996 as compared to the same period in 1995.
Depreciation and amortization increased $2,172,000, or 96% during the three
months ended March 31, 1996 compared to the same period a year earlier primarily
due to the inclusion of one additional month of operations of KEYE and three
months of operations of WWMT and WKBW.
Corporate expense increased $178,000 or 22% during the three months ended
March 31, 1996 compared to the same period a year earlier, primarily due to
higher administrative expenses resulting from the acquisitions of KEYE, WWMT and
WKBW during 1995. Non-cash compensation expense increased $34,000 during the
three months ended March 31, 1996 compared to the same period a year earlier due
to the granting of additional shares of Common Stock (Nonvoting) to certain
executive employees under the Company's Management Stock Plan.
As a result of the above, operating income totaled $5,582,000, an increase
of $2,609,000 or 88% compared to $2,973,000 for the three months ended March 31,
1995.
Net interest expense was $8,850,000 compared to $3,710,000 a year earlier,
an increase of $5,140,000 or 139%, due primarily to higher levels of outstanding
indebtedness as a result of the acquisitions of KEYE, WWMT and WKBW in 1995.
Loss before extraordinary item for the three months ended March 31, 1996
totaled $3,454,000 compared to $831,000 for the same period a year earlier, an
increase of $2,623,000.
The Company completed an offering of $110,000,000 principal amount of the
Old Notes due December 2005. Proceeds from the sale of the Old Notes were used
to repay all outstanding term loan and revolving credit borrowings under the
Credit Agreement and for general working capital purposes. As a result of
repaying the term loan, which is not subject to being reborrowed, the Company
incurred an extraordinary loss of $3,510,000 due to the write-off of related
deferred financing fees.
38
<PAGE>
Net loss totaled $6,964,000 during the three months ended March 31, 1996
compared to a net loss of $831,000 during the same period a year earlier, an
increase of $6,133,000. This change is due to the changes in the line items
described above.
Broadcast cash flow totaled $11,112,000 for the three month period ended
March 31, 1996, an increase of $4,994,000 or 82% compared to $6,118,000 during
the same period a year earlier. Of this increase, $5,026,000 was due to the
inclusion of one additional month of operations of KEYE and three months of
operations of WWMT and WKBW. Broadcast cash flow at the Company's nine stations
(including broadcast cash flow derived by KEYE, WWMT and WKBW prior to their
acquisition by the Company) increased $674,000, or 6.5% during the three months
ended March 31, 1996 as compared to the same period in 1995.
Years ended December 31, 1995 and 1994
Net revenue for the year ended December 31, 1995 totaled $99,895,000, an
increase of $37,039,000, or 58.9% compared to net revenue of $62,856,000 for the
year ended December 31, 1994. Of this increase, $36,324,000 was due to the
inclusion of eleven months of operations of KEYE, seven months of operations of
WWMT and six months of operations of WKBW. The remaining increase of $715,000
resulted from a strong advertising environment in the first six months of the
year and increased network compensation, offset, in part, by lower political
advertising in a non-election year. Net revenue at the Company's nine stations
(including revenue derived by KEYE, WWMT and WKBW prior to their acquisition by
the Company) increased $2,316,000, or 2.0% during the year ended December 31,
1995 as compared to the same period in 1994.
Station operating expenses for the year ended December 31, 1995 totaled
$55,399,000, an increase of $17,635,000, or 46.7% compared to station operating
expenses of $37,764,000 for the same period a year earlier. Of this increase,
$16,589,000 was due to the inclusion of eleven months of operations of KEYE,
seven months of operations of WWMT and six months of operations of WKBW. The
remaining increase of $1,046,000 was primarily due to increased news and sales
development costs. Station operating expenses at the Company's nine stations
(including station operating expenses of KEYE, WWMT and WKBW prior to their
acquisition by the Company) decreased $1,779,000, or 2.7% during the year ended
December 31, 1995 as compared to the same period in 1994.
Depreciation and amortization increased by $5,708,000, or 70.2% during the
year ended December 31, 1995 compared to the same period a year earlier
primarily due to the inclusion of eleven months of operations of KEYE, seven
months of operations of WWMT and six months of operations of WKBW. Corporate
expense increased $970,000, or 44.9% during the year ended December 31, 1995
compared to the same period a year earlier, primarily due to higher
administrative costs associated with the expansion of the Company's corporate
office to manage its expanded station group. Non-cash compensation expense
increased $81,000 during the year ended December 31, 1995 compared to the same
period a year earlier due to the granting of additional awards payable in Common
Stock (Nonvoting) to certain executive employees under the Company's Management
Stock Plan.
As a result of the factors discussed above, operating income increased
$12,644,000 or 87.1% during the year ended December 31, 1995 compared to the
same period a year earlier.
The equity in net income of investee of $439,000 for the year ended
December 31, 1995 resulted from the Company recognizing its pro rata share of
the earnings of Queen City III Limited Partnership ("QCIII"), the ultimate
parent of WKBW, under the equity method of accounting. The Company acquired all
of the limited partnership interests of QCIII in December 1993 and, on June 29,
1995, acquired all remaining interests in QCIII.
Net interest expense totaled $27,026,000 during the year ended December 31,
1995, an increase of $16,319,000, or 152.4% compared to net interest expense of
$10,707,000 during the same period a year earlier,
39
<PAGE>
primarily due to higher levels of outstanding indebtedness as a result of the
acquisitions of KEYE, WWMT and WKBW.
Other expenses increased by $490,000 during the year ended December 31,
1995 compared to the same period a year earlier primarily due to the incurrence
of a charge to terminate and change certain service contracts.
Net loss totaled $783,000 during the year ended December 31, 1995 compared
to net income of $3,047,000 during the same period a year earlier, a decrease of
$3,830,000. This change is primarily due to the changes in the line items
discussed above.
Broadcast cash flow totaled $44,495,000 during the year ended December 31,
1995 compared to $25,092,000 during the same period a year earlier, an increase
of $19,403,000, or 77.3%. Of this increase, $19,735,000 was due to the inclusion
of eleven months of operations of KEYE, seven months of operations of WWMT and
six months of operations of WKBW, which was offset, in part, by a decrease in
broadcast cash flow from the Company's initial six stations (the "Initial Six
Stations"). Broadcast cash flow at the Company's nine stations (including
broadcast cash flow of KEYE, WWMT and WKBW prior to their acquisition by the
Company) increased $537,000, or 1.0% during the year ended December 31, 1995 as
compared to the same period in 1994.
Pro Forma and actual year ended December 31, 1995
Pro forma net revenue for the year ended December 31, 1995 totaled
$124,749,000 compared to actual net revenue for the year ended December 31, 1995
of $99,895,000, a difference of $24,854,000 or 24.9%. Of this difference,
$21,698,000 was due to the acquisitions of KEYE, WWMT and WKBW. The remaining
difference of $3,156,000 resulted from higher network compensation and lower
fees paid to certain national sales representative companies.
Pro forma station operating expenses for the year ended December 31, 1995
totaled $66,648,000 compared to actual station operating expenses for the year
ended December 31, 1995 of $55,399,000, a difference of $11,249,000 or 20.3%.
The difference was primarily due to the acquisitions of KEYE, WWMT and WKBW.
Pro forma depreciation and amortization for the year ended December 31,
1995 was higher by $3,243,000 or 23.4% compared to actual depreciation and
amortization for the year ended December 31, 1995 primarily due to the
acquisitions of KEYE, WWMT and WKBW.
As a result of the changes in net revenue and station operating expenses
outlined above, broadcast cash flow on a pro forma basis for the year ended
December 31, 1995 totaled $58,101,000 compared to actual broadcast cash flow for
the year ended December 31, 1995 of $44,495,000, a difference of $13,606,000 or
30.6%.
Years ended December 31, 1994 and 1993
Net revenue for the year ended December 31, 1994 totaled $62,856,000, an
increase of $25,357,000, or 67.6%, compared to net revenue of $37,499,000 for
the year ended December 31, 1993. Of this increase, $21,266,000 was due to the
inclusion of a full year of operations of WTVH and KSEE. The remaining increase
of $4,091,000 was due to increased spending by local and national advertisers,
higher advertising rates and increased political advertising, in an election
year. Net revenue at the Company's Initial Six Stations (including revenue
derived by WTVH and KSEE in 1993 prior to their acquisition by the Company)
increased $7,757,000, or 14.1% during the year ended December 31, 1994 as
compared to the same full year period in 1993.
Station operating expenses for the year ended December 31, 1994 totaled
$37,764,000, an increase of $14,974,000, or 65.7%, compared to operating
expenses of $22,790,000 for the same period a year earlier. Of this increase,
$13,229,000 was due to the inclusion of a full year of operations of WTVH and
KSEE. The remaining increase of $1,745,000 was due primarily to increased
expenses for local news and sales development.
40
<PAGE>
Station operating expenses at the Company's Initial Six Stations (including
station operating expenses of WTVH and KSEE in 1993 prior to their acquisition
by the Company) decreased $482,000, or 1.3% during the year ended December 31,
1994 as compared to the same period in 1993. The decrease resulted primarily
from lower programming expense and the elimination of certain general and
administrative costs at WTVH and KSEE offset, in part, by increased expenses for
local news and sales development.
Depreciation and amortization increased by $1,872,000, or 29.9%, during the
year ended December 31, 1994 compared to the same period a year earlier
primarily due to the inclusion of a full year of operations of WTVH and KSEE.
Corporate expense increased $788,000, or 57.4%, during the year ended
December 31, 1994 compared to the same period a year earlier, primarily due to
the hiring of additional staff and the incurrence of higher administrative costs
associated with the expansion of the Company's corporate office to manage its
expanded station group. Non-cash compensation expense increased $159,000, or
129.3% during the year ended December 31, 1994 due to the granting of additional
awards payable in Common Stock (Nonvoting) to certain executive employees of the
Company under the Company's Management Stock Plan adopted in 1993.
As a result of the factors discussed above, operating income increased
$7,564,000 or 108.9% during the year ended December 31, 1994 compared to the
same period a year earlier.
Net interest expense totaled $10,707,000 during the year ended December 31,
1994, a decrease of $270,000, or 2.5% compared to net interest expense of
$10,977,000 during the same period a year earlier. The decrease was primarily
due to the absence of non-cash interest expense related to the termination of
certain interest rate protection agreements, offset by higher interest rates on
bank debt.
Net income totaled $3,047,000 during 1994 compared with a net loss of
$5,043,000 for the previous year, an increase of $8,090,000. This increase was
primarily due to the changes in the line items discussed above and the absence
of an extraordinary loss on extinguishment of debt, offset, in part, by the fact
that the Company had a provision for income taxes in 1994 compared to an income
tax benefit in 1993.
Broadcast cash flow totaled $25,092,000 during the year ended December 31,
1994 compared to $14,709,000 during the same period a year earlier, an increase
of $10,383,000, or 70.6%. Of this increase, $8,235,000 was due to the inclusion
of a full year of operations of WTVH and KSEE. Broadcast cash flow at the
Company's Initial Six stations (including broadcast cash flow of WTVH and KSEE
in 1993 prior to their acquisition by the Company) increased $8,239,000, or
48.9% during the year ended December 31, 1994 as compared to the same period in
1993.
Liquidity and Capital Resources
On February 1, 1995, the Company's then existing bank credit agreement was
amended and restated (as amended and restated, the "Prior Credit Agreement") to
permit term borrowings of up to $100,000,000 plus a revolving working capital
facility permitting borrowings of up to $15,000,000. The additional borrowings
under the Prior Credit Agreement were used: (i) to fund the acquisition of KEYE;
(ii) to repurchase all of the Company's Adjustable Rate Preferred Stock that was
issued in connection with the acquisitions of WTVH and KSEE; (iii) to pay all of
the Company's then existing revolving bank indebtedness; (iv) to pay fees and
expenses in connection with such transactions; and (v) for general working
capital purposes.
On June 1, 1995, the Company acquired substantially all of the assets of
WWMT (the "WWMT Acquisition") from Busse Broadcasting Corporation ("Busse") for
$98,942,000 in cash (including $3,942,000 in working capital and other
adjustments) and the assumption of certain liabilities of WWMT. On June 29,
1995, the Company acquired WKBW through its acquisition of all of the General
Partnership Interests of Queen City III Limited Partnership ("QCIII"), the
ultimate parent of WKBW. Prior to the acquisition, Granite owned all of the
41
<PAGE>
Limited Partnership Interests and the debt securities of QCIII. Granite paid
$16,000,000 (including certain related expenses) for the General Partnership
Interests, assumed approximately $59,000,000 of debt and received working
capital totaling $6,760,000, of which $3,491,000 was cash or cash equivalents.
On May 19, 1995, the Company completed the offering of $175,000,000
principal amount of the 10 3/8% Notes. Concurrently with the closing of the
offering of the 10 3/8% Notes, the Company amended and restated the Prior Credit
Agreement (as amended and restated the "Credit Agreement") to permit term loan
borrowings of up to $102,000,000 plus revolving credit borrowings of up to
$60,000,000. The proceeds of the sale of the 10 3/8% Notes, together with
incremental borrowings under the Credit Agreement, were used to fund the
acquisitions of WWMT and WKBW and to pay fees and expenses incurred in
connection with the offering and the Credit Agreement.
On February 22, 1996, the Company completed an offering of $110,000,000
principal amount of the Old Notes. Proceeds from the sale of the Old Notes were
used to repay all outstanding term loan and revolving credit borrowings under
the Credit Agreement and for general working capital purposes. As of May 31,
1996, the Company had $55,000,000 of revolving credit borrowings available under
the Credit Agreement.
Cash flows provided by operating activities were $6,365,000 during the
three months ended March 31, 1996 compared to cash flows used in operating
activities of $772,000 during the three months ended March 31, 1995, an increase
of $7,137,000. The increase was primarily due to an increase in broadcast cash
flow and a decrease in net operating assets offset, in part, by higher cash
interest expense.
Cash flows used in investing activities were $1,444,000 during the three
months ended March 31, 1996, compared to $56,107,000 during the three months
ended March 31, 1995. Cash flows used in investing activities during the first
quarter of 1995 related primarily to the acquisition of KEYE while cash flows
used in investing activities during the first quarter of 1996 were entirely
related to capital expenditures.
Cash flows used in financing activities were $661,000 during the three
months ended March 31, 1996 compared to cash flows provided by financing
activities of $57,414,000 during the three months ended March 31, 1995. The
decrease in 1996 resulted primarily from a net decrease in bank borrowings and
an increase in payments for deferred financing fees partially offset by proceeds
from the sale of the Old Notes in 1996 and redemption of the Company's
Adjustable Rate Preferred Stock in 1995.
Net cash provided by operating activities totaled $8,806,000 in 1995
compared to $5,808,000 in 1994 and $3,611,000 in 1993. The increase from 1994 to
1995 was primarily due to higher broadcast cash flow offset, in part by higher
cash interest expense. The increase from 1993 to 1994 was due to higher
broadcast cash flow, partially offset by an increase in net operating assets.
Cash flows used in investing activities were $236,343,000 in 1995 compared
to $2,628,000 in 1994 and $31,089,000 in 1993. The increase in 1995 resulted
from the payment of the purchase price for KEYE, WWMT and WKBW and increased
capital expenditures in connection with the expansion of KEYE's studio site. The
1994 cash flows used in investing activities were used entirely for capital
expenditures. Included in 1993 cash flows used in investing activities was a
cash payment of $30,000,000 for the acquisition of WTVH and KSEE.
Cash flows provided by financing activities during the year ended December
31, 1995 amounted to $225,685,000, compared to cash flows used in financing
activities of $2,780,000 in 1994 and cash flows provided by financing activities
of $27,822,000 in 1993. The increase in cash provided by financing activities
from 1994 to 1995 resulted primarily from a net increase in bank borrowings and
the proceeds from the sale of 10 3/8% Notes, partially offset by higher deferred
financing fees and the redemption of the Company's Adjustable Rate Preferred
Stock in 1995. The decrease in cash provided by financing activities from 1993
to 1994 resulted from the sale of the Company's Cumulative Convertible
Exchangeable Preferred Stock in 1993 and the payment of cash dividends
42
<PAGE>
therein in 1994, offset, in part, by a net decrease in bank borrowings in 1993
and a decrease in payments of deferred financing fees in 1994.
The Company believes that internally generated funds from operations, and
borrowings under its revolving working capital facility, if necessary, will be
sufficient to satisfy the Company's cash requirements for its existing
operations for the next twelve months and for the foreseeable future thereafter.
43
<PAGE>
BUSINESS
Granite is a group broadcasting company founded in 1988 which owns and
operates nine Network-affiliated television stations. The Company's stations are
diverse in geographic location and network affiliation and reach communities
representing approximately 5.7% of the total television households in the United
States. For the twelve months ended March 31, 1995, after giving pro forma
effect to its recently consummated acquisitions and new network affiliation
agreements, the Company would have had net revenue, broadcast cash flow, and
operating cash flow of $125,353,000, $58,128,000 and $54,818,000, respectively.
The Company's goal is to identify and acquire properties that management
believes have the potential for substantial long-term appreciation and to
aggressively manage such properties to improve their operating results. Since
its inception, the Company has grown significantly, primarily as a result of a
series of carefully selected acquisitions involving Network-affiliated
television stations in increasingly larger markets and also as a result of the
implementation of the Company's operating strategies. During the year ended
December 31, 1995, Granite's net revenue, broadcast cash flow and operating cash
flow increased by 59%, 77% and 80%, respectively, from the previous year. During
the three month period ended March 31, 1996, Granite's net revenue, broadcast
cash flow and operating cash flow increased by 74%, 82% and 91%, respectively,
from the same period in 1995. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The following table sets forth general information for each of the
Company's stations:
<TABLE>
<CAPTION>
Pro Forma Year Ended
December 31, 1995(a)
--------------------
Year Network Market Station Net Revenue Percentage
Station Acquired Affiliation Rank(b) Rank(b) (in thousands) of Total
------- -------- ----------- ------- ------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Duluth, Minnesota -
Superior, Wisconsin......... KBJR 1988 NBC 134 2 $ 3,969 3.2%
Peoria - Bloomington,
Illinois.................... WEEK 1988 NBC 109 1 10,345 8.3
Fort Wayne, Indiana.......... WPTA 1989 ABC 103 1 10,109 8.1
San Jose - Monterey -
Salinas, California......... KNTV 1990 ABC 122 3 16,898 13.6
Syracuse, New York........... WTVH 1993 CBS 69 3 11,373 9.1
Fresno - Visalia,
California.................. KSEE 1993 NBC 56 2 12,026 9.6
Austin, Texas................ KEYE 1995 CBS 64 2(tie) 12,861 10.3
Grand Rapids - Kalamazoo -
Battle Creek, Michigan...... WWMT 1995 CBS 38 1(tie) 19,850 15.9
Buffalo, New York............ WKBW 1995 ABC 39 1(tie) 27,338 21.9
-------- -----
$124,749 100.0%
======== =====
</TABLE>
- ---------------
(a) Pro forma net revenue information reflects actual 1995 net revenues of the
stations adjusted to reflect negotiated increases in network compensation
revenue and decreases in sales commissions paid to a national
representative at certain stations.
(b) "Market rank" refers to the size of the television market or DMA as defined
by Nielsen. "Station rank" represents the rank of a station in its DMA,
based on sign-on to sign-off station audience share of such station. All
market rank and station rank data is from the Nielsen Station Index, dated
February 1996, unless otherwise noted.
A key element of the Company's strategy to improve the operating results of
its stations is expanding each station's local news franchise. Seven of
Granite's nine stations are ranked either first or second in their respective
44
<PAGE>
market in share of viewing audience during the total day and a majority of the
stations are ranked either first or second in the key news dayparts and produce
as many or more local news programs than their principal competitors. The
Company also develops innovative sales and marketing techniques using exclusive
in-depth audience research, mass-market community events, special local
programming, and targeted promotional campaigns. Granite's strategy also
involves aggressively managing station operating expenses, including staffing
levels and programming expenditures, in order to achieve significant broadcast
cash flow margins. For example, at stations WTVH and KSEE, acquired by the
Company in December 1993, broadcast cash flow margins increased from 13% in 1993
to greater than 38% in 1994. For the five years ended December 31, 1995,
Granite's broadcast cash flow margin averaged more than 40%.
The Company was ranked number 9 on Black Enterprise Magazine's 1996 Black
Enterprise Industrial/Service 100 List, which ranks U.S. black-owned industrial
and service enterprises by gross revenues. In addition, the Company was selected
by Black Enterprise Magazine as its Company of the Year for 1995. Granite's
long-term objective is to acquire the full complement of television stations
permitted under FCC regulations and to pursue acquisitions of other media and
communications-related properties.
Industry Background
Commercial television broadcasting began in the United States on a regular
basis in the 1940s. Currently there are a limited number of channels available
for broadcasting in any one geographic area and the license to operate a
broadcast station is granted by the FCC. Television stations can be
distinguished by the frequency on which they broadcast. Television stations that
broadcast over the very high frequency ("VHF") band of the spectrum generally
have some competitive advantage over television stations that broadcast over the
ultra-high frequency ("UHF") band of the spectrum because the former usually
have better signal coverage and operate at a lower transmission cost. In
elevision markets in which all local stations are UHF stations, such as Fort
Wayne, Indiana, Peoria-Bloomington, Illinois and Fresno-Visalia, California, no
competitive disadvantage exists.
Television station revenues are primarily derived from local, regional and
national advertising and, to a lesser extent, from network compensation and
revenues from studio rental and commercial production activities. Advertising
rates are based upon a program's popularity among the viewers an advertiser
wishes to attract, the number of advertisers competing for the available time,
the size and demographic make-up of the market served by the station and the
availability of alternative advertising media in the market area. Since
broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, adversely affect the
broadcast industry, and as a result may contribute to a decrease in the
valuation of broadcast properties.
Whether a station is affiliated with one of the Networks, NBC, ABC, CBS or
Fox, has a significant impact on the composition of the station's revenues,
expenses and operations. A typical Network-affiliate receives a significant
portion of its programming each day from the Network. This programming, along
with cash payments, is provided to the affiliate by the Network in exchange for
a substantial majority of the advertising inventory during Network programs. The
Network then sells this advertising time and retains the revenues so generated.
In contrast, a fully independent station purchases or produces all of the
programming that it broadcasts, resulting in generally higher programming costs,
although the independent station is, in theory, able to retain its entire
inventory of advertising and all of the revenue obtained therefrom. However,
barter and cash-plus-barter arrangements are becoming increasingly popular.
Under such arrangements, a national program distributor typically retains up to
50% of the available advertising time for programming it supplies in exchange
for reduced fees for such programming.
In May 1994, New World Communications Group, Inc. announced plans to switch
affiliation of the twelve stations it owned or planned to acquire to Fox and to
terminate existing ABC, CBS or NBC affiliation agreements. The announcement
triggered a number of transfers, renegotiations and cancellations of affiliation
agreements in the
45
<PAGE>
broadcasting industry. Due in part to these events certain Network-affiliated
stations have been able to negotiate affiliation agreements with longer
durations and/or more favorable terms for the affiliate. In this environment, in
1995 the Company negotiated long-term affiliation agreements for its stations
which the Company expects will provide aggregate additional annual revenues of
approximately $3,300,000 in cash to the Company's stations.
Through the 1970s, television broadcasting in general enjoyed virtual
dominance in viewership and television advertising revenue because
Network-affiliated stations competed only with each other in local markets. FCC
regulation of the broadcast industry evolved to address this environment of only
three commercial broadcast networks, with the focus on encouraging increased
competition and diversity of viewpoints and programming in the television
broadcasting industry. Such rules prohibit the common ownership of a television
station and either an AM or an FM radio station in the same geographic market.
The Telecommunications Act of 1996 directs the FCC to relax, eliminate or
consider modifying certain rules regarding the multiple and cross-ownership of
broadcast stations and other media on a national and local level. Pursuant to
this directive, the FCC has revised its rules to eliminate the limit on the
number of television stations that an individual or entity may own or control
nationally, provided that the audience reach of all television stations owned
does not exceed 35% of all U.S. households. The FCC also has revised or will
consider revising in pending or future rulemaking proceedings its other multiple
and cross-ownership rules. See "--FCC Licenses."
Cable television systems were first installed in significant numbers in the
early 1970s and were initially used to retransmit broadcast television
programming to paid subscribers in areas with poor broadcast signal reception.
In contrast to broadcast television stations, the primary source of revenues for
cable systems is subscriber fees. As the technology of satellite program
delivery to cable systems advanced in the late 1970s, development of programming
for cable accelerated dramatically. The emergence of multiple, national-scale
program alternatives, in turn, fueled the rapid expansion of cable television
and produced high subscriber growth rates. According to information provided by
The National Cable Television Association, cable television was available to 97%
of U.S. households as of August 1995, with 65% of all households subscribing.
Aggregate cable-originated programming has emerged as a significant competitor
for viewers of broadcast television programming, although no single cable
programming network regularly attains audience levels amounting to more than a
small fraction of any single major broadcast Network. According to Nielsen Media
Research, as of November 1995, 62% of all cable household prime time viewing
(from 8:00 p.m.-11:00 p.m. Monday through Saturday and 7:00 p.m.-11:00 p.m.
Sunday, Eastern Time) was spent watching broadcast television programming.
Other developments have also affected television programming and delivery.
Independent stations, whose number has increased significantly over the past ten
years, have emerged as viable competitors for television viewership share and
have stimulated the development of new television networks, two of which, United
Paramount Network and WB Network, were launched in early 1995. In addition,
there has been substantial growth in the number of home satellite dish
receivers, direct broadcast satellite receivers, VCRs and other video delivery
systems, which has further expanded the number of programming alternatives for
household audiences.
Further advances in technology may increase competition for household
audiences and advertisers. Video compression techniques, now in development, are
expected to reduce the bandwidth required for television signal transmission.
These compression techniques, as well as other technological developments, are
applicable to all video delivery systems and have the potential to provide
vastly expanded programming to highly targeted audiences. Reduction in the cost
of creating additional channel capacity could lower entry barriers for new
channels and encourage the development of increasingly specialized "niche"
programming. This ability to reach very defined audiences is expected to alter
the competitive dynamics for advertising expenditures. See "-- Competition."
Acquisition and Operating Strategy
The Company has grown through a series of carefully selected acquisitions
of Network-affiliated television stations in increasingly larger markets. The
Company's objective is to acquire and operate the full complement of
46
<PAGE>
television stations which it is permitted to own under FCC regulations. The
Company will pursue the acquisition of other media and communications related
properties consistent with its effort to be the leading provider of local news,
weather and sports in each of its markets.
The Company believes that television stations with leading local news
franchises have the potential for long-term growth and value appreciation as
electronic media becomes an increasingly more important source of news and
information relative to newspapers. Furthermore, the Company believes that
Network-affiliated stations, given their mix of local news and general interest
programming, have the ability to deliver large audiences to local and national
advertisers, which represents a competitive advantage relative to other
advertising media, particularly cable programming services. The ability to
attract large audiences and considerable advertising support enable well managed
Network-affiliated stations to perpetuate production and acquisition of quality
programming. The Company believes that the small size of cable's fractionalized
audiences may render it difficult to generate quality programming for them,
either through subscriber fees or advertiser support.
The Company has focused on acquiring broadcast properties in carefully
selected markets with attractive demographic, socio-economic and other
characteristics. In addition, the Company focuses on markets in which it
believes there is an opportunity to improve market share, due to factors such as
competitive environment, Network affiliation, signal frequency and local
management expertise. The Company believes that in such markets an opportunity
exists for local broadcasters to attract large audience shares and thus compete
successfully for advertising revenues with alternatives such as newspapers,
radio and cable television operators in these markets.
Key elements of the Company's acquisition and operating strategies are:
Local News Leadership
The Company seeks to acquire television stations that are, or have the
potential to become, local news leaders. Based on its operating experience, the
Company believes that local news audiences are highly desirable to local and
national advertisers. The Company believes that the revenue associated with
local news leadership is particularly significant in light of the declining
circulation of local newspapers. Local newspapers compete with television
stations for, and currently obtain by far the largest share of, local and
regional advertisement revenue. As reported by Zenith Media, a division of
Cordiant PLC, the year ended December 31, 1994 was the first year in history in
which the total television advertising revenues in the United States surpassed
that of newspapers.
The Company's strength in local or market-specific information is the
foundation of the Company's strategy to build significant audience share. In
each of its markets, the Company develops additional information-oriented
programming designed to expand the Company's hours of commercially valuable
local news and other programming with relatively small incremental increases in
operating expenses. Local news programming is commercially valuable because of
its high viewership level, the attractiveness of the typical news audience to
advertisers (allowing stations to charge higher rates for advertising time) and
the effects of viewership habits both after each news telecast and through out
the broadcast day.
Local Market Advertising
At all of its stations the Company emphasizes its position as a leading
news franchise to attract advertisers interested in broad market coverage. The
Company believes that its approach allows it to compete for local advertising,
in particular that segment currently served by local newspapers which obtain by
far the largest share of local and regional advertising revenue. According to
1994 McCann-Erickson data, local newspapers in the United States generated in
1994 almost $30.5 billion in local and regional advertising revenue despite a
long-term trend of declining paid circulation, as compared to approximately $9.2
billion in local and regional expenditures on television stations.
47
<PAGE>
Innovative Sales and Marketing
Granite's sales and marketing efforts involve the continuous development of
promotional campaigns designed to drive traffic into advertisers' stores and
provide sponsorship opportunities for traditional and non-traditional
advertisers. Sponsored events have included children's festivals, parades and
athletic events that enable advertisers, who are given the opportunity to
participate in such events, an opportunity to direct a marketing program at a
targeted audience. These additional products have proven successful in
generating high margin advertising revenues.
Long-Term Diversification
The Company's stations are located throughout the United States in areas
with wide-ranging socio-economic compositions. The Company has three stations
affiliated with each of ABC, CBS and NBC. In addition, for the year ended
December 31, 1995, after giving pro forma effect to the acquisitions of KEYE,
WKBW and WWMT, the new network affiliation agreements and decreases in sales
commissions, no individual station would have accounted for greater than 22% of
the Company's net revenue, broadcast cash flow or operating cash flow. The
Company believes that such diversification assists it in achieving its objective
of consistently strong operating results. In addition, although the Company's
primary focus is presently on the acquisition of broadcast television stations,
in the long term the Company also intends to pursue the acquisition of other
media and communications-related properties consistent with the Company's focus
on local news and programming and the development of complementary media
outlets.
48
<PAGE>
Station Summary
The following table sets forth general information for each of the
Company's stations:
<TABLE>
<CAPTION>
Other
Commercial Station
Date of Channel/ Network Market Stations Audience Station Expiration Date
Station Market Area Acquisition Frequency Affiliation Rank(a) in DMA Share(a) Rank(a) of FCC License
------- ----------- ----------- --------- ----------- ------- ------ -------- ------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
KBJR-TV Duluth, MN-
Superior, WI 10/31/88 6/VHF NBC 134 2 20 2 12/01/97
WEEK-TV Peoria-
Bloomington,
IL 10/31/88 25/UHF(b) NBC 109 3 22 1 12/01/97
WPTA-TV Fort Wayne, IN 12/11/89 21/UHF(b) ABC 103 3 23 1 08/01/97
KNTV(TV) San Jose-
Monterey-
Salinas, CA(c) 02/05/90 11/VHF ABC 122 5(d) 9 3 12/01/98
WTVH-TV Syracuse, NY 12/23/93 5/VHF CBS 69 4 17 3 06/01/99
KSEE-TV Fresno-
Visalia, CA 12/23/93 24/UHF(b) NBC 56 8(e) 17 2 12/01/98
KEYE-TV Austin, TX 02/01/95 42/UHF CBS 64 5 15 2(tie) 08/01/98
WWMT-TV Grand Rapids-
Kalamazoo-
Battle Creek, MI 06/01/95 3/VHF CBS 38 6 19 1(tie) 10/01/97
WKBW-TV Buffalo, NY 06/29/95 7/VHF ABC 39 3 20 1(tie) 06/01/99
</TABLE>
- ---------------
(a) "Market rank" refers to the size of the television market or DMA as defined
by Nielsen. "Station audience share" represents the average percentage of
households watching a particular station in any given 15 or 30 minute time
period from sign-on to sign-off of all households in that DMA watching
television at that time. "Station rank" represents the rank of a station in
its DMA, based on sign-on to sign-off station audience share of such
station. All market rank, station audience share and station rank data
related to a DMA is from the Nielsen Station Index, dated February 1996,
unless otherwise noted.
(b) All television stations in the Fort Wayne, Indiana, Peoria-Bloomington,
Illinois and Fresno-Visalia, California television markets are UHF
stations.
(c) All market rank, station audience share and station rank data is for the
Salinas-Monterey television market and does not reflect KNTV's audience in
the adjacent market of San Jose.
(d) Includes KSMS, Salinas-Monterey and KCU, Salinas, both of which broadcast
entirely in Spanish.
(e) Includes KFTV Hanford-Fresno and KMSG, Sanger-Fresno, both of which
broadcast entirely in Spanish.
49
<PAGE>
Set forth below are the principal types of television gross revenues
(before agency and representative commissions) received by the Company's
television stations for the periods indicated and the percentage contribution of
each to the gross television revenues of the television stations owned by the
Company.
GROSS REVENUES, BY CATEGORY,
FOR THE COMPANY'S STATIONS
(dollars in thousands)
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------------------------
1991 1992 1993 1994 1995
--------------- --------------- ---------------- ---------------- ----------------
Amount % Amount % Amount % Amount % Amount %
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Local/Regional(a) ....... $ 21,818 54.6% $ 23,088 53.5% $ 25,416 56.3% $ 38,802 50.9% $ 60,969 51.0%
National(b) ............. 14,638 36.6 15,367 35.6 16,290 36.1 28,548 37.5 48,995 41.0
Network Compensation(c) . 1,654 4.1 1,427 3.3 1,286 2.8 2,244 2.9 4,154 3.5
Political(d) ............ 73 0.2 1,246 2.9 133 0.3 4,060 5.3 1,498 1.3
Other Revenue(e) ........ 1,803 4.5 2,023 4.7 2,041 4.5 2,559 3.4 3,849 3.2
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total ............... $ 39,986 100.0% $ 43,151 100.0% $ 45,166 100.0% $ 76,213 100.0% $119,465 100.0%
======== ===== ======== ===== ======== ===== ======== ===== ======== =====
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1996
----------------- ------------------
Amount % Amount %
------- ----- ------- -----
<S> <C> <C> <C> <C>
Local/Regional(a) .................. $10,498 53.3% $16,155 47.0%
National(b) ........................ 7,967 40.4 14,243 41.5
Network Compensation(c) ............ 559 2.8 1,859 5.4
Political(d) ....................... 2 -- 889 2.6
Other Revenue(e) ................... 688 3.5 1,205 3.5
------- ----- ------- -----
Total .......................... $19,714 100.0% $34,351 100.0%
======= ==== ======= ====
</TABLE>
- ---------------
(a) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers and other local sources.
(b) Represents sale of advertising time to agencies representing national
advertisers.
(c) Represents payment by networks for broadcasting network programming.
(d) Represents sale of advertising time to political advertisers.
(e) Represents miscellaneous revenue, including payment for production of
commercials.
Automobile advertising constitutes the Company's single largest source of
gross revenues, accounting for approximately 23% of the Company's total gross
revenues in 1995. Gross revenues from restaurants and entertainment-related
businesses each accounted for approximately 8% of the Company's total gross
revenues in 1995. Each other category of advertising revenue represented less
than 5% of the Company's total gross revenues.
Stations Overview
KNTV: San Jose, California
KNTV-TV ("KNTV") is distinguished by its status as the only
Network-affiliated station and only VHF station licensed to serve San Jose,
California, the largest city in Northern California and the eleventh largest
city
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in the United States. Its VHF signal is broadcast on Channel 11 and covers all
of Santa Clara County, which includes an area that has come to be known as
"Silicon Valley." Although the Nielsen rating service designates KNTV as the ABC
affiliate for the Monterey-Salinas market (which is southwest of and adjacent to
San Jose), according to the February 1996 Nielsen Monterey/Salinas Viewers In
Profile Report, 62% of the station's audience resides in the San
Francisco-Oakland-San Jose television market (the fifth largest DMA in the
country). The Company believes that substantially all of such audience resides
in Santa Clara County. As a result, KNTV provides a unique opportunity for local
and national advertisers to target a media campaign to this highly affluent
county. If Santa Clara County were a separate DMA with its 522,980 television
households, it would rank as the 52nd largest DMA in the United States.
KNTV has formally operated as The San Jose News Channel since mid-1987.
KNTV's local newscasts compete very effectively against stations licensed to
serve San Francisco for Santa Clara County local news audiences. According to
February 1996 ratings data, more adults in Santa Clara County aged 18-49, one of
the most popular demographic targets for advertisers, viewed KNTV's popular 5:00
p.m. weekday newscast than any other Network-affiliate serving the San
Francisco-Oakland-San Jose market. In April 1995, all of the station's local
newscasts were redesigned and the 11:00 p.m. newscast was reformatted as "Eleven
at 11" to deliver complete news and weather in the first 11 minutes of the
program without a commercial break. Since 1985, the station has won 43 awards
from The Associated Press, the Radio Television News Directors Association and
the California Teachers Association for its news broadcasts, 28 of which were
won under the Company's management. The Associated Press named KNTV's 6:00 p.m.
newscast the "Best Major Market 30 Minute Newscast" in California and Nevada for
1993. KNTV's inventory of syndicated programming includes, among others, "Home
Improvement," "Star Trek: The Next Generation," "Extra," "Inside Edition," and
"Cheers."
Santa Clara County has a diverse and affluent economy. The median income by
household was $54,778 according to the 1995 Demographics USA Report. The area is
home to over 2,800 technological companies as well as numerous institutions and
companies of national reputation. Prominent corporations located in Santa Clara
County include Hewlett-Packard, Lockheed/Martin, IBM, Apple, Intel, Sun
Microsystems, Amdahl, Tandem Computers, National Semiconductor, Syntex, Conner
Peripherals, Varian Associates and Chips & Technologies. Santa Clara County is
also the home of several universities including Stanford University, San Jose
State University and Santa Clara University with enrollments aggregating
approximately 51,000 students.
WTVH: Syracuse, New York
WTVH, acquired from Meredith Corporation on December 23, 1993, began
operations in 1948 and is affiliated with CBS. WTVH estimates it receives
approximately 28% of the total television advertising revenue available to
stations in the Syracuse market, as determined by an independent accounting
firm, based upon the most recent available data (1995) submitted to it by local
stations. WTVH has won over 40 awards, including 15 from The Associated Press,
for its news coverage since 1988. WTVH's inventory of syndicated programming
includes, among others, "Inside Edition," "Extra," "Cheers," "American Journal"
and "Montel Williams."
The Syracuse economy is centered on manufacturing, education and
government. The average income by household in the DMA was $43,036 as of January
1, 1995, according to estimates provided in the BIA Investing in Television 1996
Market Report (the "BIA Report"). Prominent corporations located in the area
include Carrier Corporation, New Venture Gear, Bristol-Myers Squibb,
Crouse-Hinds, Nestle Foods and Lockheed/Martin. The Syracuse DMA is also the
home of several universities, including Syracuse University, Cornell University
and Colgate University, with enrollments aggregating over 50,000 students.
KSEE: Fresno-Visalia, California
KSEE, acquired from Meredith Corporation on December 23, 1993, began
operations in 1953 and is affiliated with NBC. KSEE estimates it receives
approximately 24% of the total television advertising revenue
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available to stations in the Fresno-Visalia market as determined by an
independent accounting firm based upon the most recent available data (1995)
submitted to it by local stations. According to February 1996 ratings
information, KSEE had a 17% sign-on to sign-off audience share and a 24% share
of those households viewing local stations. KSEE has won over 35 awards,
including 16 from The Associated Press, for its news coverage since 1988. On May
8, 1995, KSEE was presented with the 1994 Peabody Award, one of the most
prestigious awards in broadcast journalism, for an investigative report. KSEE's
inventory of syndicated programming includes, among others, "Inside Edition,"
"Extra," "Regis and Kathie Lee," "American Journal," "Jenny Jones," "Ricki Lake"
and "Seinfeld."
Fresno and the San Joaquin Valley are one of the most productive
agricultural areas in the world with over 6,000 square miles planted with more
than 250 different crops. Although farming continues to be the single most
important part of the Fresno area economy, the area now attracts a variety of
service-based industries and manufacturing and industrial operations. No single
employer or industry dominates the local economy. The average income by
household in the DMA was $38,732 as of January 1, 1995, according to estimates
provided in the BIA Report. The Fresno-Visalia DMA is also the home of several
universities, including Fresno State University, with enrollment estimated at
40,000.
WPTA: Fort Wayne, Indiana
WPTA-TV ("WPTA") began operations in 1957 and is affiliated with ABC.
Through the February 1996 ratings period, WPTA was ranked number one in the Fort
Wayne television market in sign-on to sign-off audience share for the past six
years and in news audience share for the past seven years. Based upon February
1996 ratings information, WPTA ranked first in its DMA with a 23% overall
sign-on to sign-off audience share and a 34% share of those households viewing
local stations. WPTA has won over 55 awards, including 19 awards from The
Associated Press, for its news coverage since 1984, 15 of which were won under
the Company's management. WPTA's inventory of syndicated programming includes,
among others, "The Oprah Winfrey Show," "Home Improvement," "Entertainment
Tonight," "Cheers" and "Coach."
The Fort Wayne economy is centered on manufacturing, government, insurance,
financial services and education. The average income by household in the DMA was
$42,368 as of January 1, 1995, according to estimates provided in the BIA
Report. Prominent corporations located in the area include Magnavox, Lincoln
National Life Insurance, General Electric, General Motors, North American Van
Lines, GTE, Dana, Phelps Dodge, ITT and Tokheim. The Fort Wayne DMA is also the
home of several universities including the joint campus of Indiana University
and Purdue University at Fort Wayne, with enrollments aggregating over 11,000
students.
WEEK: Peoria-Bloomington, Illinois
WEEK-TV ("WEEK") began operations in 1953 and is affiliated with NBC. The
station has been the number one station in sign-on to sign-off audience share in
the Peoria-Bloomington market for the past 15 years. WEEK estimates it receives
38% of the total television advertising revenue available to stations in the
Peoria-Bloomington market, as determined by an independent accounting firm,
based upon the most recent available data (1995) submitted to it by local
stations.
According to February 1996 ratings information, WEEK commands a 22% sign-on
to sign-off audience share and a 38% share of those households viewing local
stations. WEEK has been the number one news station in the Peoria-Bloomington
market for the past 15 years (based upon the 10:00-10:30 p.m. news broadcast
period) and since 1985 has won over 18 awards from The Associated Press, United
Press International and the Illinois Valley Press Club for its news broadcasts,
eight of which were won under the Company's management. In addition, in 1994,
WEEK received the Illinois Broadcasters Association "Station of the Year" Award
for the third consecutive year. The award is presented annually to the
television station accumulating the greatest number of recipients of and
finalists for the Illinois statewide "Silver Dome" Awards for Excellence. These
awards cover various
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categories, including news, weather programming and special events. Recipients
are selected from among all stations in Illinois outside Chicago. WEEK's
inventory of syndicated programming includes, among others, "The Oprah Winfrey
Show," "Sally Jessy Raphael" and "Seinfeld."
The Peoria economy is centered on agriculture and heavy equipment
manufacturing but has achieved diversification with the growth of service-based
industries such as conventions, health care and higher technology manufacturing.
Prominent corporations located in Peoria include Caterpillar, Bemis, Central
Illinois Light Company, Commonwealth Edison Company, Komatsu-Dresser Industries,
IBM, Trans-Technology Electronics and Keystone Steel & Wire. In addition, the
United States Department of Agriculture's second largest research facility is
located in Peoria, and the area has become a major regional health care center.
The economy of Bloomington, on the other hand, is focused on insurance,
education, agriculture and manufacturing. Prominent corporations located in
Bloomington include State Farm Insurance Company, Country Companies Insurance
Company and Diamond-Star Motors Corporation (a subsidiary of Mitsubishi). The
average income by household in the DMA was $44,705 as of January 1, 1995,
according to estimates provided in the BIA Report. The Peoria-Bloomington area
is also the home of numerous institutions of higher education including Bradley
University, Illinois Central College, Illinois Wesleyan University, Illinois
State University, Eureka College and the University of Illinois College of
Medicine, with enrollments aggregating over 38,000 students.
KBJR: Duluth, Minnesota and Superior, Wisconsin
KBJR-TV ("KBJR") began operations in 1954 and is affiliated with NBC.
According to February 1996 ratings information, KBJR delivered a 20% sign-on to
sign-off audience share and a 35% share of those households viewing local
stations. KBJR was awarded "Best Newscast" by The Associated Press in 1994, 1995
and 1996 and was named "Station of Excellence" by the Radio and Television News
Directors Association in a six-state regional competition in 1994. KBJR
estimates that it receives 35% of the total television advertising revenue
available to stations in the Duluth-Superior market, based upon the most recent
available data (1994) from the National Association of Broadcasters. KBJR's
inventory of syndicated programming includes, among others, "The Oprah Winfrey
Show," "Jeopardy," "Wheel of Fortune," "Roseanne," "Coach," "M*A*S*H" and the
complete "Star Trek" franchise.
The area's primary industries include mining, fishing, food products,
paper, medical, shipping, tourism and timber. The average income by household in
the DMA was $34,860 as of January 1, 1995, according to estimates provided in
the BIA Report. Duluth is one of the major ports in the United States out of
which iron ore, coal, limestone, cement, grain, paper and chemicals are shipped.
Northwest Airlines has begun construction of airplane maintenance facilities in
the Duluth area that are expected to add approximately 1,000 jobs to the Duluth
area's economy by the end of 1996. Prominent corporations located in the area
include Minnesota Power, U.S. West, Mesabi & Iron Range Railway Co., Walmart,
Jeno Paulucci International, Lake Superior Industries, Potlatch Corporation,
Boise Cascade, Burlington Northern Railway, Target (Dayton-Hudson Corporation),
ConAgra, International Multifoods, Peavey, Cargill, U.S. Steel, Cleveland-Cliffs
Corporation, NorWest Bank, Shopko, Cub Foods and Advanstar. The Duluth-Superior
DMA is also the home of numerous educational institutions such as the University
of Minnesota-Duluth, the University of Wisconsin-Superior and the College of St.
Scholastica, with enrollments aggregating over 12,000 students.
KEYE: Austin, Texas
KEYE, acquired from Austin Television on February 1, 1995, began operations
in 1983. The station, formerly a Fox affiliate, became a CBS affiliate on July
2, 1995.
Based on February 1996 ratings information, KEYE ranked second in its DMA
with a 15% sign-on to sign-off share. During 1995, the station began a news
operation with the launch of news at 5:30 a.m., 12:00
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p.m., 5:00 p.m., 6:00 p.m. and 10:00 p.m. KEYE's inventory of syndicated
programming includes "Ricki Lake," "Jenny Jones" and "Home Improvement."
The Austin economy benefits from having large private sector employers such
as IBM, Motorola, HEB Stores, Advanced Micro Devices, Abbott Laboratories, Texas
Instruments, Dell Computers, 3M Corporation, Applied Materials and SEMATECH.
Approximately 825 high tech firms employ nearly 85,000 people in the area. This
fact, plus the terrain of the region's Hill Country, have resulted in the Austin
area being nicknamed "Silicon Hills." Since Austin, the nation's 23rd largest
city, is the state capital, as well as home to the University of Texas, a
substantial amount of public sector employment opportunities are also provided.
The average income per household in the DMA was $43,351 as of January 1, 1995,
according to estimates provided in the BIA Report. Since 1990, employment has
grown approximately 27%, resulting in Chamber of Commerce unemployment
projections of 3.7% for 1996. This vitality helped retail sales increase at a
rate of more than 9% per year during the past five years, with 13.5% growth in
1994 alone. In addition to the University of Texas, Southwestern University,
Saint Edwards University and Southwest Texas University are located in the DMA.
Total university enrollment in the DMA is approximately 100,000 students.
WWMT: Grand Rapids - Kalamazoo - Battle Creek, Michigan
WWMT began operations in 1950 and is affiliated with CBS. The station has
been the number one station in sign-on to sign-off audience share in the Grand
Rapids - Kalamazoo - Battle Creek DMA for the past two years. WWMT estimates it
receives approximately 28% of the total television advertising revenue available
to stations in the Grand Rapids - Kalamazoo - Battle Creek market, based on the
most recent available data from the local business area reports.
Based upon February 1996 ratings information, WWMT ranked first in its DMA
with a 19% sign-on to sign-off share. WWMT has won numerous awards for its local
newscasts and in 1994 was voted "Best Newscast" by the Michigan Broadcasters
Association for the third consecutive year. Also in 1994, The Associated Press
recognized the station for "Best Newscast" and "Overall Excellence" in state
competition.
WWMT is distinguished by the fact that it operates four news bureaus
located in the major population centers of the market. During 1994, the station
expanded its news operation with the launch of News 3 at 5:30 p.m. and WWMT is
the only station in the market providing local newscasts on weekend mornings and
middays. WWMT's inventory of syndicated programming includes "The Oprah Winfrey
Show", "Wheel of Fortune", "Jeopardy", "American Journal", and "Sally Jessy
Raphael."
The Grand Rapids - Kalamazoo - Battle Creek economy is centered around
manufacturing, health services, education and financial services. The average
household income in the DMA was $44,818 as of January 1, 1995, according to
estimates provided in the BIA Report. Leading employers in the area include The
UpJohn Company, Bronson Medical Center, Borgess Medical Center, Butterworth
Hospital, St. Mary's Health Services, Steel Case, Inc., Amway Corporation,
Meijer, Inc., James River Corporation, General Motors Corporation and The
Kellogg Company.
WKBW: Buffalo, New York
WKBW began operations in 1958 and is affiliated with ABC. The station is
distinguished by its status as one of the top ten ranked ABC affiliates in the
country. The Company believes that WKBW has been the number one station in
sign-on to sign-off audience share in the Buffalo DMA for over twenty years.
Based on data shared among stations in the DMA, WKBW estimates it receives
approximately 34% of the total television advertising revenues available to
stations in the Buffalo market, based on the most recent available data (1995).
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Based upon February 1996 ratings information, WKBW ranked first in its DMA
with a 20% sign-on to sign-off share. WKBW has won numerous awards for its
newscasts on both a national and state-wide basis. WKBW's inventory of
syndicated programming includes "Ricki Lake," "Wheel of Fortune," "Jeopardy,"
"Montel Williams" and "Coach."
The Buffalo economy is centered around manufacturing, government, health
services and financial services. The average household income in the DMA was
$39,726 as of January 1, 1995, according to estimates provided in the BIA
Report. Leading employers in the area include General Motors, Ford Motor
Company, American Axle and Manufacturing, M&T Bank, Fleet Bank, Roswell Park
Cancer Institute, Buffalo General Hospital, NYNEX, Tops Markets and DuPont.
Network Affiliation
Each of the Company's stations is affiliated with a Network pursuant to an
affiliation agreement. KSEE, WEEK and KBJR are affiliated with NBC, KNTV, WPTA
and WKBW are affiliated with ABC, and KEYE, WTVH and WWMT are affiliated with
CBS. Pursuant to a recently executed affiliation agreement between the Company
and CBS, KEYE became a CBS affiliate on July 2, 1995. Granite has also entered
into new affiliation agreements with CBS for WWMT and WTVH, that became
effective on January 1, 1996, and has entered into new affiliation agreements
with NBC for each of its NBC-affiliated stations, that became effective in April
1, 1995. In addition, the Company entered into a new affiliation agreement with
ABC for WKBW that, as amended, became effective June 30, 1995 and new agreements
with ABC for KNTV and WPTA that became effective January 1, 1996. The new
affiliation agreements provide for contract terms of ten years (other than the
NBC agreements for which the terms are seven years) and are expected to result
in increased annual network compensation of approximately $3,300,000 in cash, in
the aggregate, to the stations.
Under each of the Company's affiliation agreements the Networks may
increase or decrease network compensation and, under certain circumstances,
terminate the agreement upon advance written notice. Under the Company's
ownership, none of its stations has received a termination notice from its
respective Network.
In substance, each affiliation agreement provides the stations with the
right to broadcast all programs transmitted by the Network with which it is
affiliated. In exchange, the Network has the right to sell a substantial
majority of the advertising time during such broadcast. In addition, for every
hour that the station elects to broadcast Network programming, the Network pays
the station a fee, specified in each affiliation agreement, which varies with
the time of day. Typically, "prime-time" programming (Monday through Saturday
from 8-11 p.m. and Sunday from 7-11 p.m. Eastern Time) generates the highest
hourly rates. Rates are subject to increase or decrease by the Network during
the term of each affiliation agreement, with provisions for advance notice to
and right of termination by the station in the event of a reduction in rates.
Competition
The financial success of the Company's television stations is dependent on
audience ratings and revenues from advertisers within each station's geographic
market. The Company's stations compete for revenues with other television
stations in their respective markets, as well as with other advertising media,
such as newspapers, radio, magazines, outdoor advertising, transit advertising,
yellow page directories, direct mail and local cable systems. Some competitors
are part of larger companies with substantially greater financial resources than
the Company.
Competition in the broadcasting industry occurs primarily in individual
markets. Generally, a television broadcasting station in one market does not
compete with stations in other market areas. The Company's stations are located
in highly competitive markets.
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Factors that are material to a television station's competitive position
include management experience, signal coverage, local program acceptance,
Network affiliation, audience characteristics, assigned frequency and strength
of local competition. In addition to the competition the Company faces from
television stations in its market and other advertising supported media, leisure
time activities, such as sporting events, concerts and live theater, also
compete for a television viewer's leisure time.
Conventional commercial television broadcasters also face competition from
other programming, entertainment and video distribution systems, the most common
of which is cable television. These other programming, entertainment and video
distribution systems can increase competition for a broadcasting station by
bringing into its market distant broadcasting signals not otherwise available to
the station's audience and also serving as distribution systems for
non-broadcast programming. Programming is now being distributed to cable
television systems by both terrestrial microwave systems and by satellite. Other
sources of competition include home entertainment systems (including video
cassette recorder and playback systems, video discs and television game
devices), multi-point distribution systems and multichannel multi-point
distribution systems and other video delivery systems. The Company's television
stations also face competition from direct broadcast satellite services which
transmit programming directly to homes equipped with special receiving antennas
and competition from video signals delivered over telephone lines.
The broadcasting industry is continuously faced with technological change
and innovation, which could possibly have a material adverse effect on the
Company's operations and results. Commercial television broadcasting may face
future competition from interactive video and data services that may provide
two-way interaction with commercial video programming, along with information
and data services that may be delivered by commercial television stations, cable
television, direct broadcast satellites, multi-point distribution systems,
multichannel multi-point distribution systems or other video delivery systems.
In addition, recent actions by the FCC, Congress and the courts all presage
significant future involvement in the provision of video services by telephone
companies. The Telecommunications Act of 1996 lifts the prohibition on the
provision of cable television services by telephone companies in their telephone
areas subject to regulatory safeguards and permits telephone companies to own
cable systems under certain circumstances. Various federal courts have held that
the prior statutory ban on the provision of video programming directly to
subscribers by a telephone company in its telephone service area is
unconstitutionally broad. After agreeing to review these decisions, the Supreme
Court remanded the cases to the lower appellate courts to determine whether the
challenge to the constitutionality of the restriction on video programming
delivery by telephone companies has been rendered moot by the Telecommunications
Act of 1996. It is not possible to predict the impact of any future relaxation
or elimination of the statutory ban on the Company's television stations. The
elimination or further relaxation of the restriction, however, could increase
the competition the Company's television stations face from other distributors
of video programming.
Rating Services Data
All television audience share and aggregate television audience information
contained in this Prospectus are based upon data compiled from surveys conducted
by Nielsen, a national audience measuring service. All television stations in
the United States are grouped by Nielsen into approximately 211 generally
recognized non-overlapping television markets, called designated market areas,
that are ranked in size according to various formulae based upon actual or
potential audience. A DMA generally consists of counties in which commercial
television stations located in the same general vicinity achieve the largest
audience share. Nielsen periodically publishes data on estimated audiences for
the television stations in the various television markets throughout the United
States. The estimates are expressed in terms of the percentage of the total
potential audience in the market viewing a station and of the percentage of the
audience actually watching television. Nielsen provides such data on the basis
of total television households and selected demographic groupings in the market.
Nielsen uses two methods of determining a station's ability to attract viewers.
In larger geographic markets, ratings are determined by meters connected
directly to selected television sets, while in smaller markets weekly diaries of
television viewing are completed by selected households. Advertising rates
charged by a television station are based in large part on
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the number of households tuned to a particular station during a particular time
period, the demographic characteristics of those households, and whether the
station is a leading station in its geographic market area.
Except as otherwise indicated herein, all current television ratings
information contained in the Prospectus is based upon data compiled from the
February 1996 Nielsen survey. Historical ratings information is based upon
ratings data contained in the February, May and November Nielsen surveys in
prior years, but excludes July Nielsen data. July ratings are considered to be
of minor significance due to low viewership during the early summer months and
the large percentage of reruns aired during that time. In addition, ratings
information for periods that the Olympic Games are broadcast by a Network,
including February 1994, are not considered by broadcasters or advertisers to be
indicative of future viewing trends and are therefore excluded. Certain ratings
for July and Olympic periods may be more or less favorable to the Company's
stations than ratings for other periods.
FCC Licenses
Television broadcasting is subject to the jurisdiction of the FCC under the
Communications Act. The Communications Act prohibits the operation of television
broadcasting stations except under a license issued by the FCC and empowers the
FCC, among other things, to issue, revoke and modify broadcasting licenses,
determine the locations of stations, regulate the equipment used by stations,
adopt regulations to carry out the provisions of the Communications Act and
impose penalties for violation of such regulations. The Telecommunications Act
of 1996, which amends major provisions of the Communications Act, was enacted on
February 8, 1996. The FCC has commenced, but not yet completed, implementation
of the provisions of the Telecommunications Act of 1996.
The Communications Act prohibits the assignment of a license or the
transfer of control of a licensee without prior approval of the FCC. In
addition, foreign governments, representatives of foreign governments,
non-citizens, representatives of non-citizens and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-citizens, however, may own up to 20% of the capital stock of a
licensee and up to 25% of the capital stock of a United States corporation that,
in turn, owns a controlling interest in a licensee. A broadcast license may not
be granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation of which more than one-fourth of the
capital stock is owned or voted by non-citizens or their representatives, by
foreign governments or their representatives, or by non-U.S. corporations, if
the FCC finds that the public interest will be served by the refusal or
revocation of such license. Under the Telecommunications Act of 1996,
non-citizens may serve as officers and directors of a broadcast licensee and any
corporation controlling, directly or indirectly, such licensee. The Company,
which is the licensee of one of the existing stations, is restricted by the
Communications Act from having more than one-fifth of its capital stock owned by
non-citizens, foreign governments or foreign corporations, but not from having
an officer or director who is a non-citizen.
Television broadcasting licenses are generally granted and renewed for a
period of five years, but may be renewed for a shorter period upon a finding by
the FCC that the "public interest, convenience and necessity" would be served
thereby. The Telecommunications Act of 1996 extends the license period for
television stations to eight years. Pursuant to the statute, the FCC has
proposed to grant and renew as a matter of course licenses for television
stations for a term of 8 years. At the time an application is filed for renewal
of a television license, parties in interest as well as members of the public
may apprise the FCC of the service the station has provided during the preceding
license term and urge the grant or denial of the application. Under the
Telecommunications Act of 1996, as implemented in the FCC's rules, a competing
application for authority to operate a station and replace the incumbent
licensee may not be filed against a renewal application and considered by the
FCC in deciding whether to grant a renewal application. The statute modified the
license renewal process to provide for the grant of a renewal application upon a
finding by the FCC that the licensee (i) has served the public interest,
convenience and necessity; (ii) has committed no serious violations of the
Communications Act or the FCC's rules; and (iii) has committed no other
violations of the Communications Act or the FCC's rules which would constitute a
pattern of abuse. If the FCC cannot make such a finding, it may deny a renewal
application, and only then may the FCC accept other applications to operate the
station of the former licensee. In the vast majority of cases, broadcast
licenses are renewed by the FCC even when petitions to deny are filed against
broadcast license renewal
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applications. All of the Company's licenses that have come up for renewal have
been renewed for full terms and are in effect. Such licenses are subject to
renewal at various times during 1997, 1998 and 1999. Although there can be no
assurance that the Company's licenses will be renewed, the Company is not aware
of any facts or circumstances that would prevent the Company from having its
licenses renewed.
FCC regulations govern the multiple ownership of broadcast stations and
other media on a national and local level. The Telecommunications Act of 1996
directs the FCC to eliminate or modify certain rules regarding
the multiple ownership of broadcast stations and other media on a national and
local level. Pursuant to this directive, the FCC has revised its rules to
eliminate the limit on the number of television stations that an individual or
entity may own or control nationally, provided that the audience reach of all
television stations owned does not exceed 35% of all U.S. households. The FCC
also will conduct a rulemaking proceeding, in accordance with the
Telecommunications Act of 1996, to determine whether to retain, eliminate or
modify its limitations on the number of television stations (currently one in
most instances) that an individual or entity may own within the same geographic
market.
Pursuant to the Telecommunications Act of 1996, the FCC has eliminated the
limit on the number of radio broadcast stations that an individual or entity may
own or control nationally. The FCC also has relaxed its local radio multiple
ownership rules governing the common ownership of radio broadcast stations in
the same geographic market. In accordance with the Telecommunications Act of
1996, the FCC's rules permit the common ownership of up to 8 commercial radio
stations, not more than 5 of which are in the same service (i.e., AM or FM), in
markets with 45 or more commercial radio stations. In markets with 30 to 44
commercial radio stations, an individual or entity may own up to 7 commercial
radio stations, not more than 4 of which are in the same service. In markets
with 15 to 29 commercial radio stations, an individual or entity may own up to 6
commercial radio stations, not more than 4 of which are in the same service. In
markets with 14 or fewer commercial radio stations, an individual or entity may
own up to 5 commercial radio stations, not more than 3 of which are in the same
service, provided that the commonly owned stations represent no more than 50% of
the stations in the market.
The Telecommunications Act of 1996 does not eliminate the FCC's rules
restricting the common ownership of a radio station and a television station in
the same geographic market ("one-to-a-market rule") and the common ownership of
a daily newspaper and a broadcast station located in the same geographic market.
The statute, however, does relax the FCC's one-to-a-market rule by authorizing
the FCC to extend its waiver policy to stations located in the 50 largest
television markets. As directed by the Telecommunications Act of 1996, the FCC
has eliminated its prior restriction on the common ownership of a cable system
and a television network. Although the statute lifts the prior statutory
restriction on the common ownership of a cable television system and a
television station located in the same geographic market, the FCC is not
statutorily required to eliminate its regulatory restriction on such common
ownership. The FCC is expected to initiate a proceeding this year to solicit
comments on retaining, modifying or eliminating this regulatory restriction.
Pursuant to the Telecommunications Act of 1996, the FCC has revised its rules to
permit the common ownership of multiple television networks under certain
circumstances. Furthermore, the statute directs the FCC to review all of its
ownership rules to determine whether they continue to serve the public interest.
Ownership of television licensees generally is attributed to officers,
directors and shareholders who own 5% or more of the outstanding voting stock of
a licensee, except that certain institutional investors who exert no control or
influence over a licensee may own up to 10% of such outstanding voting stock
before attribution results. Under FCC regulations, debt instruments, non-voting
stock and certain limited partnership interests (provided the licensee certifies
that the limited partners are not "materially involved" in the media-related
activities of the partnership) and voting stock held by minority shareholders
where there is a single majority shareholder generally will not result in
attribution. Under the FCC's multiple and cross-ownership rules, which have been
or will be revised in accordance with the Telecommunications Act of 1996, an
officer or director of the Company or a holder of the Company's Voting Common
Stock who has an attributable interest in other broadcast stations, a cable
television system or a daily newspaper, may violate the FCC regulations
depending on the number and location of the other broadcasting stations, cable
television systems or daily newspapers attributable to such person. In addition,
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the FCC's cross-interest policy, which precludes an individual or entity from
having an attributable interest in one media property and a "meaningful" (but
not attributable) interest in another media property in the same area, may be
invoked in certain circumstances to reach interests not expressly covered by the
multiple ownership rules. None of the Company's officers, directors or holders
of Voting Common Stock have attributable or non-attributable interests in
broadcasting stations, cable television systems or daily newspapers that violate
the FCC's multiple and cross-ownership rules.
The FCC has repealed its prime time access rule ("PTAR") effective August
30, 1996, retaining the rule in its present form until that date. PTAR generally
prohibits television stations affiliated with the ABC, CBS or NBC Network in the
50 largest television markets from broadcasting more than three hours of network
programming or off-network programming during the four hours of prime time. The
Company cannot predict how the repeal of PTAR will affect the Company's
business.
The Telecommunications Act of 1996 authorizes the FCC to issue additional
licenses for advanced television ("ATV") services only to individuals or
entities that hold an authorization to operate or construct a television station
("Existing Broadcasters"). ATV is a technology that will improve the technical
quality to television service. The Telecommunications Act of 1996 directs the
FCC to adopt rules to permit Existing Broadcasters to use their ATV channels for
various purposes, including foreign language, niche, or other specialized
programming. The statute also authorizes the FCC to collect fees from Existing
Broadcasters who use their ATV channels to provide services for which payment is
received. Prior to the enactment of the Telecommunications Act of 1996, members
of Congress sought assurance from the FCC that it would not implement any plan
to award spectrum for ATV service until additional legislation is enacted to
resolve spectrum issues such as whether broadcasters should be required to pay
for ATV licenses. In response to this request, the FCC stated that it would not
award licenses or construction permits for ATV service until such additional
legislation is enacted to address ATV spectrum issues.
The Cable Television Consumer Protection and Competition Act of 1992
The Cable Television Consumer Protection and Competition Act of 1992 (the
"Cable Act") and the FCC's implementing regulations give television stations the
right to control the use of their signals on cable television systems. Under the
Cable Act, at three year intervals beginning in June 1993, each television
station is required to elect whether it wants to avail itself of must-carry
rights or, alternatively, to grant retransmission consent. If a television
station elects to exercise its authority to grant retransmission consent, cable
systems are required to obtain the consent of that television station for the
use of its signal and could be required to pay the television station for such
use. The Cable Act further requires mandatory cable carriage of all qualified
local television stations electing their must-carry rights or not exercising
their retransmission rights. All initial arrangements relating to retransmission
consent were required to be entered into by October 6, 1993. Each of the
Company's stations has either elected its must-carry rights or entered into
retransmission consent agreements with substantially all cable systems in its
DMA. KNTV has elected to exercise its must-carry rights in both the
Salinas-Monterey DMA and Santa Clara County. The Company's other stations have
elected to require retransmission consent in substantially all cases, with the
remainder exercising must-carry rights. Approximately 60% of the households in
the geographic areas with respect to which the Company's stations have elected
to exercise their retransmission rights subscribe to cable television.
The Company's stations have elected to exercise their must-carry rights or
entered into long-term retransmission agreements requiring continued carriage of
the Company's stations on cable systems covering the majority of the cable
households in its stations' DMAs. The long-term retransmission agreements range
in duration from one to five years, and in most cases are automatically renewed
for an additional term unless notice of nonrenewal is given by either party.
With respect to the remaining cable households, the Company has entered into
short-term retransmission agreements, which are expected to be replaced by
longer term agreements in 1996. The Company cannot predict the outcome of
retransmission negotiations for replacement of existing short-term agreements
and, although the Company also expects to renew its current retransmission
agreements upon expiration, there can be no assurance that such replacements or
renewals will be entered into. Under the FCC's rules,
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television stations must make their next election between must-carry and
retransmission consent status by October 1, 1996, which will take effect on
January 1, 1997. Television stations that fail to make an election by the
specified deadline will be deemed to have elected must-carry status for the
relevant three year period.
On April 8, 1993, a special three-judge panel of the U.S. District Court
for the District of Columbia upheld the constitutionality of the must-carry
provisions of the Cable Act. However, on June 27, 1994, the U.S. Supreme Court
vacated the lower court's judgment and remanded the case to the District Court
for further proceedings. Although the Supreme Court found the must-carry rules
to be content-neutral, it also found that genuine issues of material fact still
remained that must be resolved on a more detailed evidentiary record. On remand,
on December 13, 1995, the District Court upheld the constitutionality of the
must-carry rules. An appeal of the District Court's decision is pending before
the Supreme Court. In the meantime, however, the FCC's must-carry regulations
implementing the Cable Act remain in effect. The Company cannot predict the
outcome of such challenges or the effect on the Company's business if the
must-carry or retransmission consent provisions of the Cable Act are found to be
unconstitutional or otherwise unlawful.
Proposed Legislation and Regulations
The FCC has under consideration and the Congress and the FCC, in the future
may consider and adopt new or modify existing laws, regulations and policies
regarding a wide variety of matters that could affect, directly or indirectly,
the operation, ownership and profitability of the Company's stations, result in
the loss of audience share and advertising revenues for the Company's stations
and affect the ability of the Company to acquire additional stations or finance
such acquisitions. Such matters include: (i) spectrum use or other fees on FCC
licensees; (ii) the FCC's equal employment opportunity rules and other matters
relating to minority and female involvement in the broadcasting industry; (iii)
rules relating to political broadcasting; (iv) technical and frequency
allocation matters; (v) changes in the FCC's cross-interest, multiple ownership
and cross-ownership rules and policies; (vi) changes to broadcast technical
requirements; (vii) limiting the tax deductibility of advertising expenses by
advertisers; and (viii) changes to the standards governing the evaluation and
regulation of television programming directed towards children, and violent and
indecent programming.
Specifically, and as an example of the above proposed changes, the FCC has
initiated rulemaking proceedings to solicit comments on its multiple ownership,
attribution and minority ownership rules as well as other rules with respect to
television broadcasting generally. More particularly, on January 17, 1995 the
FCC released a Further Notice of Proposed Rulemaking which proposed, among other
things, the following changes regarding television broadcasting: (i) narrowing
the geographic area where common ownership restrictions would be triggered by
limiting it to overlapping "Grade A" contours rather than "Grade B" contours and
by permitting (or granting waivers in particular cases or markets) certain
UHF/UHF or UHF/VHF overlaps; (ii) relaxing the rules prohibiting cross-ownership
of radio and television stations in the same market to allow certain
combinations where there remain alternative outlets and suppliers to ensure
diversity; and (iii) treating television Local Marketing Agreements ("LMAs") the
same as radio LMAs, which would currently preclude certain television LMAs where
the programmer owns or has an attributable interest in another television
station in the same market. The Company cannot predict the outcome of the FCC's
rulemaking proceedings or how FCC changes in its multiple and cross-ownership
rules, made in accordance with the Telecommunications Act of 1996, will affect
the Company's business.
On January 12, 1995, the FCC released two additional Notices of Proposed
Rulemaking. The first seeks comment on whether the FCC should relax attribution
and other rules to facilitate greater minority and female ownership. The second
seeks comment on whether the FCC should modify its attribution rules by, among
other things, (i) restricting the availability of the single majority
shareholder exemption and (ii) attributing certain non-equity interests such as
non-voting stock, debt and certain holdings by limited liability corporations.
In the context of this latter rulemaking, the Commission is further examining
its cross interest policy and seeks comment on the appropriate treatment of
nonequity financial interests and multiple business interrelationships between
licensees. The Company cannot predict the outcome of those proceedings or how
they will affect the Company's business.
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The FCC also has initiated a notice of inquiry proceeding seeking comment
on whether the public interest would be served by establishing limits on the
amount of commercial matter broadcast by television stations. No prediction can
be made at this time as to whether the FCC will impose any limits on commercials
at the conclusion of its deliberation. The imposition of limits on the
commercial matter broadcast by television stations may have an adverse effect on
the Company's revenues.
The FCC is currently examining or has recently completed review of a number
of rules that govern the relationship between broadcast television networks and
their affiliates and that are applicable to all broadcast television networks.
In particular, the FCC has eliminated the network station ownership rule
prohibiting network ownership of television stations in markets where the
existing television stations are so few or of such unequal desirability that
competition would be substantially restrained. Although the FCC continues to
restrict network representation of affiliates for the sale of spot advertising
time, the FCC has issued a notice of proposed rulemaking to re-examine its rule
prohibiting affiliate stations from being represented by their networks for the
sale of non-network broadcast time. In the same rulemaking proceeding, the FCC
also is re-examining its rule prohibiting agreements by which a network can
influence or control the rates its affiliates set for the sale of their
non-network broadcast time. Additionally, the FCC has issued a separate notice
of proposed rulemaking to consider the following: (i) eliminating financial
considerations as a sole justification for an affiliate's exercise of its right
to reject network programming; (ii) modifying the time option rule to permit
networks to option time on affiliate stations as long as the affiliates are
given sufficient advance notice; (iii) eliminating, at least in large markets,
the exclusive affiliation rule prohibiting arrangements that bar an affiliate
from broadcasting the programming of another network; (iv) eliminating the
territorial exclusivity rule's prohibition against agreements that prevent
another station in the same market from broadcasting network programming that
has been rejected by the network's affiliate; and (v) reexamining the dual
network rule preventing a single entity from owning more than one network. The
Company cannot predict whether the FCC's proposed rule changes will be adopted
or how these proposed changes would affect the Company's business.
The FCC also has released a Notice of Proposed Rulemaking seeking comment
on whether to consider effective market access as a factor in permitting
non-citizen ownership of a licensee's parent company in excess of 25%. Under
this proposal, a citizen of a foreign country would be permitted to own more
than 25% of a broadcast licensee's parent company if a U.S. citizen were
permitted the same level of investment in a broadcast licensee's parent company
in the foreign investor's country. In addition, the FCC is seeking comments on
other proposals for permitting non-citizen ownership of a licensee's parent
company in excess of 25%. The Company cannot predict whether the FCC proposal
will be adopted or how these proposed changes would affect the Company's
business.
The FCC has begun adopting rules and proposing others to implement advanced
television service ("ATV") which includes high definition television systems.
ATV is a technology that will improve television audio and video quality. The
FCC has "set aside" channels within the existing television system for ATV and
has limited initial ATV eligibility to existing television stations and certain
applicants for new television stations ("Existing Broadcasters"). The FCC has
preliminarily established a three-year period, commencing on a date to be
determined, during which Existing Broadcasters have the exclusive right to apply
for ATV channels. The FCC proposed to allow Existing Broadcasters six months in
which to decide whether to apply for an ATV channel and an additional 2 1/2
years to supply the FCC with the information necessary for the FCC to issue an
authorization for the ATV channel. The FCC has preliminarily decided to allow
Existing Broadcasters who file timely applications for ATV channels to have
three years from the expiration of the three-year application filing period to
construct their ATV facilities. The FCC has determined that ATV will be a
digital system incompatible with current television transmitters and receivers.
The rules for phasing in ATV service permit each television station to provide
conventional television service on its regular channel until ATV service has
become the prevalent medium. The FCC is seeking comments on a timetable for
requiring broadcasters to convert to ATV. Broadcasters will have to convert to
ATV by the conversion deadline and surrender one channel back to the FCC. The
FCC also proposed phased in simulcasting requirements during the transition
period under which a broadcaster must simulcast on its ATV channel the
programming that is broadcast on its existing conventional channel. The FCC also
adopted a timetable for periodic review of the simulcasting and conversion
deadlines. The FCC also proposed licensing the
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ATV and conventional broadcast channels under a single license. In addition, the
FCC is seeking comments on whether broadcasters should provide a minimum amount
of free over-the-air television broadcasting on the ATV channel and to what
extent to allow the use of ATV spectrum for services other than free
over-the-air broadcasting. The FCC also is seeking comments on whether to allow
an extension of the six year application and construction period under certain
circumstances, including circumstances involving financial hardship and stations
serving small or economically disadvantaged areas. The FCC has further proposed
several broad objectives to govern the ATV channel allotment process and has
proposed a number of procedures and specific technical criteria to be used in
allotting ATV channels. The FCC also issued for public comment a working draft
of a proposed ATV Table of Allotments intended to provide an ATV channel for
each existing television station in a manner that will maximize the coverage for
ATV stations while taking into account interference to existing television
stations and between ATV stations. The FCC has proposed to adopt the Advanced
Television Systems Committee Standard as the standard for digital television
broadcasting in the United States. This standard was developed jointly by the
three groups that previously had developed four different, competing digital
television standards for consideration by the FCC. If the FCC adopts a standard
for ATV service that is inferior to the signal quality alternative video
technologies provide, such action could have a negative impact on the audience
and revenues for television stations. Implementation of ATV service will impose
substantial additional costs on television stations to provide the new service,
due to increased equipment costs. It is also possible that advances in
technology may permit Existing Broadcasters to enhance the picture quality of
existing systems without the need to implement ATV service. Prior to the
enactment of the Telecommunications Act of 1996, members of Congress sought
assurance from the FCC that it would not implement any plan to award spectrum
for ATV service until additional legislation is enacted to resolve spectrum
issues such as whether broadcasters should be required to pay for ATV licenses.
In response to this request, the FCC stated that it would not award licenses or
construction permits for ATV service until legislation is enacted to address ATV
spectrum issues. Such legislation, if adopted, may require Existing Broadcasters
to pay for ATV licenses. Although the Company believes the FCC will authorize
ATV service, the Company cannot predict when such authorization might be given
or the effect such authorization might have on the Company's business or capital
expenditure requirements. Consistent with the Telecommunications Act of 1996,
the FCC has begun a rulemaking asking for public comment on proposals to allow
licensees to provide ancillary digital services within the video portion of
their broadcast signals. The Company cannot predict whether these proposals will
be enacted and if enacted the effect these proposals would have on the Company.
Seasonality
The Company's operating revenues are generally lower in the first calendar
quarter and generally higher in the fourth calendar quarter than in the other
two quarters, due in part to increases in retail advertising in the fall months
in preparation for the holiday season, and in election years due to increased
political advertising.
Employees
The Company and its subsidiaries currently employ approximately 955
persons, of whom approximately 284 are represented by two unions (including 11
bargaining units) pursuant to contracts expiring in 1996 and 1997. The Company
believes its relations with its employees are good.
Special Tax Status
Historically, the FCC issued tax certificates pursuant to Code Section 1071
to encourage ownership of broadcast facilities by minority-controlled companies,
such as Granite. Subject to certain conditions, a tax certificate allowed
sellers of broadcast facilities to minority-controlled companies to elect to (i)
defer payment of capital gains tax on the sale of such facilities provided that
the seller reinvested the proceeds within two years in a "qualified replacement
property" such as another broadcast property or the stock of a broadcast entity,
and, if desired, to the extent not applied in (i) above or (ii) use the gain to
reduce the basis of specific depreciable property which the seller retained. In
1995, the President signed into law legislation that eliminates
minority-controlled companies'
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ability to make use of a tax certificate. The Company does not anticipate that
this elimination will have any material adverse effect on the Company.
Properties
The Company's principal executive offices are located in New York, New
York. The lease agreement, for approximately 6,800 square feet of office space,
expires January 31, 2011.
The types of properties required to support each of the Company's stations
include offices, studios, transmitter sites and antenna sites. A station's
studios are generally housed with its offices in downtown or business districts.
The transmitter sites and antenna sites are generally located so as to provide
maximum market coverage.
The following table contains certain information describing the general
character of the Company's properties:
<TABLE>
<CAPTION>
Owned or Expiration of
Station Metropolitan Area and Use Leased Approximate Size Lease
------- ------------------------- ------ ---------------- -----
<S> <C> <C> <C> <C>
KNTV San Jose, California
Office and Studio Owned 26,469 sq. feet --
Tower Site Leased 2,080 sq. feet 9/30/97
Low Power Transmission Site Leased 100 sq. feet 1/1/2001(a)
WTVH Syracuse, New York
Office and Studio Owned 41,500 sq. feet --
Onondaga, New York
Tower Site Owned 2,300 sq. feet --
KSEE Fresno, California
Office and Studio Owned 32,000 sq. feet --
Bear Mountain, Fresno County, California
Tower Site Leased 9,300 sq. feet 3/22/2034
WPTA Fort Wayne, Indiana
Office, Studio and Tower Site Owned 18,240 sq. feet --
WEEK Peoria, Illinois
Office, Studio and Tower Site Owned 20,000 sq. feet --
Bloomington, Illinois
Studio and Sales Office Leased 617 sq. feet 12/31/96
KBJR Duluth, Minnesota, Superior, Wisconsin
Office and Studio Owned 15,749 sq. feet --
Tower Site Owned 3,125 sq. feet --
KEYE Austin, Texas
Office and Studio Owned 14,000 sq. feet --
Tower Site Leased 1,600 sq. feet 5/1/2013(a)
WWMT Kalamazoo, Michigan
Office and Studio Owned 45,000 sq. feet --
Gun Lake, Michigan
Tower Site Owned 3,580 sq. feet --
WKBW Buffalo, New York
Office and Studio Owned 32,000 sq. feet --
Colden, New York
Tower Site Owned 3,406 sq. feet --
</TABLE>
- ---------------
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(a) Assuming exercise of all of the Company's renewal options under such lease.
Legal Proceedings
Not applicable
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MANAGEMENT
The following table sets forth information concerning the executive
officers and directors of the Company as of March 1, 1996:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
W. Don Cornwell(1)................ 48 Chairman of the Board, Chief Executive Officer
and Director
Stuart J. Beck(1)................. 49 President, Treasurer, Secretary and Director
Lawrence I. Wills................. 35 Vice President-Finance and Controller
Ellen McClain..................... 31 Vice President-Corporate Development and Treasurer
James L. Greenwald(2)............. 68 Director
Vickee Jordan Adams............... 36 Director
Martin F. Beck(2)................. 78 Director
Edward Dugger, III(2)............. 46 Director
Thomas R. Settle(1)(3)............ 54 Director
Charles J. Hamilton, Jr.(3)....... 48 Director
Mikael Salovaara.................. 42 Director
</TABLE>
- ----------
(1) Member of the Stock Option Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee and Management Stock Plan Committee.
Mr. Cornwell is a founder of the Company and has been Chairman of the Board
of Directors and Chief Executive Officer of the Company since February 1988. Mr.
Cornwell served as President of the Company, which office then included the
duties of chief executive officer, until September 1991 when he was elected to
the newly- created office of Chief Executive Officer. Prior to founding the
Company, Mr. Cornwell served as a Vice President in the Investment Banking
Division of Goldman, Sachs & Co. ("Goldman Sachs") from May 1976 to July 1988.
In addition, Mr. Cornwell was the Chief Operating Officer of the Corporate
Finance Department of Goldman Sachs from January 1980 to August 1987. Mr.
Cornwell is a director of Melville Corporation, Hershey Trust Company, the
Milton S. Hershey School and Utendahl Capital Partners. Mr. Cornwell received a
Bachelor of Arts degree from Occidental College in 1969 and a Masters degree in
Business Administration from Harvard Business School in 1971.
Mr. Stuart Beck is a founder of the Company and has been a member of the
Board of Directors and Secretary of the Company since February 1988 and
President of the Company since September 1991. Prior to founding the Company,
Mr. Beck was an attorney in private practice of law in New York, New York and
Washington, DC. Mr. Beck received a Bachelor of Arts degree from Harvard College
in 1968 and a Juris Doctor degree from Yale Law School in 1971. Mr. Beck is the
son of Martin F. Beck.
Mr. Wills has been Vice President-Finance and Controller of the Company
since June 25, 1990. Prior to joining the Company, Mr. Wills was employed by
Ernst & Young LLP from July 1982 to May 1990 in various capacities, the most
recent of which was as audit manager responsible for managing and supervising
audit engagements. Mr. Wills is a director of the Broadcast Cable Financial
Management Association. Mr. Wills received a bachelors degree in Business
Administration from Iona College in 1982.
Ms. McClain has been Vice President - Corporate Development and Treasurer
of the Company since January 1994. Prior to joining Granite, Ms. McClain
attended Harvard Business School, where she received a
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Masters degree in Business Administration in June 1993. From 1990 to 1991, Ms.
McClain was an Assistant Vice President with Canadian Imperial Bank of Commerce,
where she served as a lender in the Bank's Media Group and from 1986 to 1990 was
employed by Bank of New England, N.A. in various capacities including a lender
in the Communications Group. Ms. McClain received a Bachelor of Arts Degree in
Economics from Brown University in 1986.
Mr. Greenwald has been a member of the Board of Directors of the Company
since December 1988. Mr. Greenwald was the Chairman and Chief Executive Officer
of Katz Communications, Inc. from May 1975 to August 1994 and has been Chairman
Emeritus since August 1994. Mr. Greenwald has served as President of the Station
Representatives Association and the International Radio and Television Society
and Vice President of the Broadcast Pioneers. Mr. Greenwald received a Bachelor
of Arts degree from Columbia University in 1949 and an Honorary Doctorate Degree
in Commercial Science from St. Johns University in 1980.
Ms. Adams has been a member of the Board of Directors of the Company since
August 1988. Ms. Adams has been Vice President, Director of Communications
Training with Ketchum P.R., a New York City-based public relations firm, since
October 1992. From February 1990 to September 1992, Ms. Adams was Vice
President, Manager Communications Training with Burson-Marsteller, a New York
City-based public relations firm. From December 1983 to February 1990, Ms. Adams
served in various capacities in Burson-Marsteller's Communications Training
section. Ms. Adams is an Advisory Council Member of the New York Zoological
Society and a member of the PENN Club Board of Governors. She has also served on
the Board of the NOW Legal Defense and Education Fund since 1988. Ms. Adams
received a Bachelor of Arts degree from the University of Pennsylvania in 1981.
Mr. Martin Beck has been a member of the Board of Directors of the Company
since December 1988. Mr. Beck has served as Chairman of Beck-Ross
Communications, Inc., a New York-based group owner of FM radio stations, from
June 1966 until April 1995, at which time he retired. Mr. Beck has served as
President of the New York State Broadcasters Association, the Long Island
Broadcasters Association and the National Association of Broadcasters Radio
Board. Mr. Beck is a director of Tribune Swab Fox Companies, Inc. Mr. Beck
received a Bachelor of Arts degree from Cornell University in 1938. Mr. Beck is
the father of Stuart J. Beck.
Mr. Dugger has been a member of the Board of Directors of the Company since
December 1988. Mr. Dugger has been President and Chief Executive Officer of UNC
Ventures, Inc., a Boston-based venture capital firm, since January 1978. Mr.
Dugger is a director of the Federal Reserve Bank of Boston, Envirotest Systems
Corporation and U.S. Radio, Inc. Mr. Dugger received a Bachelor of Arts degree
from Harvard College in 1971 and a Masters degree in Public Administration and
Urban Planning from Princeton University in 1973. In 1988, prior to the
investment in the Company by UNC Ventures, Inc. and UNC Ventures II, L.P. (the
"UNC Entities"), an agreement was entered into between Mr. Cornwell, Mr. Stuart
Beck and the UNC Entities pursuant to which Mr. Dugger was to become a member of
the Company's Board of Directors and be assured of remaining on the Board until
the earlier to occur of certain events, including the effectiveness of a
registration statement covering any securities of the Company. This event
occurred on January 13, 1992 when the Company's registration statement for the
initial public offering of the Common Stock (Nonvoting) was declared effective
by the Commission.
Mr. Hamilton has been a member of the Board of Directors of the Company
since July 1992. Mr. Hamilton has been a partner in the New York law firm of
Battle Fowler since 1983. Mr. Hamilton received a Bachelor of Arts degree from
Harvard College in 1969 and a Juris Doctor degree from Harvard Law School in
1975. Mr. Hamilton is a trustee of the National Urban League, Inc. and the
Environmental Defense Fund. Mr. Hamilton is a member of the Board of Directors
of the Phoenix House Foundation, Inc. He is a member of the Committee on Policy
for Racial Justice of the Joint Center for Political and Economic Studies, Inc.
in Washington, DC and is Chairman of the Board of Directors of the Higher
Education Extension Service.
Mr. Settle has been a member of the Board of Directors of the Company since
July 1992. Mr. Settle founded and has been the President of The Winchester
Group, Inc., an investment advisory firm, since 1990. Mr. Settle was the chief
investment officer at Bernhard Management Corporation from 1985 to 1989. He was
a
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Managing Director of Furman Selz Capital Management from 1979 until 1985. Mr.
Settle received a Bachelor of Arts Degree from Muskingum College in 1963 and a
Masters degree in Business Administration from Wharton Graduate School in 1965.
Mr. Salovaara has been a member of the Board of Directors since March 1994.
Mr. Salovaara has been a General Partner of Greycliff Partners, an investment
advisory firm, since 1991 and a Limited Partner of the Blackstone Group since
1994. From 1988 to 1991, Mr. Salovaara was a General Partner of Goldman, Sachs &
Co. Prior to becoming a General Partner, Mr. Salovaara worked at Goldman, Sachs
& Co. in various capacities from 1980 to 1988. Mr. Salovaara is a trustee of
Playwrights Horizons in New York City and a director of Hadco Corporation and a
director of Circuit City Stores, Inc. Mr. Salovaara received a Bachelor of Arts
degree from Dartmouth College in 1974, a Juris Doctor degree and Masters degree
in Business Administration from the University of Virginia in 1980 and a Masters
of Arts degree from Cambridge University in 1986.
All members of the Board of Directors hold office until the next annual
meeting of shareholders of the Company or until their successors are duly
elected and qualified. All officers are elected annually and serve at the
discretion of the Board of Directors.
Members of the Board of Directors are entitled to receive a fee of $1,500
for each Board of Directors meeting attended in person. Pursuant to and in
accordance with the terms and conditions of the Company's Director Stock Option
Plan (the "Director Option Plan"), however, once every three years, each
director was permitted to elect (a "Triennial Election") to receive options to
purchase shares of the Company's Common Stock (Nonvoting) ("Options"), in lieu
of cash compensation, for attendance at regularly scheduled quarterly meetings
of the Board ("Regular Quarterly Meetings") during the three years subsequent to
the Triennial Election or until their earlier termination (the "Triennial Option
Period"). At the end of the current Triennial Option Period, February 28, 1997,
and each third year anniversary thereafter, however, all directors will
automatically receive an option to purchase 18,000 shares of Common Stock
(Nonvoting) ("Automatic Director Service Awards") as compensation for attendance
at Regular Quarterly Meetings during the Triennial Option Period subsequent to
the grant, in lieu of cash compensation. Directors elected or appointed during
the Triennial Option Period receive Options, in lieu of cash compensation, for
the remaining portion of the Triennial Option Period.
During the Triennial Option Period, Options to purchase shares of Common
Stock (Nonvoting) become exercisable one year (or immediately in the case of
Automatic Director Service Awards) from the date of attendance by director at a
Regular Quarterly Meeting in the following amounts: (i) 1,500 shares for
attendance in person; or (ii) 500 shares for attendance by telephonic means. The
exercise price of all Options is the fair market value of the Common Stock
(Nonvoting) on the date of grant. The following directors have elected to
receive Options, in lieu of cash compensation, for the current Triennial Option
Period: James L. Greenwald, Vickee Jordan Adams, Martin F. Beck, Thomas R.
Settle, Charles J. Hamilton, Jr. and Mikael Salovaara. See "Executive
Compensation -- Director Stock Option Plan."
In addition, under the Director Option Plan, directors receive Options
("Automatic Committee Awards") to purchase shares of Common Stock (Nonvoting)
for service on certain of the committees of the Board of Directors (each a
"Committee"). Automatic Committee Awards to purchase 1,500 shares of Common
Stock (Nonvoting) become exercisable one year (or immediately for Automatic
Committee Awards to be granted after February 27, 1997) from the date of
attendance, in person, at each regularly scheduled Committee meeting.
Directors are not separately reimbursed by the Company for their travel
expenses incurred in attending Board or committee meetings.
67
<PAGE>
Executive Compensation
The following table sets forth the cash compensation paid by the Company to
its Chief Executive Officer and each of its most highly compensated executive
officers whose total cash compensation exceeded $100,000 during the fiscal year
ended December 31, 1995, for each of the three years in the period ended
December 31, 1995:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
----------------------------------- -----------------------
Restricted All Other
Name and Stock Options/ Compensation
Principal Position Year Salary ($) Bonus ($) Awards SARs (#) ($)(1)
- -------------------- -------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
W. Don Cornwell 1995 $460,000 $ - $ - 165,000 $ 4,620
Chief Executive 1994 270,000 - - - 3,000
Officer 1993 332,000 - 280,500(2) 192,500 1,800
Stuart J. Beck 1995 460,000 - - 135,000 4,620
President 1994 267,000 - - - 2,000
1993 260,000 - 229,500(3) 157,500 4,364
Lawrence I. Wills 1995 115,000 28,000 - - 2,875
Vice President - 1994 105,000 25,000 70,000(4) - 2,100
Finance and 1993 100,000 20,000 - - 2,000
Controller
Ellen McClain 1995 85,000 45,000 41,438(5) - 2,125
Vice President - Corporate 1994 68,000 17,000 30,000(6) - -
Development and Treasurer 1993 - - - - -
</TABLE>
- ----------
(1) Represents matching Company contributions under the Company's Employees'
Profit Sharing and Savings (401(k)) Plan.
(2) Represents the market value on the date of award of 93,500 Bonus Shares (as
defined) awarded under the Company's Management Stock Plan on April 27,
1993. On each of December 31, 1993, 1994 and 1995, 18,700 Bonus Shares
vested. An additional 18,700 Bonus Shares will vest on each of December 31,
1996 and December 31, 1997. Shares of Common Stock (Nonvoting) subject to
an award of Bonus Shares are not deemed issued and outstanding until such
Bonus Shares vest, and no shareholder rights, including the right to
receive dividends, if any, will arise with respect thereto until such Bonus
Shares vest.
(3) Represents the market value on the date of award of 76,500 Bonus Shares
awarded under the Company's Management Stock Plan on April 27, 1993. On
each of December 31, 1993, 1994 and 1995, 15,300 Bonus Shares vested. An
additional 15,300 Bonus Shares will vest on each of December 31, 1996 and
December 31, 1997. Shares of Common Stock (Nonvoting) subject to an award
of Bonus Shares are not deemed issued and outstanding until such Bonus
Shares vest, and no shareholder rights, including the right to receive
dividends, if any, will arise with respect thereto until such Bonus Shares
vest.
(4) Represents the market value on the date of award of 17,500 Bonus Shares
awarded under the Company's Management Stock Plan on March 15, 1994. On
each of December 31, 1994 and 1995, 3,500 Bonus Shares vested. An
additional 3,500 Bonus Shares will vest on December 31, 1996 and each
anniversary thereof through December 31, 1998. Shares of Common Stock
(Nonvoting) subject to an Award of Bonus
68
<PAGE>
Shares are not deemed issued and outstanding until such Bonus Shares vest,
and no shareholder rights, including the right to receive dividends, if
any, will arise with respect thereto until such Bonus Shares vest.
(5) Represents the market value on the date of award of 6,500 Bonus Shares
awarded under the Management Stock Plan on July 1, 1995. On December 31,
1995, 1,000 Bonus Shares vested. An additional 1,000 Bonus Shares will vest
on December 31, 1996 and each anniversary thereof through December 31, 1998
and 2,500 Bonus Shares will vest on December 31, 1999. Shares of Common
Stock (Nonvoting) subject to an Award of Bonus Shares are not deemed issued
and outstanding until such Bonus Shares vest, and no shareholder rights,
including the right to receive dividends, if any, will arise with respect
thereto until such Bonus Shares vest.
(6) Represents the market value on the date of award of 7,500 Bonus Shares
awarded under the Management Stock Plan on March 15, 1994. On each of
December 31, 1994 and 1995, 1,500 Bonus Shares vested. An additional 1,500
Bonus Shares will vest on December 31, 1996 and each anniversary thereof
through December 31, 1998. Shares of Common Stock (Nonvoting) subject to an
Award of Bonus Shares are not deemed issued and outstanding until such
Bonus Shares vest, and no shareholder rights, including the right to
receive dividends, if any, will arise with respect thereto until such Bonus
Shares vest.
Employment Agreements and Compensation Arrangements
Mr. Cornwell and Mr. Stuart Beck each have an employment agreement with the
Company. The agreements provide for a two year employment term which is
automatically renewed for subsequent two year terms unless advance notice of
nonrenewal is given (the current term under such agreements, which were renewed
in 1995, expires September 19, 1997). The base salary determined by the
Compensation Committee of the Board of Directors was $267,000 for 1994 and
$460,000 for 1995. The agreements stipulate that Mr. Cornwell and Mr. Beck will
devote their full time and efforts to the Company and will not engage in any
business activities outside the scope of their employment with the Company
unless approved by a majority of the Company's independent directors. Under the
agreements, Mr. Cornwell and Mr. Beck are permitted to exchange any or all of
their shares of Voting Common Stock for shares of Common Stock (Nonvoting),
provided that such exchange does not jeopardize the Company's status as a
minority-controlled entity under FCC regulations and that, after such exchange
is effected, there will continue to be shares of voting stock of the Company
outstanding. In addition to the compensation set forth in the employment
agreements, Mr. Cornwell and Mr. Beck are eligible to receive incentive bonus
payments under the Company's incentive bonus plan and stock options under
certain of the Company's stock option plans. See "--Incentive Bonus Plan,"
"--Stock Option Plan," "--Management Stock Plan" and "--Target Cash Flow Stock
Option Plan."
In November 1990, the Compensation Committee of the Board of Directors
established each of Mr. Cornwell's and Mr. Stuart Beck's base compensation for
fiscal 1991 at $210,000. In order for the Company to remain in compliance with
one of its covenants under the loan agreement relating to its then existing bank
debt, in 1991 Mr. Cornwell adjusted his base salary down to $20,730. In 1992,
the Board of Directors of the Company adopted a resolution providing that Mr.
Cornwell's salary adjustment in 1991 did not vitiate Mr. Cornwell's right to the
remainder of his base compensation in subsequent years. In connection therewith,
Mr. Cornwell received supplemental payments in 1992, 1993 and 1994 totaling
$33,000, $72,000 and $3,000, respectively.
Under an employment arrangement with the Company, Mr. Wills is eligible to
receive an annual cash bonus based upon the Company's financial performance
during that year, such bonus to be determined by Messrs. Cornwell and Beck. Mr.
Wills's 1995 base salary was fixed at $115,000.
Under an employment arrangement with the Company, Ms. McClain is eligible
to receive an annual cash bonus based upon the Company's financial performance
during that year, such bonus to be determined by Messrs. Cornwell and Beck. Ms.
McClain's 1995 base salary was fixed at $85,000.
69
<PAGE>
401(k) Profit Sharing and Savings Plan
Effective January 1990, the Company adopted the Granite Broadcasting
Corporation Employees' Profit Sharing and Savings (401(k)) Plan for the purpose
of providing retirement benefits for substantially all of its employees.
Contributions to the Plan are made by both the employee and the Company. The
Company matches 50% of that part of an employee's deferred compensation which
does not exceed 5% of such employee's salary (4% in 1994). Company-matched
contributions vest at a rate of 20% for each year of an employee's service to
the Company.
A contribution to the Plan of $499,000 was charged to expense for 1995.
Employee Stock Purchase Plan
On February 28, 1995, the Company adopted the Granite Broadcasting
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") for the
purpose of enabling its employees to acquire ownership of Common Stock
(Nonvoting) at a discount, thereby providing an additional incentive to promote
the growth and profitability of the Company. The Stock Purchase Plan enables
employees of the Company to purchase up to an aggregate of 1,000,000 shares of
Common Stock (Nonvoting) at 85% of the then current market price through
application of regularly made payroll deductions. The Stock Purchase Plan is
administered by a Committee consisting of not less than two directors who are
ineligible to participate in the Stock Purchase Plan. The members of the
Committee are currently Mr. Cornwell and Mr. Stuart J. Beck. At the discretion
of the Committee, purchases under the Stock Purchase Plan may be effected
through issuance of authorized but previously unissued shares, treasury shares
or through open market purchases. The Committee has engaged a brokerage company
to administer the day-to-day functions of the Stock Purchase Plan. Purchases
under the Stock Purchase Plan commenced on June 1, 1995.
Stock Option Plan
In April 1990, the Company adopted a Stock Option Plan (the "Stock Option
Plan") providing for the grant, from time to time, of Options to key employees,
officers and directors of the Company or its affiliates (collectively, the
"Participating Persons") to purchase shares of Common Stock (Nonvoting). On
April 27, 1993, 192,500 Options were granted to Mr. Cornwell and 157,500 Options
were granted to Mr. Stuart Beck. On April 25, 1995, 165,000 Options were granted
to Mr. Cornwell and 135,000 Options were granted to Mr. Stuart Beck. On July 25,
1995, the Plan was amended to increase the shares of Common Stock (Nonvoting)
subject to Options available for grant under the Plan to 2,000,000 from 800,000.
As of December 31, 1995, Options granted under the Plan were outstanding for the
purchase of 947,250 shares of Common Stock (Nonvoting). On April 23, 1996,
166,000 Options were granted to Mr. Cornwell and 135,000 Options were granted to
Mr. Stuart Beck. On April 25, 1996, an additional 318,000 Options were granted
to Mr. Cornwell and 260,000 Options were granted to Mr. Stuart Beck.
The Stock Option Plan provides for the grant of (i) Options intended to
qualify as Incentive Stock Options ("ISOs") as defined in Section 422 of the
Code, to certain key employees of the Company or its affiliates (including
employees who are officers or directors, but excluding directors who are not
employees) who have substantial responsibility in the direction and management
of the Company or an affiliate ("Key Employees") and (ii) Options which do not
qualify as ISOs ("NQSOs") to Key Employees and other officers and directors of
the Company or its affiliates who have substantial responsibility in the
direction and management of the Company or an affiliate. No Participating Person
may be granted ISOs which, when first exercisable in any calendar year (combined
with all incentive stock option plans of the Company and its affiliates) will
permit such person to purchase stock of the Company having an aggregate fair
market value (determined as of the time the ISO was granted) of more than
$100,000.
The Stock Option Plan is administered by a committee consisting of not less
than three members of the Board of Directors appointed by the Board. Subject to
the provisions of the Stock Option Plan, the committee is
70
<PAGE>
empowered to, among other things, grant Options under the Stock Option Plan;
determine which employees may be granted Options under the Stock Option Plan,
the type of Option granted (ISO or NQSO), the number of shares subject to each
Option, the time or times at which Options may be granted and exercised and the
exercise price thereof; construe and interpret the Stock Option Plan; determine
the terms of any option agreement pursuant to which Options are granted (an
"Option Agreement"), and amend any Option Agreement with the consent of the
recipient of Options (the "Optionee"). Notwithstanding the foregoing, grants
under the Stock Option Plan to officers of the Company and holders of 10% or
more of the Voting Common Stock are made by the disinterested members of the
Board of Directors of the Company. The Board of Directors may amend or terminate
the Stock Option Plan at any time, except that approval of the holders of a
majority of the outstanding Voting Common Stock of the Company is required for
amendments which decrease the minimum option price for ISOs, extend the term of
the Stock Option Plan beyond 10 years or the maximum term of the Options granted
beyond 10 years, withdraw the administration of the Stock Option Plan from the
committee, change the class of eligible employees, officers or directors or
increase the aggregate number of shares which may be issued pursuant to the
provisions of the Stock Option Plan. Notwithstanding the foregoing, the Board of
Directors may, without the need for shareholder approval, amend the Stock Option
Plan in any respect to qualify ISOs as Incentive Stock Options under Section 422
of the Code.
With the exception of Options granted to Mr. Cornwell and Mr. Stuart J.
Beck, pursuant to the terms of each currently effective Option Agreement, 40%
(and in two cases 20%) of the Options covered by the Option Agreement are
exercisable by the Optionee immediately upon the date of grant (or with respect
to certain Option Agreements, upon the next preceding January 1 after the date
of grant) and an additional 20% of such options become exercisable on each
January 1 thereafter, on a cumulative basis. Options granted to each of Mr.
Cornwell and Mr. Stuart J. Beck vest as follows: (i) 60% of the Options granted
on April 27, 1993 became exercisable on December 1, 1995 and 20% of such Options
become exercisable on each of December 1, 1996 and 1997; (ii) 40% of the Options
granted on April 25, 1995 became exercisable on April 25, 1996, 30% of such
Options become exercisable on April 25, 1997, and 10% of such Options become
exercisable on each of April 25, 1998, 1999 and 2000; (iii) with respect to
44,000 of the Options granted on April 23, 1996 to each of Mr. Cornwell and Mr.
Stuart Beck, 20% of such Options become exercisable on each of December 1, 1996,
1997, 1998, 1999 and 2000, and with respect to the remaining Options granted on
April 23, 1996 to Mr. Cornwell and Mr. Stuart Beck, 40% of such Options become
exercisable on April 23, 1997, 30% on April 23, 1998 and 10% on each of April
23, 1999, 2000 and 2001; (iv) 50% of the Options granted on April 25, 1996
become exercisable on each of October 23, 1997 and April 23, 1998; and (v)
approximately 34% of all remaining Options vested immediately upon date of
grant, and approximately 16% vest on each successive January 1.
The exercise price per share for all ISOs may not be less than 100% of the
fair market value of a share of Common Stock (Nonvoting) on the date on which
the Option is granted (or 110% of the fair market value on the date of grant of
an ISO if the Optionee owns more than 10% of the total combined voting power of
all classes of voting stock of the Company or any of its affiliates (a "10%
Holder")). The exercise price per share for NQSOs may be less than, equal to or
greater than the fair market value of a share of Common Stock (Nonvoting) on the
date such NQSO is granted. Options are not assignable or transferable other than
by will or the laws of descent and distribution.
Unless sooner terminated by the Board of Directors, the Stock Option Plan
will terminate on April 1, 2000, 10 years after its effective date. Unless
otherwise specifically provided in an Optionee's Option Agreement, each Option
granted under the Stock Option Plan expires no later than 10 years after the
date such Option is granted (5 years for ISOs granted to 10% Holders). Options
may be exercised only during the period that the original Optionee has a
relationship with the Company which confers eligibility to be granted Options
and (i) for a period of 30 days after termination of such relationship, (ii) for
a period of 3 months after retirement by the Optionee with the consent of the
Company, or (iii) for a period of 12 months after the death or disability of the
Optionee.
71
<PAGE>
Management Stock Plan
In April 1993, the Company adopted a Management Stock Plan (the "Management
Stock Plan") providing for the grant from time to time of awards denominated in
shares of Common Stock (Nonvoting) (the "Bonus Shares") to all salaried
executive employees of the Company. The purpose of the Management Stock Plan is
to keep senior executives in the employ of the Company and to compensate such
executives for their contributions to the growth and profits of the Company and
its subsidiaries. The Company has set aside a reserve of 470,000 shares of
Common Stock (Nonvoting) for grant under the Management Stock Plan (which
reserve may be adjusted from time to time). All salaried executive employees
(including officers and directors, except for persons serving as directors only)
are eligible to receive a grant under the Management Stock Plan. The Management
Stock Plan is administered by a committee appointed by the Board of Directors
which consists of not less than two members of the Board of Directors (the
"Management Stock Plan Committee"). Pursuant to Board resolution, the members of
the Compensation Committee constitute the members of the Management Stock Plan
Committee. The Management Stock Plan Committee, from time to time, selects
eligible employees to receive a discretionary bonus of Bonus Shares based upon
such employee's position, responsibilities, contributions and value to the
Company and such other factors as the Management Stock Plan Committee deems
appropriate. The Management Stock Plan Committee has discretion to determine the
date on which the Bonus Shares allocated to an employee will be issued to such
employee. The Management Stock Plan Committee may, in its sole discretion,
determine what part of an award of Bonus Shares is paid in cash and what part of
an award is paid in the form of Common Stock (Nonvoting). Any cash payment will
be made to such employee as of the date the corresponding Bonus Shares would
otherwise be issued to such employee and shall be in an amount equal to the fair
market value of such Bonus Shares on that date.
As of December 31, 1995, the Company has allocated a total of 466,000 Bonus
Shares pursuant to the Management Stock Plan, 210,200 of which had vested
through December 31, 1995. Each allocation provides for the vesting of a
percentage of the award on each December 31 after the date of the allocation.
Target Cash Flow Option Plan
On October 31, 1988, the Company entered into a Target Cash Flow Option
Plan and Agreement (the "Target Cash Flow Option Plan") with W. Don Cornwell and
Stuart J. Beck (collectively, the "Recipients"). The Target Cash Flow Option
Plan granted to the Recipients non-qualified options ("Options") to purchase an
aggregate of not more than 150,000 shares of Common Stock (Nonvoting) at an
exercise price of $.01 per share. The Options vested and became exercisable upon
certain cash flow targets being met by the Company during each fiscal year
through 1992. Options have vested for the purchase of 150,000 shares of Common
Stock (Nonvoting), and on April 19, 1995, were exercised as follows: Mr.
Cornwell: 82,500; Mr. Beck: 67,500.
Director Stock Option Plan
On March 1, 1994, the Company adopted a Director Stock Option Plan (the
"Director Option Plan") providing for the grant, from time to time, of Options
to non-employee directors of the Company ("Director Participants") to purchase
Common Stock (Nonvoting). The number of shares of Common Stock (Nonvoting)
allocated for grant under the Director Option Plan is 300,000. As of December
31, 1995, Options granted under the Director Option Plan were outstanding for
the purchase of 101,700 shares of Common Stock (Nonvoting).
The Director Option Plan provides for the grant of NQSO's to Director
Participants. Under the Plan, once every three years, each director was
permitted to make an irrevocable Triennial Election to receive Options, in lieu
of cash compensation, for attendance in person at each Regular Quarterly Meeting
during the Triennial Option Period covered by such election. At the end of the
current Triennial Option Period and each third year anniversary thereafter,
however, all directors will automatically receive an option to purchase 18,000
shares of Common Stock (Nonvoting) as compensation for attendance at Regular
Quarterly Meetings during the Triennial Option Period subsequent to the grant in
lieu of cash compensation. Directors elected or appointed during the course of a
Triennial Option Period receive Options, in lieu of a cash compensation, for the
remaining portion of such Triennial Option
72
<PAGE>
Period. In addition, under the Director Option Plan, directors receive Automatic
Committee Awards for each Committee of the Board of Directors on which they
serve.
During the Triennial Option Period, Options to purchase shares of Common
Stock (Nonvoting) become exercisable one year (or immediately in the case of
Automatic Director Service Awards) from the date of attendance by director at a
Regular Quarterly Meeting in the following amounts: (i) 1,500 shares for
attendance in person; or (ii) 500 shares for attendance by telephonic means.
Automatic Awards to purchase 1,500 shares of Common Stock (Nonvoting) become
exercisable one year (or immediately for Automatic Awards to be granted after
February 27, 1997) from the date of attendance in person at each regularly
scheduled Committee meeting. The exercise price per share of all Options is the
fair market value on the date of grant.
The following table sets forth information with respect to Options granted
to the executive officers of the Company during 1995.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
at assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
------------------------------------------------------ --------------------------
% of Total
Options/SARs
Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted (#) Fiscal Year ($ Per Share) Date 5% ($) 10% ($)
- -------------- ------------------------------------------------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
W. Don Cornwell 165,000 55.0% $7.00 4/25/2005 $ 726,373 $1,840,773
Stuart J. Beck 135,000 45.0% 7.00 4/25/2005 594,305 1,506,087
</TABLE>
The following table sets forth, as of December 31, 1995, the number of
options and the value of unexercised options held by the Company's executive
officers who held options as of that date, and the options exercised and the
consideration received therefor by such persons during fiscal 1995.
Aggregated Option/SAR Exercises
In Last Fiscal Year And
FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of Value of Unexercised
Unexercised Options in-the-Money Options
at December 31, 1995 at December 31, 1995
------------------------- -------------------------
Shares Acquired Value
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
W. Don Cornwell 82,500 $556,050 222,600/262,400 $1,456,350/$1,294,900
Stuart J. Beck 67,500 454,950 182,700/214,800 1,119,638/1,060,050
Lawrence I. Wills - - 3,750/- 20,156/-
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1995, Thomas R. Settle and Charles J. Hamilton, Jr. served as
members of the Compensation Committee of the Board of Directors of the Company.
73
<PAGE>
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information, as of February 15,
1996, regarding beneficial ownership of the Company's Voting Common Stock by
each shareholder who is known by the Company to own beneficially more than 5% of
the outstanding Voting Common Stock, each director, each executive officer and
all directors and officers as a group, and beneficial ownership of: (i) the
Company's Common Stock (Nonvoting) (assuming conversion of all preferred stock
and exercise of all options for the purchase of Common Stock (Nonvoting), which
conversion or exercise is at the option of the holder within sixty (60) days);
and (ii) the Company's Cumulative Convertible Exchangeable Preferred Stock, by
each director, each executive officer and all directors and officers as a group.
Except as set forth in the footnotes to the table, each shareholder listed below
has informed the Company that such shareholder has (i) sole voting and
investment power with respect to such shareholder's shares of stock, except to
the extent that authority is shared by spouses under applicable law and (ii)
record and beneficial ownership with respect to such shareholder's shares of
stock.
<TABLE>
<CAPTION>
Cumulative Convertible
Exchangeable
Voting Common Stock Common Stock (Nonvoting) Preferred Stock
------------------- ------------------------------------------------- ---------------------
Shares Percent of Shares Shares
Beneficially Owned Beneficially Owned Beneficially Owned
------------------ Number of Shares ------------------ ---------------------
Number Percent Beneficially Owned Actual(1) Fully Diluted(2) Number Percent
------ ------- ------------------ --------- ----------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Don Cornwell.............. 98,250 55.0% 457,950 (3) 5.3% 2.6% 9,750 *
Stuart J. Beck............... 80,250 45.0% 386,362 (4) 4.4% 2.2% 10,000 *
Lawrence I. Wills............ 8,021 (5) * * -- *
Ellen McClain................ 2,702 * * -- *
Martin F. Beck............... 78,914 (6) * * 3,950 *
James L. Greenwald........... 84,527 (7) 1.0% * 1,000 *
Vickee Jordan Adams.......... 4,137 (8) * * -- *
Edward Dugger III............ 45,257 (9) * * -- *
Thomas R. Settle............. 57,412(10) * * 3,000 *
Charles J.
Hamilton, Jr............... 4,550(11) * * -- *
Mikael Salovaara............. 48,250(12) * * 4,950 *
------- ------ ------------ ---- --- ------ ---
All directors and
officers as a
group(11)................... 178,500 100.0% 1,178,082 13.2% 6.6% 32,650 1.8%
</TABLE>
- ----------
* Less than 1%.
(1) Actual percentage figures assume the conversion of such shareholder's
preferred stock into Common Stock (Nonvoting) and the exercise of options
for the purchase of Common Stock (Nonvoting) held by such shareholder,
which conversion or exercise is at the option of the holder within sixty
(60) days.
(2) Fully diluted percentage figures assume conversion of all outstanding
shares of preferred stock into Common Stock (Nonvoting), and exercise of
all options for the purchase of Common Stock (Nonvoting), which are
convertible or exercisable at the option of the holder within sixty (60)
days.
74
<PAGE>
(3) Includes 243,000 shares issuable upon exercise of options granted to Mr.
Cornwell under the Stock Option Plan which are exercisable at the option of
the holder within sixty (60) days, 48,750 shares issuable upon the
conversion of 9,750 shares of Cumulative Convertible Exchangeable Preferred
Stock which are convertible at the option of the holder within sixty (60)
days, and a total of 3,900 shares held by Mr. Cornwell's immediate family.
Mr. Cornwell disclaims beneficial ownership with respect to such 3,900
shares. The business address of Mr. Cornwell is Granite Broadcasting
Corporation, 767 Third Avenue, 34th Floor, New York, New York, 10017.
(4) Includes 199,500 shares issuable upon exercise of options granted to Stuart
J. Beck under the Stock Option Plan which are exercisable at the option of
the holder within sixty (60) days, and 50,000 shares issuable upon the
conversion of 10,000 shares of Cumulative Convertible Exchangeable
Preferred Stock which are convertible at the option of the holder within
sixty (60) days. The business address of Mr. Stuart Beck is Granite
Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York, New York,
10017.
(5) Includes 3,750 shares issuable upon the exercise of options granted to Mr.
Wills under the Stock Option Plan which are exercisable at the option of
the holder within sixty (60) days.
(6) Includes 19,750 shares issuable upon the conversion of 3,950 shares
(including 450 shares of such stock held by Mr. Beck's wife) of Cumulative
Convertible Exchangeable Preferred Stock which are convertible at the
option of the holder within sixty (60) days, 6,000 shares held by Mr.
Beck's wife, and 1,300 shares issuable upon exercise of options granted
under the Directors' Stock Option Plan which are exercisable at the option
of the holder within sixty (60) days. Mr. Beck disclaims beneficial
ownership with respect to shares held by his spouse. Mr. Beck is the father
of Stuart J. Beck.
(7) Includes 5,000 shares issuable upon the conversion of 1,000 shares of
Cumulative Convertible Exchangeable Preferred Stock which are convertible
at the option of the holder within sixty (60) days and 4,000 shares
issuable upon exercise of options granted under the Directors' Stock Option
Plan which are exercisable at the option of the holder within sixty (60)
days.
(8) Includes 1,800 shares issuable upon the exercise of Options granted under
the Directors' Stock Option Plan which are exercisable at the option of the
holder within sixty (60) days.
(9) Represents shares held by UNC Ventures, Inc. Mr. Dugger is the President
and Chief Executive Officer of UNC Ventures, Inc. and holds, subject to the
approval of the board of directors of UNC Ventures, Inc., investment power
with respect to such shares.
(10) Includes 15,000 shares issuable upon the conversion of 3,000 shares of
Cumulative Convertible Exchangeable Preferred Stock which are convertible
at the option of the holder within sixty (60) days, 4,500 shares held by
Mr. Settle's wife as custodian for his children, and 3,900 shares issuable
upon exercise of options granted under the Directors' Stock Option Plan
which are exercisable at the option of the holder within sixty (60) days.
Mr. Settle disclaims beneficial ownership with respect to the shares held
by his spouse as custodian for his children.
(11) Includes 4,300 shares issuable upon exercise of options granted under the
Directors' Stock Option Plan, which are exercisable at the option of the
holder within sixty (60) days.
(12) Includes: (i) 3,500 shares, and 5,000 shares issuable upon the conversion
of 1,000 shares of Cumulative Convertible Exchangeable Preferred Stock,
which are convertible at the option of the holder within sixty (60) days,
held in Trust for the benefit of one of Mr. Salovaara's children for which
Mr. Salovaara is the Trustee; (ii) 3,500 shares, and 5,000 shares issuable
upon the conversion of 1,000 shares of Cumulative Convertible Exchangeable
Preferred Stock, which are convertible at the option of the holder within
sixty (60) days, held in Trust for the benefit of one of Mr. Salovaara's
children for which Mr. Salovaara's wife is the Trustee; (iii) 9,750 shares
issuable upon the conversion of 1,950 shares of Cumulative Convertible
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Exchangeable Preferred Stock, which are convertible at the option of the
holder within sixty (60) days; (iv) 4,500 shares issuable upon exercise of
options granted under the Directors' Stock Option Plan which are
exercisable at the option of the holder within sixty (60) days; and (v)
5,000 shares issuable upon conversion of 1,000 shares of Cumulative
Convertible Exchangeable Preferred Stock, which are convertible at the
option of the holder within sixty (60) days, held in Trust for the benefit
of nonaffiliates of Mr. Salovaara, for which Mr. Salovaara and Mr.
Salovaara's wife are among the Trustees and as to which Mr. Salovaara
disclaims beneficial ownership.
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CERTAIN TRANSACTIONS
On June 1, 1995, the Company acquired substantially all of the assets of
WWMT from Busse for $98,942,000 in cash (including $3,942,000 in working capital
and other adjustments) and the assumption of certain liabilities of WWMT.
Certain investment limited partnerships, as to which Mr. Salovaara, a director
of the Company (i) owns a 50% interest in a general partner (which general
partner has a 1% partnership interest in the limited partnerships), (ii) is a
general partner of the general partnership that serves as the investment advisor
for such investment limited partnerships, and (iii) together with his immediate
family members, owns limited partnership interests of approximately 1.25%, owned
approximately $193,400,000 (including accrued interest) of the non-bank
indebtedness of Busse, which indebtedness was in default. Busse entered into an
agreement in principle with, among others, such investment partnerships
outlining a financial restructuring of Busse, the terms of which are
incorporated into a prepackaged bankruptcy joint plan of reorganization (the
"Plan") filed with the Bankruptcy Court for the District of Delaware. Pursuant
to the Plan which was confirmed, and substantially consummated on May 3, 1995,
such investment limited partnerships acquired 98% of the common stock of Busse
and Messrs. Cornwell and Stuart Beck constitute two of the three members of
Busse's board of directors.
Katz Communications serves as the exclusive representative and sales agent
for all of KBJR's, WEEK's and WPTA's national broadcast advertising. James L.
Greenwald, a member of the Board of Directors of the Company, was the Chairman
and Chief Executive Officer of Katz Communications until August 1994, and during
part of 1994 beneficially owned or controlled the voting or disposition of
135,000 shares (or 8.7%) of its outstanding voting stock (Mr. Greenwald no
longer owns or controls the voting or disposition of such shares). During 1994,
the Company paid $518,257 to Katz Communications for services rendered to KBJR,
WEEK and WPTA. The Board of Directors of the Company believes that these
arrangements were made, and continue to be, on commercially reasonable terms,
which are at least as favorable to the Company as terms which could have been
negotiated with an unaffiliated third party. Mr. Greenwald's interest in these
payments is limited to any benefits which may accrue to him as a shareholder of
Katz Communications.
The Company is a party to a financial advisory agreement, dated September
12, 1994, with The Blackstone Group, an investment advisory firm in which Mr.
Salovaara, a director of the Company, is a limited partner. Pursuant to this
agreement, The Blackstone Group provides financial advisory services to the
Company in connection with the analysis, structuring, negotiation and
effectuation of acquisitions of certain television broadcast properties by the
Company, and is paid a fee for successful acquisitions based upon a formula set
forth in the agreement. The Blackstone Group is also reimbursed by the Company
for reasonable out-of-pocket expenses it incurs under the agreement. The
Blackstone Group received $421,000 for financial advisory services it rendered
to the Company in connection with the WKBW Acquisition.
In 1995, the Company made a loan to Mr. Cornwell, Chief Executive Officer
and Chairman of the Board of Directors, in the amount of $348,660 and a loan to
Mr. Stuart Beck, President and a member of the Board of Directors, in the amount
of $221,200 to pay for certain personal taxes. Both loans are term loans
providing for an annual interest rate of 9%, payable semi-annually on December
29 and June 29 of each year, with all principal and remaining interest due on
December 29, 2004. As of May 31, 1996, the amount outstanding on such loans to
Messrs. Cornwell and Beck was $361,822 and $229,550, respectively, which amounts
represented the largest amount outstanding thereunder up to that date.
On April 23, 1996, the Company made a loan to Mr. Cornwell in the amount of
$886,875 to pay the exercise price incurred in connection with exercising
Options. The loan is a term loan which provides for an annual interest rate of
8%, payable annually on April 23 of each year, with all principal and remaining
interest due on April 23, 2001. As of May 31, 1996, the amount outstanding under
the loan was $894,167, which amount represented the largest amount outstanding
thereunder up to that date.
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DESCRIPTION OF NEW NOTES
General
The Old Notes were issued, and the New Notes will be issued, under an
Indenture dated as of February 22, 1996 (the "Indenture"), between the Company
and The Bank of New York, as Trustee (the "Trustee"). The Indenture authorizes a
maximum principal amount of $110,000,000 of the Old Notes and $110,000,000 of
the New Notes. The New Notes will be issued solely in exchange for an equal
principal amount of the outstanding Old Notes pursuant to the Exchange Offer.
The terms of the New Notes will be identical in all material respects to the
form and terms of the Old Notes except that: (i) the New Notes will have been
registered under the Securities Act (and will generally be freely transferable
by holders thereof who are not a Restricted Holder); and (ii) the registration
rights and contingent interest rate provisions applicable to the Old Notes are
generally not applicable to the New Notes. References in this Section to the
"Notes" will be references to the Old Notes and/or the New Notes, depending upon
which are outstanding. The definition of certain terms used in the following
summary are set forth below under "-- Certain Definitions."
The Indenture is by its terms subject to and governed by the Trust
Indenture Act of 1939, as amended. The statements under this caption relating to
the Notes and the Indenture are summaries and do not purport to be complete, and
where reference is made to particular provisions of the Indenture, such
provisions, including the definition of certain terms, are incorporated by
reference as a part of such summaries or terms, which are qualified in their
entirety by such reference. All material provisions of the Notes and the
Indenture, however, are set forth herein. Unless otherwise indicated, references
under this caption to sections, "ss." or articles are references to sections and
articles of the Indenture. A copy of the Indenture is available as set forth
under "Available Information."
The Notes are general unsecured senior subordinated obligations of the
Company and mature on December 1, 2005.
The Notes bear interest at the rate of 9 3/8% per annum from February 22,
1996 or from the most recent interest payment date to which interest has been
paid or provided for, payable semi-annually on June 1 and December 1 of each
year, commencing June 1, 1996, to the person in whose name the Note (or any
Predecessor Note) is registered at the close of business on the May 15 or
November 15 next preceding such interest payment date. (ss.ss. 301 and 307)
Interest on the Notes is computed on the basis of a 360-day year of twelve
30-day months. (ss. 310) At the option of the Company, principal of and premium,
if any, and interest on the Notes may be paid at the corporate trust office of
the Trustee or by check mailed to the registered address of such holders.
(ss.ss. 301, 305 and 1002)
The New Notes will be issued only in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof. (ss. 302) No
service charge will be made for any registration of transfer or exchange of
Notes, but the Company may require payment of a sum sufficient to cover any tax
or other governmental charge payable in connection therewith. (ss. 305)
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar. (ss. 305)
Settlement for the Notes will be made in immediately available funds.
Payments by the Company in respect of the Notes (including principal, premium,
if any, and interest) will be made in immediately available funds. Secondary
trading in long-term notes and debentures of corporate issuers is generally
settled in clearing-house or next-day funds. In contrast, the Notes will trade
in the PORTAL System and in DTC's Same-Day Funds Settlement System, and any
permitted secondary market trading activity in the Notes will therefore be
required by DTC to be settled in immediately available funds. No assurance can
be given as to the effect, if any, of such settlement arrangements on trading
activity in the Notes.
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Form, Denomination and Book-Entry Procedures
The Old Notes initially sold to qualified institutional buyers were
represented by one or more fully-registered global notes (collectively, the
"Book-Entry Old Note"). The Book-Entry Old Note was deposited upon issuance with
DTC and registered in the name of DTC or a nominee of DTC (the "Book-Entry Old
Note Registered Owner"). The Book-Entry Old Note, to the extent directed by
holders thereof in their Letters of Transmittal, will be exchanged through
book-entry electronic transfer for one or more global New Notes in definitive,
fully registered form without coupons (collectively, the "Book-Entry New Note")
registered in the name of a nominee of DTC (the "Book-Entry New Note Registered
Owner"). No service charge will be made for any registration of transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
Old Notes sold to accredited investors within the meaning of Rule 501 of
Regulation D under the Securities Act who were not qualified institutional
buyers were issued in registered, certificated form without interest coupons.
New Notes issued to non-qualified institutional buyers in exchange for Old Notes
held by such investors will be issued only in certificated, fully registered,
definitive form. The Book-Entry New Note will, upon request, be exchangeable for
other New Notes in definitive, fully registered form without coupons in
denominations of $1,000 and integral multiples thereof, but only in accordance
with DTC's customary procedures. The Book-Entry New Notes will also be
exchangeable in certain other limited circumstances. The Company, the Trustee
and any other agent thereof will be entitled to treat DTC's nominee as the sole
owner and holder of the unexchanged portion of the Book-Entry New Notes for all
purposes.
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or the Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of each security held by or on behalf of DTC are recorded on
the records of the Participants and Indirect Participants.
Payments in respect of the principal of and premium, if any, and interest
on any New Notes registered in the name of the Book-Entry New Note Registered
Owner will be payable by the Trustee to the Book-Entry New Note Registered Owner
in its capacity as the registered Holder under the Indenture. Under the terms of
the Indenture, the Company and the Trustee will treat the persons in whose names
the New Notes, including the Book-Entry New Note, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, neither the Company, the Trustee nor any
agent of the Company or the Trustee has or will have any responsibility or
liability for (i) any aspect of DTC's records or any Participant's records
relating to or payments made on account of beneficial ownership interests in the
Book-Entry New Note, or for maintaining, supervising or reviewing any of DTC's
records or any Participant's records relating to the beneficial ownership
interests in the Book-Entry New Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Participants. DTC has advised the
Company that its current practice, upon receipt of any payment in respect of
securities such as the New Notes (including principal and interest), is to
credit the accounts of the relevant Participants with the payment on the payment
date, in amounts proportionate to their respective holdings in principal amount
of beneficial interests in the relevant security as shown on the records of DTC
unless DTC has reason to believe it will not receive payment on such payment
date. Payments by the Participants and the Indirect Participants to the
beneficial owners of New Notes will be governed by standing instructions and
customary practices and will be the responsibility of the Participants or the
Indirect Participants and will not be the responsibility of DTC, the Trustee or
the Company. Neither the Company nor the Trustee will be liable for any delay by
DTC or any of its Participants in identifying the beneficial owners of the New
Notes, and
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the Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from the Book-Entry New Note Registered Owner for all
purposes.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company believes to be reliable, but the
Company takes no responsibility for the accuracy thereof.
Redemption
The Notes will be redeemable in the event that on or before February 22,
1999 the Company receives net proceeds from the sale of its Capital Stock (other
than Disqualified Stock) in one or more offerings, in which case the Company
may, at its option and from time to time, use all or a portion of any such net
proceeds to redeem Notes in a principal amount of at least $5,000,000 and up to
an aggregate amount equal to 33% of the original principal amount of the Notes,
provided, however, that Notes in an amount equal to at least 67% of the original
principal amount of the Notes remain outstanding after each such redemption. Any
such redemption must occur on a Redemption Date within 75 days of any such sale
and upon not less than 30 nor more than 60 days' notice mailed to each Holder of
Notes to be redeemed at such Holder's address appearing in the Note Register, in
amounts of $1,000 or an integral multiple of $1,000, at a redemption price of
109.375% of the principal amount of the Notes plus accrued interest to but
excluding the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on an Interest Payment Date
that is on or prior to the Redemption Date).
The Notes will be subject to redemption, at the option of the Company, in
whole or in part, at any time on or after December 1, 2000 and prior to
maturity, upon not less than 30 nor more than 60 days' notice mailed to each
Holder of Notes to be redeemed at the address appearing in the Note Register, in
amounts of $1,000 or an integral multiple of $1,000, at the following Redemption
Prices (expressed as percentages of principal amount) plus accrued interest to
but excluding the Redemption Date (subject to the right of Holders of record on
the relevant Regular Record Date to receive interest due on an Interest Payment
Date that is on or prior to the Redemption Date), if redeemed during the
12-month period beginning December 1 of each of the years indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ---- -----
<S> <C>
2000........................................................ 104.687%
2001........................................................ 102.344%
2002 and thereafter......................................... 100.000%
</TABLE>
In the case of any redemption by the Company, the Notes will be redeemed
pro rata if less than all the Notes are to be redeemed. (ss.ss. 203, 1101, 1104,
1105 and 1107)
The Notes will not have the benefit of any sinking fund obligations.
Subordination
The Notes will, to the extent set forth in the Indenture, be subordinate in
right of payment to the prior payment of all Senior Debt. Upon any payment or
distribution of assets of the Company to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of Senior Debt will first be entitled to
receive payment in full in cash or cash equivalents of principal of (premium, if
any) and interest on, such Senior Debt before the Holders of Notes are entitled
to receive any payment of principal of (premium, if any) or interest on, or any
obligation to purchase, the Notes. In the event that notwithstanding the
foregoing, the Trustee or the Holder of any Note receives any payment or
distribution of assets of the Company of any kind or character (including any
such payment or distribution which may be payable or deliverable by the reason
of the payment of any other indebtedness of the Company being subordinated to
the payment of the Notes), before all the Senior Debt is so paid in full, then
such payment or distribution will be required to be paid over or delivered
forthwith to the
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trustee in bankruptcy or other Person making payment or distribution of assets
of the Company for application to the payment of all Senior Debt remaining
unpaid, to the extent necessary to pay the Senior Debt in full in cash or cash
equivalents. However, notwithstanding the foregoing, Holders of the Notes may
receive shares of stock of the Company or securities of the Company which are
subordinate in right of payment to all Senior Debt to substantially the same
extent as the Notes are so subordinated ("subordinated consideration"). (ss.
1202)
The Company may not make any payments on account of the Notes or on account
of the purchase or redemption or other acquisition of Notes (except for
subordinated consideration) if there shall have occurred and be continuing a
default in the payment of principal of (premium, if any) or interest on the
Senior Debt (a "Senior Payment Default"). If there shall have occurred and be
continuing any default (other than a Senior Payment Default) with respect to any
Senior Debt permitting the holders thereof (or a trustee on behalf thereof) then
to accelerate the maturity thereof (a "Senior Nonmonetary Default"), and the
Company and the Trustee have received written notice thereof from the Agent Bank
under the Senior Loan Agreement (or any successor credit facility) or any other
holder of Senior Debt designated by the Company, then the Company may not make
any payments on account of the Notes or on account of the purchase or redemption
or other acquisition of Notes (except for subordinated consideration) for a
period (a "blockage period") commencing on the date the Company and the Trustee
receive such written notice and ending on the earlier of (x) 179 days after such
date and (y) the date, if any, on which the Senior Debt to which such default
relates is discharged or such default is waived or otherwise cured. In any
event, not more than one blockage period may be commenced during any period of
360 consecutive days and there shall be a period of at least 181 consecutive
days in each 360-day period when no blockage period is in effect. No Senior
Nonmonetary Default with respect to Senior Debt that existed or was continuing
on the date of the commencement of any blockage period with respect to the
Senior Debt initiating such blockage period will be, or can be, made the basis
for the commencement of a second blockage period, unless such default has been
cured or waived for a period of not less than 90 consecutive days. In the event
that, notwithstanding the foregoing, the Company makes any payment to the
Trustee or the Holder of any Notes prohibited by the subordination provisions,
then such payment will be required to be paid over and delivered forthwith to
the holders of the Senior Debt remaining unpaid, to the extent necessary to pay
in full all the Senior Debt. (Article Twelve)
By reason of such subordination, in the event of insolvency, creditors of
the Company who are not holders of Senior Debt or of the Notes may recover less,
ratably, than holders of Senior Debt and may recover more, ratably, than the
Holders of the Notes.
"Senior Debt" means (a) the principal of (premium, if any) and interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not such
claim for post-petition interest is allowed in such proceeding) on, and
penalties and any obligation of the Company for reimbursement, indemnities and
fees relating to, Debt outstanding pursuant to the Senior Loan Agreement, (b)
payment obligations of the Company under interest rate swap or similar
agreements or foreign currency hedge, exchange or similar agreements entered
into to hedge Debt Incurred under the Senior Loan Agreement or any renewal,
refunding, refinancing or extension thereof, (c) all other Debt for money
borrowed of the Company referred to in the definition of Debt other than Clause
(vi), and (d) all renewals, extensions, modifications, refinancings, refundings
and amendments of any Debt referred to in Clause (a), (b) or (c) above, unless
but only to the extent, in the case of any particular Debt referred to in Clause
(a), (b) or (c) above, (A) such Debt is owed to a Subsidiary, (B) the instrument
creating or evidencing the same or pursuant to which the same is outstanding
expressly provides that such Debt is not superior in right of payment to the
Notes, (C) such Debt is Incurred in violation of the Indenture, or (D) such Debt
is subordinate in right of payment in respect to any other Debt of the Company.
(ss. 101)
The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance or covenant defeasance of the Notes as described
under "Defeasance." (Article Thirteen)
As of May 31, 1996, there was no term loan borrowings and $5,000,000 of
revolving credit facility borrowings outstanding under the Credit Agreement. See
"Capitalization."
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Registration Covenant; Exchange Offer
In connection with the issuance of the Old Notes, the Company entered into
an Exchange and Registration Rights Agreement (the "Registration Rights
Agreement") pursuant to which the Company agreed, for the benefit of the Holders
of the Notes, (i) to file with the Commission, within 75 days following the
Closing, a registration statement (the "Exchange Offer Registration Statement")
under the Securities Act relating to an exchange offer (the "Exchange Offer")
pursuant to which notes substantially identical to the Old Notes (except that
such notes will not contain terms with respect to transfer restrictions) (the
"New Notes") would be offered in exchange for the then outstanding Old Notes
tendered at the option of the holders thereof and (ii) to use its reasonable
best efforts to cause the Exchange Offer Registration Statement to become
effective as soon as practicable thereafter. The Company further agreed to
commence the Exchange Offer promptly after the Exchange Offer Registration
Statement became effective, hold the offer open for at least 30 days, and
exchange New Notes for all Old Notes validly tendered and not withdrawn before
the expiration of the offer.
Under existing Commission interpretations set forth in no-action letters
issued to third parties, the Company believes that the New Notes will in general
be freely transferable after the Exchange Offer without further registration
under the Securities Act, except that broker-dealers ("Participating
Broker-Dealers") receiving New Notes in the Exchange Offer will be subject to a
prospectus delivery requirement with respect to resales of those New Notes. The
Commission has taken the position that Participating Broker-Dealers may fulfill
their prospectus delivery requirements with respect to the New Notes (other than
a resale of an unsold allotment from the original sale of the Old Notes) by
delivery of the prospectus contained in the Exchange Offer Registration
Statement. Under the Registration Rights Agreement, the Company is required to
allow Participating Broker-Dealers and other persons, if any, subject to similar
prospectus delivery requirements to use the prospectus contained in the Exchange
Offer Registration Statement in connection with the resale of such New Notes.
The Exchange Offer Registration Statement will be kept effective for a period of
up to 180 days after the Exchange Offer has been consummated in order to permit
resales of Old Notes acquired by broker-dealers in after-market transactions.
Each Holder of Old Notes (other than certain specified Holders) who wishes to
exchange such Old Notes for New Notes in the Exchange Offer will be required to
represent that any New Notes to be received by it will be acquired in the
ordinary course of its business, that at the time of the commencement of the
Exchange Offer it is not participating, does not intend to participate and has
no arrangement or understanding with any person to participate in, the
distribution (within the meaning of the Securities Act) of the Exchange Notes
and that it is not an Affiliate of the Company.
However, if on or before the date of consummation of the Exchange Offer,
the existing Commission interpretations are changed such that the Notes would
not in general be freely transferable in such manner on such date, the Company
will, in lieu of effecting registration of New Notes, use its reasonable best
efforts to cause a registration statement under the Securities Act relating to a
shelf registration of the Old Notes for resale by Holders (the "Resale
Registration") to become effective and to remain effective for a period of up to
three years after the effective date of such registration statement. The Company
will, in the event of the Resale Registration, provide to the Holders of the Old
Notes copies of the prospectus that is a part of the registration statement
filed in connection with the Resale Registration, notify such Holders when the
Resale Registration for the Old Notes has become effective and take certain
other actions as are required to permit unrestricted resales of the Old Notes. A
Holder of Old Notes that sells such Old Notes pursuant to the Resale
Registration generally would be required to be named as a selling securityholder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement that are applicable to such a Holder (including
certain indemnification obligations).
In the event that (i) the Company did not file the registration statement
relating to the Exchange Offer within 75 days following the Closing, or (ii)
such registration statement (or, if applicable, the Resale Registration) had not
become effective within 150 days following the Closing, or (iii) the Exchange
Offer has not been consummated within 30 business days after the effective date
of the Exchange Offer Registration Statement, or (iv) any registration statement
required by the Registration Rights Agreement is filed and declared effective
but shall thereafter cease to be effective (except as specifically permitted
therein) without being succeeded immediately by
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an additional registration statement filed and declared effective (any such
event referred to in Clauses (i) through (iv), the "Registration Default"), then
the per annum interest rate on the Old Notes will increase by 0.5% for the
period from the occurrence of the Registration Default until such time as no
Registration Default is in effect (at which time the interest rate will be
reduced to its initial rate). If the Company has not consummated the Exchange
Offer (or, if applicable, the Resale Registration has not become effective),
within 270 days following the Closing, then the per annum interest rate on the
Old Notes will increase by an additional 0.5% for so long as the Company has not
consummated the Exchange Offer (or until such Resale Registration becomes
effective).
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available as set forth in "Available Information."
Covenants
The Indenture contains, among others, the following covenants:
Limitation on Debt
The Company may not, and may not permit any Subsidiary to, Incur any Debt
unless the ratio of (a) the aggregate principal amount of Debt of the Company
and its Subsidiaries outstanding as of the most recent available balance sheet,
after giving pro forma effect to the Incurrence of such Debt and any other Debt
Incurred since such balance sheet date and the receipt and application of the
proceeds thereof, to (b) Pro Forma Consolidated Cash Flow for the preceding four
full fiscal quarters, determined on a pro forma basis as if such Debt and any
other Debt Incurred since such balance sheet date had been Incurred and the
proceeds therefrom had been applied at the beginning of such four fiscal
quarters, would be less than 6.5 to 1.
Notwithstanding the foregoing, the Company or any Subsidiary may Incur the
following without regard to the foregoing limitation: (i) Debt under the Senior
Loan Agreement not to exceed $100,000,000 aggregate principal amount at any one
time outstanding, and any renewal, extension, refinancing or refunding thereof
in an amount which, together with any amount remaining outstanding or available
under the Senior Loan Agreement, does not exceed $100,000,000; (ii) Debt
evidenced by the Notes; (iii) Debt owed by the Company to any Wholly Owned
Subsidiary of the Company or Debt owed by a Subsidiary of the Company to the
Company or a Wholly Owned Subsidiary of the Company; provided, however, that
upon either (1) the transfer or other disposition by such Wholly Owned
Subsidiary or the Company of any Debt so permitted to a Person other than the
Company or another Wholly Owned Subsidiary of the Company or (2) the issuance
(other than directors' qualifying shares), sale, transfer or other disposition
of shares of Capital Stock (including by consolidation or merger) of such Wholly
Owned Subsidiary to a Person other than the Company or another such Wholly Owned
Subsidiary, the provisions of this Clause (iii) shall no longer be applicable to
such Debt and such Debt shall be deemed to have been Incurred at the time of
such transfer or other disposition; (iv) Debt Incurred or Incurrable in respect
of letters of credit, bankers' acceptances or similar facilities not to exceed
$2,000,000 at any one time outstanding; (v) Capital Lease Obligations whose
Attributable Value will not exceed $5,000,000 at any one time outstanding; (vi)
Debt arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument drawn against insufficient funds in the
ordinary course of business, provided that such Debt is extinguished within two
Business Days of its Incurrence; (vii) Debt Incurred by a Person prior to the
time (A) such Person became a Subsidiary of the Company, (B) such Person merges
into or consolidates with a Subsidiary of the Company, (C) another Subsidiary of
the Company merges into or consolidates with such Person (in each case in a
transaction in which such Person becomes a Subsidiary of the Company) or (D)
such Person sells any of its property consisting of operating assets to a
Subsidiary of the Company subject to such Debt (whether such Debt is recourse or
non-recourse to such Subsidiary), provided that in any such case such Debt was
not Incurred in anticipation of such transaction; (viii) Debt evidenced by the
7.75% Junior Subordinated Convertible Debentures due 2005 (the "Exchange
Debentures") if the Exchange Debentures are issued in exchange for the Company's
Cumulative Convertible Exchangeable Preferred Stock; (ix) renewals, refundings,
refinancings or extensions (collectively, "refinancings") of the Notes, the
12.75% Debentures, the 10 3/8% Notes or any other outstanding Debt that is
Incurred in compliance with the provisions of
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the Indenture, other than Debt referred to in Clauses (i) through (vi) above, in
an aggregate principal amount not to exceed the principal amount of the Debt so
refinanced plus the amount of any premium required to be paid in connection with
such refinancing pursuant to the terms of the Debt refinanced or the amount of
any premium reasonably determined by the Company as necessary to accomplish such
refinancing by means of a tender offer or privately negotiated repurchase, plus
the amount of expenses of the Company Incurred in connection with such
refinancing, provided that, (A) to the extent such refinancing Debt is not
Senior Debt, such refinancing Debt does not have an Average Life less than the
Average Life of the Debt being refinanced and (B) if such Debt is subordinated
in right of payment to the Notes such refinancing Debt is subordinated in right
of payment to the Notes at least to the extent that the Debt to be refinanced is
subordinated to the Notes; and (x) Debt not otherwise permitted to be Incurred
pursuant to Clauses (i) through (ix) above, which, together with any other
outstanding Debt Incurred pursuant to this Clause (x), has an aggregate
principal amount not in excess of $15,000,000 at any one time outstanding. (ss.
1008)
Other than the limitations on incurrence of indebtedness contained in this
covenant, there are no provisions in the Indenture that would protect the
holders of the Notes in the event of a highly leveraged transaction.
Limitation on Certain Debt
The Company may not Incur or permit to exist any Debt that is by its terms
both (i) subordinate in right of payment to any Senior Debt and (ii) senior in
right of payment to the Notes, in each case other than by reason of its
maturity. The Company may not Incur or permit to exist any Debt that is by its
terms subordinate in right of payment to the Notes unless such Debt constitutes
Subordinated Debt. (ss. 1009)
Limitation on Restricted Payments
The Company (i) may not, directly or indirectly, declare or pay any
dividend, or make any distribution in respect of its Capital Stock or to the
holders thereof (including pursuant to a merger or consolidation of the Company,
but excluding (a) any dividends or distributions payable solely in shares of its
Capital Stock (other than Disqualified Stock) or in options, warrants or other
rights to acquire its Capital Stock (other than Disqualified Stock) and (b)
dividends in accordance with the terms of the Company's Cumulative Convertible
Exchangeable Preferred Stock), (ii) may not, and may not permit any Subsidiary
of the Company to, directly or indirectly, purchase, redeem or otherwise acquire
or retire for value (a) any Capital Stock of the Company or (b) any options,
warrants, or rights to purchase or acquire shares of Capital Stock of the
Company (in the case of either (a) or (b) other than in exchange for the
Company's Capital Stock (other than Disqualified Stock) or options, warrants or
other rights to purchase the Company's Capital Stock (other than Disqualified
Stock)), (iii) may not make, or permit any Subsidiary of the Company to make,
any loan, advance, capital contribution to or Investment in, or payment on a
Guarantee of any obligation of, any Affiliate, other than the Company or a
Wholly Owned Subsidiary of the Company, (iv) may not, and may not permit any
Subsidiary of the Company to, redeem, defease, repurchase, retire or otherwise
acquire or retire for value prior to any scheduled maturity, repayment or
sinking fund payment, Debt of the Company which is subordinated in right of
payment to the Notes (other than in exchange for the Company's Capital Stock
(other than Disqualified Stock) or options, warrants or other rights to purchase
the Company's Capital Stock (other than Disqualified Stock)) and (v) may not
make any Investment in any Subsidiary which is subject to an encumbrance or
restriction described under "Limitations Concerning Distributions By and
Transfers to Subsidiaries" or any Investments in any Unrestricted Subsidiary
(each of Clauses (i) through (v) being a "Restricted Payment"), if at the time
thereof: (1) an Event of Default, or an event that with the lapse of time or the
giving of notice, or both, would constitute an Event of Default, shall have
occurred and is continuing, or (2) upon giving effect to such Restricted
Payment, the aggregate of all Restricted Payments from March 31, 1995 exceeds
the sum of: (a) the remainder of (x) 100% of the cumulative Consolidated Cash
Flow (or, in the case Consolidated Cash Flow shall be negative, less 100% of
such deficit) from March 31, 1995 through the last day of the last full fiscal
quarter immediately preceding such Restricted Payment minus (y) the product of
1.4 times the cumulative Consolidated Interest Expense from March 31, 1995
through the last day of the last full fiscal quarter immediately preceding such
Restricted Payment; plus (b) 100% of the aggregate net proceeds received by the
Company, including the fair market value of property other than cash (as
determined in good faith by the Board of Directors
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and evidenced by a Board Resolution filed with the Trustee), since March 31,
1995 from the issuance (other than to a Subsidiary) of Capital Stock (other than
Disqualified Stock and other than by a Subsidiary) of the Company and options,
warrants or other rights to purchase or acquire Capital Stock of the Company
(other than Disqualified Stock) and the principal amount of Debt of the Company
that has been converted into Capital Stock of the Company (other than
Disqualified Stock and other than by a Subsidiary) since March 31, 1995; plus
(c) an amount equal to the net reduction in Investments made by the Company and
its Subsidiaries subsequent to the date of original issue of the Notes pursuant
to Clauses (iii) and (v) above in any Affiliate or Unrestricted Subsidiary or
Subsidiary subject to an encumbrance or restriction upon the disposition,
liquidation or repayment (including by way of dividends) thereof, from
redesignations of Unrestricted Subsidiaries as Subsidiaries or from the removal
of such encumbrance or restriction, but only to the extent such amounts are not
included in Consolidated Net Income and not to exceed in the case of any Person
the amount of Investments previously made by the Company and its Subsidiaries in
such Persons; plus (d) $15,000,000.
Notwithstanding the foregoing, so long as no Event of Default, or event
that with the passing of time or the giving of notice, or both, would constitute
an Event of Default, shall have occurred and is continuing or would result
therefrom, the Company and any Subsidiary of the Company may (i) pay any
dividend within 60 days after declaration thereof if at the declaration date
such payment would have complied with the foregoing provision; (ii) make any
payment in redemption of Capital Stock of the Company or options to purchase
such Capital Stock granted to officers or employees of the Company pursuant to
the Company's Stock Option Plan (or any successor plan) in connection with the
severance or termination of officers or employees (other than W. Don Cornwell
and Stuart J. Beck) not to exceed $1,000,000 in the aggregate; (iii) make
Investments, not to exceed $10,000,000 in the aggregate at any one time, in (A)
any Subsidiary which is subject to any encumbrance or restriction described
under "Limitations Concerning Distributions By and Transfers to Subsidiaries" or
(B) any Unrestricted Subsidiary; (iv) exchange its Cumulative Convertible
Exchangeable Preferred Stock, in accordance with its terms, for the Exchange
Debentures; (v) refinance any Debt otherwise permitted by Clause (ix) of the
second paragraph under "Limitation on Debt" above or solely in exchange for or
out of the proceeds of the substantially concurrent sale (other than from or to
a Subsidiary) of shares of Capital Stock of the Company, other than Disqualified
Stock; (vi) purchase, redeem, acquire or retire any shares of Capital Stock of
the Company solely in exchange for or out of the proceeds of the substantially
concurrent sale (other than from or to a Subsidiary) of shares of Capital Stock
(other than Disqualified Stock) of the Company; (vii) purchase or redeem any
Debt from Net Available Proceeds to the extent permitted under "Limitation on
Certain Asset Dispositions"; and (viii) make Permitted Television Investments in
an aggregate amount at any one time outstanding not to exceed $15,000,000. Any
payment or Investment made pursuant to Clauses (i), (ii) and (iii) of this
paragraph shall be a Restricted Payment for purposes of calculating aggregate
Restricted Payments under the first paragraph of "Limitation on Restricted
Payments." (ss. 1010)
Limitations Concerning Distributions By and Transfers to Subsidiaries
The Company may not, and may not permit any Subsidiary of the Company to,
suffer to exist any consensual encumbrance or restriction on the ability of any
Subsidiary of the Company (i) to pay, directly or indirectly, dividends or make
any other distributions in respect of its Capital Stock or pay any Debt or other
obligation owed to the Company or any other Subsidiary of the Company; (ii) to
make loans or advances to the Company or any Subsidiary of the Company; or (iii)
to transfer any of its property or assets to the Company. Notwithstanding the
foregoing limitation, the Company may permit a Subsidiary to suffer to exist any
such encumbrance or restriction (A) included in any instrument governing Debt
Incurred by such Subsidiary pursuant to the first paragraph of "Limitation on
Debt" for the purpose of financing all or part of the purchase price or cost of
construction or improvements of property, provided, however, that the principal
amount of the Debt so Incurred does not exceed the purchase price or cost of
construction or improvements of such property; (B) included in the Senior Loan
Agreement; (C) imposed by virtue of applicable corporate law or regulation and
relating solely to the payment of dividends or distributions to shareholders;
(D) pursuant to an agreement relating to any Debt Incurred by a Person prior to
the date on which such Person became a Subsidiary of the Company and outstanding
on such date and not Incurred in anticipation of becoming a Subsidiary; (E) with
respect to restrictions of the nature described in Clause (iii) above, included
in a contract entered into in the ordinary course of business and consistent
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with past practices that contains provisions restricting the assignment of such
contract; (F) pursuant to an agreement effecting a renewal, refunding or
extension of Debt Incurred pursuant to an agreement referred to in Clause (A),
(B) or (D) above; provided, however, that the provisions contained in such
renewal, refunding or extension agreement relating to such encumbrance or
restriction are no more restrictive in any material respect than the provisions
contained in the agreement the subject thereof, as determined in good faith by
the Board of Directors and evidenced by a resolution of the Board of Directors
filed with the Trustee; or (G) included in any instrument governing Capital
Lease Obligations whose Attributable Value will not exceed $5,000,000 in the
aggregate at any one time outstanding or included in any instrument governing a
Sale and Leaseback Transaction whose Attributable Value does not exceed
$2,000,000 and the Attributable Value of all such Sale and Leaseback
Transactions entered into since the date of the Indenture does not exceed
$5,000,000 in the aggregate; provided that in each case, after giving effect to
the Incurrence of such Capital Lease Obligation or Sale and Leaseback and the
receipt and application of the proceeds thereof, the ratio of the aggregate
principal amount of Debt of the Company and its Subsidiaries outstanding as of
the most recent available balance sheet to Pro Forma Consolidated Cash Flow for
the preceding four full fiscal quarters, determined on a pro forma basis as if
such Capital Lease Obligation had been Incurred, or such Sale and Leaseback
Transaction had taken place, and the proceeds therefrom had been applied at the
beginning of such four fiscal quarters, would be less than 6.5 to 1. (ss. 1011)
Limitation on Transactions with Affiliates
The Company may not, and may not permit any Subsidiary of the Company to,
directly or indirectly, enter into any transaction after the date of the
Indenture with any Affiliate (other than the Company or a Wholly Owned
Subsidiary of the Company), unless a majority of the disinterested members of
the Board of Directors determines in its reasonable good faith judgment
evidenced by a Board Resolution filed with the Trustee that: (1) such
transaction is in the best interests of the Company or such Subsidiary; and (2)
such transaction is on terms no less favorable to the Company or such Subsidiary
than those that could be obtained in a comparable arm's-length transaction with
an entity that is not an Affiliate. Notwithstanding the foregoing, the Company
shall not be required to file any Board Resolution referred to in the preceding
sentence with respect to matters solely concerning the compensation of
employees. (ss. 1012)
Limitation on Certain Asset Dispositions
The Company may not, and may not permit any Subsidiary to, make an Asset
Disposition in one or more transactions in any fiscal year unless: (i) the
consideration for such disposition will be at least equal to the fair market
value thereof as determined by the Board of Directors; (ii) at least 85% of the
consideration for such disposition consists of cash or readily marketable cash
equivalents or the assumption of Debt of the Company or a Subsidiary or other
obligations relating to such assets and a release from all liability on the Debt
or other obligations assumed; and (iii) all Net Available Proceeds of such
disposition and from the sale of any marketable cash equivalents received
thereby, less any amounts invested as described in the second sentence of the
following paragraph, are applied (A) first, within 120 days of such disposition,
to the reduction of any obligations then outstanding under the Senior Loan
Agreement (or any successor credit facility) to the extent the terms of such
Senior Loan Agreement (or successor credit facility) require such application or
prohibit prepayment of the Notes; (B) second, within 120 days of such
disposition, to the repayment of any other Senior Debt to the extent the terms
of such Senior Debt require such application or prohibit prepayment of the
Notes; (C) third, to the extent of any remaining Net Available Proceeds and so
long as any 12.75% Debentures are outstanding, to make an offer to purchase the
12.75% Debentures in accordance with the requirements of the 12.75% Debenture
Indenture; (D) fourth, to the extent of any remaining Net Available Proceeds and
so long as any 10 3/8% Notes are outstanding, to make an offer to purchase the
10 3/8% Notes in accordance with the requirements of the 10 3/8% Note Indenture;
(E) fifth, to the extent more than $5,000,000 of Net Available Proceeds are not
required to be applied to the repayments as specified in Clauses (A), (B), (C)
and (D) and only if there are no 12.75% Debentures and no 10 3/8% Notes
outstanding, to purchases of Outstanding Notes pursuant to an Offer to Purchase
commenced within 120 days of such disposition, at a purchase price equal to 100%
of their principal amount plus accrued interest to the date of purchase; (F)
sixth, to the extent of any remaining Net Available Proceeds following the
completion of the Offer to Purchase Notes required by Clause (E) or if Clause
(E) is not applicable because any 12.75% Debentures or
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10 3/8% Notes are outstanding, to the repayment of other Debt of the Company or
Debt of a Subsidiary of the Company, to the extent permitted under the terms
thereof; and (G) seventh, to the extent of any remaining Net Available Proceeds,
to any other use as determined by the Company which is not otherwise prohibited
by the Indenture.
Notwithstanding Clause (ii) above, all or a portion of the consideration
for any such disposition may consist of all or substantially all of the assets
or a majority of the Voting Stock of an existing television or radio
broadcasting or cable television business or franchise (whether existing as a
separate entity, subsidiary, division, unit or otherwise) if after giving effect
to any such disposition and related acquisition of assets, (x) the ratio of the
aggregate principal amount of Debt of the Company and its Subsidiaries
outstanding as of the most recent available balance sheet to Pro Forma
Consolidated Cash Flow for the preceding four fiscal quarters, determined on a
pro forma basis as if such transaction had taken place and the proceeds
therefrom had been applied at the beginning of such four fiscal quarters, would
be less than 6.5 to 1; (y) no Event of Default or event that, with the passing
of time or the giving of notice, or both, will constitute an Event of Default
shall have occurred or be continuing; and (z) the Net Available Proceeds, if
any, are invested in accordance with the next sentence of this paragraph.
Notwithstanding Clause (iii) above, the Company shall not be required to
repurchase or redeem any Debt to the extent that the Net Available Proceeds from
any Asset Disposition are invested within 120 days of such disposition in
television or radio broadcasting or cable television assets or franchises or the
Company shall have entered into a definitive agreement to acquire such assets
subject only to customary conditions, including, without limitation, the
approval of the Federal Communications Commission (but excluding any conditions
with respect to the financing of such acquisition or due diligence) and such
acquisition shall have been consummated within 240 days of such disposition.
Notwithstanding the foregoing two sentences, the Company shall not be entitled
to take as consideration for an Asset Disposition, or invest Net Available
Proceeds in lieu of repurchasing or redeeming Debt in, any television or radio
broadcasting or cable television assets, business or franchise unless the
majority of the assets (including intangibles) so acquired or the majority of
the assets (including intangibles) of such business or franchise so acquired are
related to television or radio broadcasting. The Company will not be entitled to
any credit against its obligation to purchase Outstanding Notes pursuant to this
covenant for Notes previously acquired by reason of a redemption, tender offer
or other repurchase. (ss. 1013)
Limitation on Liens Securing Company Subordinated Debt
The Company may not, and may not permit any Subsidiary of the Company to,
Incur or suffer to exist any Lien on or with respect to any property or assets
now owned or hereafter acquired to secure any Debt of the Company that is
expressly by its terms subordinate or junior in right of payment (other than by
reason of maturity) to any other Debt of the Company without making, or causing
such Subsidiary to make, effective provision for securing the Notes (x) equally
and ratably with such Debt as to such property or assets for so long as such
Debt will be so secured or (y) in the event such Debt is subordinate in right of
payment (other than by reason of maturity) to the Notes, prior to such Debt as
to such property or assets for so long as such Debt will be so secured. (ss.
1015)
Limitation on Guarantees of Company Subordinated Debt
The Company may not permit any Subsidiary, directly or indirectly, to
assume, Guarantee or in any other manner become liable with respect to any Debt
of the Company that is expressly by its terms subordinate or junior in right of
payment (other than by reason of maturity) to any other Debt of the Company.
(ss. 1016)
Limitation on Issuances and Sale of Capital Stock of Wholly Owned Subsidiaries
The Company (i) may not, and may not permit any Wholly Owned Subsidiary to,
transfer, convey, sell or otherwise dispose of any Capital Stock of such or any
other Wholly Owned Subsidiary to any Person (other than the Company or a Wholly
Owned Subsidiary) unless such transfer, conveyance, sale or other disposition is
of all the Capital Stock of such Wholly Owned Subsidiary and the Net Available
Proceeds from such transfer, conveyance, sale or other disposition are applied
in accordance with "Limitation on Certain Asset Dispositions" (including the
provisions thereof relating to the application of the Net Available Proceeds
therefrom) and (ii) may not permit any
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Wholly Owned Subsidiary to issue shares of its Capital Stock (other than
directors' qualifying shares), or securities convertible into, or warrants,
rights or options to subscribe for or purchase shares of, its Capital Stock to
any Person other than to the Company or a Wholly Owned Subsidiary unless in the
case of either Clause (i) or (ii) above (A) after giving effect to any such
sale, disposition or issuance, the ratio of the aggregate principal amount of
Debt of the Company and its Subsidiaries outstanding as of the most recent
available balance sheet to Pro Forma Consolidated Cash Flow for the preceding
four fiscal quarters, determined on a pro forma basis as if such sale,
disposition or issuance had taken place and the Net Available Proceeds therefrom
had been applied at the beginning of such four fiscal quarters, would be less
than 6.5 to 1; (B) immediately after giving effect to such sale, disposition or
issuance (including any acquisition of assets with Net Available Proceeds) no
Event of Default or event that, with the passing of time or the giving of
notice, or both, would constitute an Event of Default shall have occurred or be
continuing; (C) the assets acquired pursuant to such sale, disposition or
issuance, are either (x) at least 85% cash or readily marketable cash
equivalents and the Net Available Proceeds from such sale, disposition or
issuance are applied in accordance with "Limitation on Certain Asset
Dispositions" (including the provisions thereof relating to the application of
Net Available Proceeds therefrom) or (y) all or substantially all of the assets
or a majority of the Voting Stock of an existing television or radio
broadcasting or cable television business or franchise (whether existing as a
separate entity, subsidiary, division, unit or otherwise) (subject to the
restrictions described in the last sentence of the second paragraph under
"Limitation on Certain Asset Dispositions"); (D) after giving effect to any such
sale, disposition or issuance, such Wholly Owned Subsidiary shall be a
Subsidiary of the Company; and (E) the consideration for such sale, disposition
or issuance of Capital Stock will be at least equal to the fair market value
thereof as determined by the Board of Directors. (ss. 1014)
Provision of Financial Information
So long as any of the Notes are Outstanding, the Company will file with the
Commission the annual reports, quarterly reports and other documents that the
Company would have been required to file with the Commission pursuant to
Sections 13(a) and 15(d) of the Exchange Act if the Company were subject to such
Sections, and the Company will provide to all Holders and file with the Trustee
copies of such reports and documents. (ss. 1018)
Mergers, Consolidations and Certain Sales of Assets
The Company (i) may not consolidate with or merge into any other Person or
permit any other Person to consolidate with or merge into the Company or any
Subsidiary of the Company (in a transaction in which such Subsidiary remains a
Subsidiary of the Company); and (ii) may not, directly or indirectly, transfer,
sell, convey, lease or otherwise dispose of all or substantially all of its
properties and assets as an entirety; unless: (1) immediately after giving
effect to such transaction and treating any Debt that becomes an obligation of
the Company or a Subsidiary of the Company, as a result of such transaction, as
having been Incurred by the Company or such Subsidiary at the time of the
transaction, no Event of Default or event that, with the passing of time or the
giving of notice, or both, would become an Event of Default, shall have occurred
and be continuing; (2) in a transaction in which the Company does not survive or
in which the Company sells, leases or otherwise disposes of all or substantially
all of its assets, the successor entity to the Company is organized under the
laws of the United States or any State thereof or the District of Columbia and
will expressly assume, by a supplemental indenture executed and delivered to the
Trustee in form satisfactory to the Trustee, all of the Company's obligations
under the Indenture; (3) immediately after giving effect to such transaction,
the Company or the successor entity to the Company would have a ratio of
aggregate principal amount of Debt of the Company and its Subsidiaries
outstanding as of the most recent available balance sheet to Pro Forma
Consolidated Cash Flow for the preceding four full fiscal quarters, determined
on a pro forma basis as if such transaction had taken place and the proceeds
therefrom had been applied at the beginning of such four fiscal quarters, of
less than 6.5 to 1; (4) if, as a result of any such transaction, property or
assets of the Company would become subject to a Lien prohibited by the
provisions of the Indenture described under "Limitation on Liens Securing
Company Subordinated Debt" above, the Company or the successor entity to the
Company shall have secured the Notes as required by such covenant; and (5)
certain other conditions are met. (ss. 801) Upon any such sale of all or
substantially all of the assets of the Company to another Person or any merger
or consolidation where the Company is not the surviving entity, such Person or
survivor shall
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become the obligor in respect of the Notes and the Company will be relieved of
all further obligations and covenants, including the "Limitation on Certain
Asset Dispositions," under the Indenture and the Notes. (ss. 802)
Change of Control
Within 30 days following the date of the consummation of a transaction that
will result in a Change of Control, the Company will commence an Offer to
Purchase all Outstanding Notes, subject to the consummation of the Change of
Control, at a purchase price equal to 101% of their aggregate principal amount
plus accrued interest to the date of purchase. Prior to the commencement of the
Offer, and in any event prior to 30 days following the date of the consummation
of a transaction that will result in a Change of Control, the Company will (a)
to the extent then required to be repaid, pay in full all outstanding Senior
Debt or (b) obtain the requisite consents then required under agreements
governing such debt. The failure to satisfy (a) or (b) above will not relieve
the Company of its obligation to make the offer to purchase the Notes and such
failure will constitute an Event of Default. A Change of Control will be deemed
to have occurred at such time as any Person or any Persons (other than one or
more Permitted Holders) acting together that would constitute a "group" (a
"Group") for purposes of Section 13(d) of the Exchange Act becomes the
beneficial owner of 50% or more of the total voting power of all classes of
Voting Stock of the Company or at such time as such Person or Group succeeds in
having sufficient of its nominees elected to the Board of Directors of the
Company such that such nominees, when added to any existing director remaining
on the Board of Directors of the Company after such election who is an Affiliate
of such Group, will constitute a majority of the Board of Directors of the
Company. "Permitted Holder" means (i) W. Don Cornwell and Stuart J. Beck, (ii)
the members of the immediate family of either of the persons referred to in
Clause (i) above, (iii) any trust created for the benefit of the persons
described in Clause (i) or (ii) above or any of their estates or (iv) any
corporation that is controlled by any person described in Clause (i), (ii) or
(iii) above. (ss. 1017)
The Company will be required to offer to purchase all outstanding Notes at
a price equal to 101% of their principal amount plus accrued interest to the
date of repurchase in the event of a Change of Control (as defined in the
Indenture). The Company will also be required to offer to purchase all of the
12.75% Debentures and the 10 3/8% Notes at 101% of the principal amount thereof,
of which $235,000,000 principal amount is currently outstanding, upon the
occurrence of a Change of Control. If a Change of Control were to occur, there
can be no assurance that the Company would have sufficient funds to repay all
borrowings under the Credit Agreement and pay the Change of Control purchase
price for all 12.75% Debentures, the 10 3/8% Notes and the Notes tendered by the
holders thereof. The Notes will be subordinated in right of payment to the prior
payment in full of all Senior Indebtedness, including the Indebtedness
outstanding under the Credit Agreement.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided. (ss. 101)
"Affiliate" of any Person means any other Person directly or indirectly
controlling or controlled by or under direct or indirect common control with
such Person. For the purposes of this definition, "control" when used with
respect to any Person means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Disposition" by any Person means any transfer, conveyance, sale,
lease or other disposition by such Person or any of its Subsidiaries (including
a consolidation or merger of any such Subsidiaries with or into another Person
in a transaction in which such Subsidiary ceases to be a Subsidiary, but
excluding a disposition by a Subsidiary of such Person to such Person or a
Wholly Owned Subsidiary of such Person or by such Person to a Wholly Owned
Subsidiary of such Person) of (i) shares of Capital Stock (other than directors'
qualifying shares) or other ownership interests of a Subsidiary of such Person,
(ii) substantially all of the assets of such Person or any of its Subsidiaries
representing a division or line of business or (iii) other assets or rights of
such Person or any of
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its Subsidiaries outside of the ordinary course of business. Asset Disposition
shall not include a Sale and Leaseback Transaction to the extent that the
Attributable Value of such Sale and Leaseback Transaction does not exceed
$2,000,000 and the aggregate Attributable Value of all such Sale and Leaseback
Transactions entered into since the date of the Indenture does not exceed
$5,000,000.
"Attributable Value" means, as to any particular lease under which any
Person is at the time liable other than a Capital Lease Obligation, and at any
date as of which the amount thereof is to be determined, the total net amount of
rent required to be paid by such Person under such lease during the initial term
thereof as determined in accordance with generally accepted accounting
principles, discounted from the last date of such initial term to the date of
determination at a rate per annum equal to the discount rate which would be
applicable to a Capital Lease Obligation with like term in accordance with
generally accepted accounting principles. The net amount of rent required to be
paid under any such lease for any such period shall be the aggregate amount of
rent payable by the lessee with respect to such period after excluding amounts
required to be paid on account of insurance, taxes, assessments, utility,
operating and labor costs and similar charges. In the case of any lease which is
terminable by the lessee upon the payment of a penalty, such net amount shall
also include the amount of such penalty, but no rent shall be considered as
required to be paid under such lease subsequent to the first date upon which it
may be so terminated. Attributable Value means, as to a Capital Lease Obligation
under which any Person is at the time liable and at any date as of which the
amount thereof is to be determined, the capitalized amount thereof that would
appear on the face of a balance sheet of such Person in accordance with
generally accepted accounting principles.
"Average Life" means, as of the date of determination, with respect to any
Debt, the quotient obtained by dividing (i) the sum of the products of the
numbers of years from the date of determination to the dates of each successive
scheduled principal payments of such Debt, multiplied by the amount of such
principal payments by (ii) the sum of all such principal payments.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in The Borough of Manhattan,
The City of New York, New York are authorized or obligated by law or executive
order to close.
"Capital Lease Obligation" of any Person means the obligation to pay rent
or other payment amounts under a lease of (or other Debt arrangements conveying
the right to use) real or personal property of such Person which is required to
be classified and accounted for as a capital lease or a liability on the face of
a balance sheet of such Person in accordance with generally accepted accounting
principles. The stated maturity of such obligation shall be the date of the last
payment of rent or any other amount due under such lease prior to the first date
upon which such lease may be terminated by the lessee without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents (however designated) of corporate stock of
such Person.
"Common Stock" of any Person means Capital Stock of such Person that does
not rank prior, as to the payment of dividends or as to the distribution of
assets upon any voluntary or involuntary liquidation, dissolution or winding up
of such Person, to shares of Capital Stock of any other class of such Person.
"Consolidated Cash Flow" of any Person means for any period the
Consolidated Net Income for such period increased by the sum of (i) Consolidated
Interest Expense of such Person and its Consolidated Subsidiaries for such
period, plus (ii) Consolidated Income Tax Expense of such Person and its
Consolidated Subsidiaries for such period, plus (iii) the consolidated
depreciation and amortization expense included in the income statement of such
Person and its Consolidated Subsidiaries for such period, plus (iv) other
non-cash charges of such Person and its Consolidated Subsidiaries deducted in
determining Consolidated Net Income (other than amortization of film and program
assets) for such period, minus (v) non-cash items of such Person and its
Consolidated Subsidiaries added in determining Consolidated Net Income for such
period; provided, however, Consolidated Cash Flow shall not include Consolidated
Net Income and the items specified in Clauses (i) through (iv) above to the
extent attributable to a Consolidated Subsidiary of such Person that is subject
to restrictions preventing the payment of dividends and
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the making of distributions (by loans, advances, intercompany transfers or
otherwise) to such Person, but shall include such payments and distributions as
could be made in accordance with such restrictions.
"Consolidated Income Tax Expense" of any Person means for any period the
consolidated provision for income taxes of such Person and its Consolidated
Subsidiaries for such period.
"Consolidated Interest Expense" for any Person means for any period the
consolidated interest expense included in a consolidated income statement
(without deduction of interest income) of such Person and its Consolidated
Subsidiaries for such period, including without limitation or duplication (or,
to the extent not so included, with the addition of), (i) the portion of any
rental obligation in respect of any Capital Lease Obligation allocable to
interest expense in accordance with generally accepted accounting principles,
(ii) the amortization of Debt discounts, (iii) any payments or fees with respect
to letters of credit, bankers acceptances or similar facilities, (iv) fees with
respect to interest rate swap or similar agreements or foreign currency hedge,
exchange or similar agreements other than fees or charges related to the
acquisition or termination thereof which are not allocable to interest expense
in accordance with generally accepted accounting principles, (v) Preferred Stock
dividends declared and payable in cash and (vi) accrued Disqualified Stock
dividends, whether or not declared or paid.
"Consolidated Net Income" of any Person means for any period the
consolidated net income (or loss) of such Person and its Consolidated
Subsidiaries for such period determined in accordance with generally accepted
accounting principles; provided that there shall be excluded therefrom (i) the
net income (or loss) of any Person acquired by such Person or a Subsidiary of
such Person in a pooling-of-interests transaction for any period prior to the
date of such transaction, (ii) the net income (or loss) of any Person that is
not a Consolidated Subsidiary of such Person, (iii) gains or losses on Asset
Dispositions by such Person or its Consolidated Subsidiaries and (iv) all
extraordinary gains and extraordinary losses; and provided, further, that there
shall be added thereto, to the extent not otherwise included in Consolidated Net
Income, the amount of any dividends or other distributions actually paid to such
Person during such period by a Person that is not a Consolidated Subsidiary of
such Person.
"Consolidated Subsidiaries" of any Person means all other Persons that
would be accounted for as Consolidated Persons in such Person's financial
statements in accordance with generally accepted accounting principles,
provided, however, Consolidated Subsidiaries shall not include any Unrestricted
Subsidiary created in accordance with the definition of Unrestricted Subsidiary.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person, and whether or not
contingent, (i) every obligation of such Person for money borrowed, (ii) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (iv) every obligation of such Person issued or assumed
as the deferred purchase price of property or services (but excluding trade
accounts payable, film contract rights or accrued liabilities arising in the
ordinary course of business), (v) every Capital Lease Obligation of such Person,
(vi) the maximum fixed redemption or repurchase price of Disqualified Stock of
such Person at the time of determination, and (vii) every obligation of the type
referred to in Clauses (i) through (vi) of another Person and all dividends of
another Person the payment of which, in either case, such Person has Guaranteed
or is responsible or liable, directly or indirectly, as obligor, Guarantor or
otherwise.
"Disqualified Stock" means any Capital Stock of the Company or any
Subsidiary which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or otherwise (including upon the
occurrence of an event), matures or is required to be redeemed (pursuant to a
sinking fund obligation or otherwise) or is redeemable at the option of the
holder thereof, in whole or in part (other than a redemption which is
conditioned upon a change of control of the Company), on or prior to the final
scheduled maturity of the Notes.
"generally accepted accounting principles" means, with respect to any
computation, such accounting principles as are generally accepted in the United
States as consistently applied by the Company at the date of such computation.
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"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person guaranteeing or having the economic effect of guaranteeing any Debt
of any other Person (the "primary obligor") in any manner, whether directly or
indirectly, and including, without limitation, any obligation of such Person,
(i) to purchase or pay (or advance or supply funds for the purchase or payment
of) such Debt or to purchase (or to advance or supply funds for the purchase of)
any security for the payment of such Debt, (ii) to purchase property, securities
or services for the purpose of assuring the holder of such Debt of the payment
of such Debt, or (iii) to maintain working capital, equity capital or other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Debt (and "Guaranteed," "Guaranteeing"
and "Guarantor" shall have meanings correlative to the foregoing); provided,
however, that the Guarantee by any Person shall not include endorsements by such
Person for collection or deposit, in either case, in the ordinary course of
business.
"Incur" means, with respect to any Debt or other obligation of any Person,
to create, issue, incur (by conversion, exchange or otherwise), assume,
Guarantee or otherwise become liable in respect of such Debt or other obligation
or the recording, as required pursuant to generally accepted accounting
principles or otherwise, of any such Debt or other obligation on the balance
sheet of such Person (and "Incurrence," "Incurred," "Incurrable" and "Incurring"
shall have meanings correlative to the foregoing); provided, however, that a
change in generally accepted accounting principles that results in an obligation
of such Person that exists at such time becoming Debt shall not be deemed an
Incurrence of such Debt.
"Investment" by any Person means any direct or indirect loan, advance or
other extension of credit or capital contribution (by means of transfers of cash
or other property to others or payments for property or services for the account
or use of others, or otherwise) to, or purchase or acquisition of Capital Stock,
bonds, notes, debentures or other securities or evidence of Debt issued by, any
other Person, including any payment on a Guarantee of any obligation of such
other Person.
"Lien" means, with respect to any property or assets, any mortgage or deed
of trust, pledge, hypothecation, assignment, deposit arrangement, security
interest, lien, charge, easement (other than any easement not materially
impairing usefulness or marketability), encumbrance, preference, priority or
other security agreement or preferential arrangement of any kind or nature
whatsoever on or with respect to such property or assets (including, without
limitation, any conditional sale or other title retention agreement having
substantially the same economic effect as any of the foregoing).
"Local Marketing Agreement" means any agreement pursuant to which the
Company or any of its Subsidiaries agrees to provide television management
services, television broadcasting or assets related to the provision of
television broadcasting in exchange for cash payments and/or the right to charge
others for the provision of advertising or other services or products.
"Net Available Proceeds" from any Asset Disposition or issuance of Capital
Stock by any Person means cash or readily marketable cash equivalents received
(including by way of sale or discounting of a note, installment receivable or
other receivable, but excluding any other consideration received in the form of
assumption by the acquiree of Debt or other obligations relating to such
properties or assets or received in any other noncash form) therefrom by such
Person, net of (i) all legal, title and recording tax expenses, commissions and
other fees and expenses Incurred and all federal, state, provincial, foreign and
local taxes required to be accrued as a liability as a consequence of such Asset
Disposition or issuance, (ii) all payments made by such Person or its
Subsidiaries on any Debt which is secured by such assets in accordance with the
terms of any Lien upon or with respect to such assets or which must by the terms
of such Lien, or in order to obtain a necessary consent to such Asset
Disposition or issuance or by applicable law be repaid out of the proceeds from
such Asset Disposition or issuance, (iii) all distributions and other payments
made to minority interest holders in Subsidiaries of such Person or joint
ventures as a result of such Asset Disposition, and (iv) reserves established in
accordance with generally accepted accounting principles against any liabilities
associated with such assets and retained by such Person or any Subsidiary
thereof, as the case may be, after such Asset Disposition, including, without
limitation, liabilities under any indemnification obligations and severance and
other employee termination costs associated with such Asset Disposition, in each
case as determined by the Board of Directors, in its reasonable good faith
judgment evidenced by a resolution of the
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Board of Directors filed with the Trustee; provided, however, that any reduction
in such reserve following the consummation of such Asset Disposition will be
treated for all purposes of the Indenture and the Notes as a new Asset
Disposition at the time of such reduction with Net Available Proceeds equal to
the amount of such reduction.
"Offer to Purchase" means a written offer (the "Offer") sent by the Company
by first class mail, postage prepaid, to each Holder at his address appearing in
the Note Register on the date of the Offer, offering to purchase up to the
principal amount of Notes specified in such Offer at the purchase price
specified in such Offer. Unless otherwise required by applicable law, the Offer
shall specify an expiration date (the "Expiration Date") of the Offer to
Purchase which shall be, subject to any contrary requirements of applicable law,
not less than 30 days or more than 60 days after the date of such Offer and a
settlement date (the "Purchase Date") for the purchase of Notes within five
Business Days after the Expiration Date. The Company shall notify the Trustee at
least 15 Business Days (or such shorter period as is acceptable to the Trustee)
prior to the mailing of the Offer of the Company's obligation to make an Offer
to Purchase, and the Offer shall be mailed by the Company or, at the Company's
request, by the Trustee in the name and at the expense of the Company. The Offer
shall contain information concerning the business of the Company and its
Subsidiaries which the Company in good faith believes will enable such Holders
to make an informed decision with respect to the Offer to Purchase (which at a
minimum will include (i) the most recent annual and quarterly financial
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contained in the documents required to be filed with the
Trustee pursuant to the "Provision of Financial Information" covenant described
above (which requirements may be satisfied by delivery of such documents
together with the Offer), (ii) a description of material developments in the
Company's business subsequent to the date of the latest of such financial
statements referred to in Clause (i) (including a description of the events
requiring the Company to make the Offer to Purchase), (iii) if applicable,
appropriate pro forma financial information concerning the Offer to Purchase and
the events requiring the Company to make the Offer to Purchase, and (iv) any
other information required by applicable law to be included therein). The Offer
shall contain all instructions and materials necessary to enable such Holder to
tender Notes pursuant to the Offer to Purchase. The Offer shall also state:
(1) the Section of the Indenture pursuant to which the Offer to Purchase is
being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate principal amount of the Outstanding Notes offered to be
purchased by the Company pursuant to the Offer to Purchase (including, if less
than 100%, the manner by which such has been determined pursuant to the Section
hereof requiring the Offer to Purchase) (the "Purchase Amount");
(4) the purchase price to be paid by the Company for each $1,000 aggregate
principal amount of Notes accepted for payment (as specified pursuant to the
Indenture);
(5) that the Holder may tender all or any portion of the Notes registered
in the name of such Holder and that any portion of a Note tendered must be
tendered in an integral multiple of $1,000 principal amount;
(6) the place or places where Notes are to be surrendered for tender
pursuant to the Offer to Purchase;
(7) that interest on any Note not tendered or tendered but not purchased by
the Company pursuant to the Offer to Purchase will continue to accrue;
(8) that on the Purchase Date the purchase price will become due and
payable upon each Note accepted for payment pursuant to the Offer to Purchase
and that interest thereon shall cease to accrue on and after the Purchase Date;
(9) that each Holder electing to tender a Note pursuant to the Offer to
Purchase will be required to surrender such Note at the place or places
specified in the Offer prior to the close of business on the Expiration Date
(such Note being, if the Company or the Trustee so requires, duly endorsed by,
or accompanied by a written
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instrument of transfer in form reasonably satisfactory to the Company and the
Trustee duly executed by, the Holder thereof or his attorney duly authorized in
writing);
(10) that Holders will be entitled to withdraw all or any portion of Notes
tendered if the Company (or its Paying Agent) receives, not later than the close
of business on the Expiration Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Note
the Holder tendered, the certificate number of the Note the Holder tendered and
a statement that such Holder is withdrawing all or a portion of his tender;
(11) that (i) if Notes in an aggregate principal amount less than or equal
to the Purchase Amount are duly tendered and not withdrawn pursuant to the Offer
to Purchase, the Company shall purchase all such Notes and (ii) if Notes in an
aggregate principal amount in excess of the Purchase Amount are tendered and not
withdrawn pursuant to the Offer to Purchase, the Company shall purchase Notes
having an aggregate principal amount equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only Notes in
denominations of $1,000 or integral multiples thereof shall be purchased); and
(12) that in the case of any Holder whose Note is purchased only in part,
the Company shall execute, and the Trustee shall authenticate and deliver to the
Holder of such Note without service charge, a new Note or Notes, of any
authorized denomination as requested by such Holder, in an aggregate principal
amount equal to and in exchange for the unpurchased portion of the Notes so
tendered.
In the event that the Company is required to make an Offer to Purchase, the
Company intends to comply with any applicable securities laws and regulations,
including any applicable requirements of Rule 14e-1 under the Exchange Act.
"Permitted Television Investment" means an Investment in any Person which
is a Restricted Payment within the meaning of either Clause (iii) or (v) of the
definition of Restricted Payment (i) with which the Company has entered into a
Local Marketing Agreement or (ii) (a) for the purpose of facilitating the
delivery by the Company or any of its Subsidiaries of advanced television
service, including high definition television, or interactive television or (b)
to otherwise permit the Company or any of its Subsidiaries to exploit any other
emerging technologies relating to television broadcasting. For purposes of
calculating the aggregate amount of outstanding Permitted Television
Investments, any Investment (a) in a Person which, subsequent to such
Investment, becomes a Wholly Owned Subsidiary of the Company, or (b) that
otherwise, due to a change in the status of such person, would not, if then
made, be deemed a Restricted Payment, shall no longer be deemed outstanding as
of the date such Person becomes a Wholly Owned Subsidiary or otherwise changes
its status, as the case may be.
"Preferred Stock," as applied to the Capital Stock of any Person, means
Capital Stock of such Person of any class or classes (however designated) that
ranks prior, as to the payment of dividends or as to the distribution of assets
upon any voluntary or involuntary liquidation, dissolution or winding up of such
Person, to shares of Capital Stock of any other class of such Person.
"Pro Forma Consolidated Cash Flow" of any Person means for any period the
Consolidated Cash Flow for such period; provided, that, in the event such Person
or its Subsidiaries has made Asset Dispositions or acquisitions of assets,
properties or franchises not in the ordinary course of business (including
acquisitions of other Persons by merger, consolidation or purchase of Capital
Stock) or has permitted an encumbrance or restriction pursuant to the provisions
described under "Limitations Concerning Distributions By and Transfers to
Subsidiaries" during or after such period, such computation shall be made on a
pro forma basis (whether the acquisition is treated as a purchase or a pooling
under generally accepted accounting principles) as if the Asset Dispositions or
acquisitions or restriction or encumbrance had taken place on the first day of
such period. If, during or after the period for which such calculation is made,
the Person or any of its Subsidiaries has acquired or disposed of a television
or radio broadcasting or cable television franchise that does not constitute an
existing business (whether existing as a separate entity, subsidiary, division,
unit or otherwise), the pro forma effect of such acquisition or disposition
shall be deemed to be the Consolidated Cash Flow attributable to such franchise
(or a reasonable estimate
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thereof) for the period for which such calculation is made prior to such
acquisition or disposition, provided that such estimated Consolidated Cash Flow
shall be determined on the basis of comparable franchises, evidenced in a Board
Resolution and reported on by a nationally recognized accounting firm.
"readily marketable cash equivalents" means (i) marketable securities
issued or directly and unconditionally guaranteed by the United States
Government or issued by any agency thereof and backed by the full faith and
credit of the United States; (ii) marketable direct obligations issued by any
state of the United States of America or any political subdivision of any such
state or any public instrumentality thereof and, at the time of acquisition,
having the highest rating obtainable from either Standard & Poor's Ratings Group
or Moody's Investors Service, Inc.; (iii) commercial paper maturing no more than
180 days from the date of acquisition thereof and, at the time of acquisition,
having a rating of at least A-1 from Standard & Poor's Ratings Group or at least
P-1 from Moody's Investors Service, Inc.; and (iv) certificates of deposit or
bankers' acceptances maturing within one year from the date of acquisition
thereof issued by any commercial bank organized under the laws of the United
States of America or any state thereof or the District of Columbia having
unimpaired capital and surplus of not less than $100,000,000.
"Sale and Leaseback Transaction" of any Person means an arrangement with
any lender or investor or to which such lender or investor is a party providing
for the leasing by such Person of any property or asset of such Person which has
been or is being sold or transferred by such Person more than 270 days after the
acquisition thereof or the completion of construction or commencement of
operation thereof to such lender or investor or to any person to whom funds have
been or are to be advanced by such lender or investor on the security of such
property or asset. The stated maturity of such arrangement shall be the date of
the last payment of rent or any other amount due under such arrangement prior to
the first date on which such arrangement may be terminated by the lessee without
payment of a penalty.
"Senior Loan Agreement" means the Second Amended and Restated Credit
Agreement, dated as of May 19, 1995, by and among the Company, the Banks named
therein and Bankers Trust Company, as Agent, as it may be amended, restated or
modified from time to time.
"Subordinated Debt" means Debt of the Company as to which the payment of
principal of (and premium, if any) and interest and other payment obligations in
respect of such Debt shall be subordinate to the prior payment in full of the
Notes to at least the following extent: (i) no payments of principal of (or
premium, if any) or interest on or otherwise due in respect of such Debt may be
permitted for so long as any default in the payment of principal (or premium, if
any) or interest on the Notes exists; and (ii) in the event that any other
default that with the passing of time or the giving of notice, or both, would
constitute an event of default exists with respect to the Notes, upon notice by
25% or more in principal amount of the Notes to the Trustee, the Trustee shall
have the right to give notice to the Company and the holders of such Debt (or
trustees or agents therefor) of a payment blockage, and thereafter no payments
of principal of (or premium, if any) or interest on or otherwise due in respect
of such Debt may be made for a period of 179 days from the date of such notice.
Notwithstanding the foregoing, the Exchange Debentures shall constitute
Subordinated Debt unless and until the terms thereof shall be amended or
modified after the date of the Indenture.
"Subsidiary" of any Person means (i) a corporation more than 50% of the
outstanding Voting Stock of which is owned, directly or indirectly by such
Person or by one or more other Subsidiaries of such Person, or by such Person
and one or more other Subsidiaries thereof or (ii) any other Person (other than
a corporation) in which such Person, or one or more other Subsidiaries of such
Person or such Person and one or more other Subsidiaries thereof, directly or
indirectly, has at least a majority ownership and power to direct the policies,
management and affairs thereof. Subsidiary shall not include an Unrestricted
Subsidiary created in accordance with the definition of Unrestricted Subsidiary.
"Unrestricted Subsidiary" means (1) any Subsidiary designated as such by
the Board of Directors as set forth below where (a) neither the Company nor any
of its other Subsidiaries (other than another Unrestricted Subsidiary) (i)
provides credit support for, or Guarantee of, any Debt of such Subsidiary
(including any undertaking, agreement or instrument evidencing such Debt) or
(ii) is directly or indirectly liable for any Debt of such Subsidiary,
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and (b) no default with respect to any Debt of such Subsidiary (including any
right which the holders thereof may have to take enforcement action against such
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Debt of the Company and its other Subsidiaries (other than another
Unrestricted Subsidiary) to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its final scheduled
maturity, (2) any Subsidiary of the Company (other than a Subsidiary existing as
of the date of the Indenture or successor to any such Subsidiary) which at the
time of determination shall be an Unrestricted Subsidiary (as designated by the
Board of Directors, as provided below) and (3) any Subsidiary of an Unrestricted
Subsidiary where Clauses (a) and (b) are true with respect to such Subsidiary.
The Board of Directors may designate any Subsidiary to be an Unrestricted
Subsidiary unless such Subsidiary owns any Capital Stock of, or owns or holds
any Lien on any property of, any other Subsidiary of the Company which is not a
Subsidiary of the Subsidiary to be so designated or otherwise an Unrestricted
Subsidiary, provided, that either (x) the Subsidiary to be so designated has
total assets of $1,000 or less or (y) immediately after giving effect to such
designation, the ratio of the aggregate principal amount of Debt of the Company
and its Subsidiaries outstanding as of the most recent available balance sheet
to Pro Forma Consolidated Cash Flow for the preceding four full fiscal quarters,
determined on a pro forma basis as if such Subsidiary had been an Unrestricted
Subsidiary at the beginning of such four fiscal quarters, would be less than 6.5
to 1. The Board of Directors may designate any Unrestricted Subsidiary to be a
Subsidiary, provided that, immediately after giving effect to such designation,
the ratio of the aggregate principal amount of Debt of the Company and its
Subsidiaries outstanding as of the most recent available balance sheet to Pro
Forma Consolidated Cash Flow for the preceding four full fiscal quarters,
determined on a pro forma basis as if such Unrestricted Subsidiary had been a
Subsidiary at the beginning of such four fiscal quarters, would be less than 6.5
to 1. Any such designation by the Board of Directors shall be evidenced to the
Trustee by filing with the Trustee a certified copy of the resolution of the
Board of Directors giving effect to such designation and an Officers'
Certificate certifying that such designation complied with the foregoing
conditions.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
Events of Default
The following will be Events of Default under the Indenture: (a) failure to
pay any interest on any Note when due, continued for 30 days; (b) failure to pay
principal of (or premium, if any, on) any Note when due; (c) failure to purchase
Notes required to be purchased pursuant to an Offer to Purchase as described
under the "Limitation on Certain Asset Dispositions" and the "Change of Control"
covenants in accordance with the terms of such Offer to Purchase; (d) failure to
perform or comply with the provisions described in Clause (a) or (b) under
"Change of Control"; (e) failure to perform or comply with the provisions
described under "Mergers, Consolidations and Certain Sales of Assets"; (f)
failure to perform any other covenant or warranty of the Company in the
Indenture, continued for 30 days after written notice as provided in the
Indenture; (g) failure to pay, at final maturity, in excess of $4,000,000
principal amount of any indebtedness of the Company or any Subsidiary of the
Company, or acceleration of any indebtedness of the Company or any Subsidiary of
the Company in an aggregate principal amount in excess of $4,000,000; (h) the
rendering of a final judgment or judgments (not subject to appeal) against the
Company or any of its Subsidiaries in an aggregate principal amount in excess of
$1,000,000 which remains unstayed, in effect and unpaid for a period of 60
consecutive days thereafter; and (i) certain events in bankruptcy, insolvency or
reorganization affecting the Company or any Subsidiary of the Company. (ss. 501)
Subject to the provisions of the Indenture relating to the duties of the
Trustee in case an Event of Default shall occur and be continuing, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request or direction of any of the Holders, unless such Holders
shall have offered to the Trustee
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reasonable indemnity. (ss. 603) Subject to such provisions for the
indemnification of the Trustee, the Holders of a majority in aggregate principal
amount of the Outstanding Notes will have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee. (ss. 512)
If an Event of Default shall occur and be continuing, either the Trustee or
the Holders of at least 25% in aggregate principal amount of the Outstanding
Notes may accelerate the maturity of all Notes; provided, however, that after
such acceleration, but before a judgment or decree based on acceleration, the
Holders of a majority in aggregate principal amount of Outstanding Notes may,
under certain circumstances, rescind and annul such acceleration if all Events
of Default, other than the non-payment of accelerated principal, have been cured
or waived as provided in the Indenture. (ss. 502) For information as to waiver
of defaults, see "Modification and Waiver."
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holder shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless the Holders of at least 25% in aggregate principal amount of
the Outstanding Notes shall have made written request, and offered reasonable
indemnity, to the Trustee to institute such proceeding as trustee, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of the Outstanding Notes a direction inconsistent with such
request and shall have failed to institute such proceeding within 60 days. (ss.
507) However, such limitations do not apply to a suit instituted by a Holder of
a Note for enforcement of payment of the principal of (and premium, if any) or,
interest on such Note on or after the respective due dates expressed in such
Note. (ss. 508)
The Company will be required to furnish to the Trustee annually a statement
as to the performance by the Company of certain of its obligations under the
Indenture and as to any default in such performance. (ss. 1019)
Defeasance
The Indenture provides that, at the option of the Company, (A) if
applicable, the Company will be discharged from any and all obligations in
respect of the Outstanding Notes or (B) if applicable, the Company may omit to
comply with certain restrictive covenants, and that such omission shall not be
deemed to be an Event of Default under the Indenture and the Notes, and that the
Notes shall no longer be subject to the subordination provisions in either case
(A) or (B) upon irrevocable deposit with the Trustee, in trust, of money and/or
U.S. government obligations which will provide money in an amount sufficient in
the opinion of a nationally recognized accounting firm to pay the principal of
and premium, if any, and each installment of interest, if any, on the
Outstanding Notes. With respect to Clause (B), the obligations under the
Indenture other than with respect to such covenants and the Events of Default
other than the Event of Default relating to such covenants above shall remain in
full force and effect. Such trust may only be established if, among other things
(i) with respect to Clause (A), the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or there has been a change
in law, which in the Opinion of Counsel provides that Holders of the Notes will
not recognize gain or loss for Federal income tax purposes as a result of such
deposit, defeasance and discharge and will be subject to Federal income tax on
the same amount, in the same manner and at the same times as would have been the
case if such deposit, defeasance and discharge had not occurred; or, with
respect to Clause (B), the Company has delivered to the Trustee an Opinion of
Counsel to the effect that the Holders of the Notes will not recognize gain or
loss for Federal income tax purposes as a result of such deposit and defeasance
and will be subject to Federal income tax on the same amount, in the same manner
and at the same times as would have been the case if such deposit and defeasance
had not occurred; (ii) no Event of Default or event that, with the passing of
time or the giving of notice, or both, shall constitute an Event of Default
shall have occurred or be continuing; (iii) the Company has delivered to the
Trustee an Opinion of Counsel to the effect that such deposit shall not cause
the Trustee or the trust so created to be subject to the Investment Company Act
of 1940; and (iv) certain other customary conditions precedent. (Article
Thirteen)
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Modification and Waiver
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Notes; provided, however, that no such
modification or amendment may, without the consent of the Holder of each
Outstanding Note affected thereby, (a) change the Stated Maturity of the
principal of, or any installment of interest on, any Note, (b) reduce the
principal amount of (or the premium), or interest on, any Note, (c) change the
place or currency of payment of principal of (or premium), or interest on, any
Note, (d) impair the right to institute suit for the enforcement of any payment
on or with respect to any Note, (e) reduce the above-stated percentage of
Outstanding Notes necessary to modify or amend the Indenture, (f) reduce the
percentage of aggregate principal amount of Outstanding Notes necessary for
waiver of compliance with certain provisions of the Indenture or for waiver of
certain defaults, (g) modify any provisions of the Indenture relating to the
modification and amendment of the Indenture or the waiver of past defaults or
covenants, except as otherwise specified, (h) modify any Offer to Purchase for
the Notes required under the "Limitation on Certain Asset Dispositions" and the
"Change of Control" covenant thereof, or (i) modify any provisions of the
Indenture relating to subordination of the Notes in a manner adverse to the
Holders thereof. (ss. 902)
The Holders of a majority in aggregate principal amount of the Outstanding
Notes may waive compliance by the Company with certain restrictive provisions of
the Indenture. (ss. 1020) The Holders of a majority in aggregate principal
amount of the Outstanding Notes may waive any past default under the Indenture,
except a default in the payment of principal, premium, if any, or interest or a
default arising from failure to purchase any Note tendered required to be
purchased pursuant to an Offer to Purchase. (ss. 513)
The Trustee
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. During the existence of an Event of Default, the Trustee will
exercise such rights and powers vested in it under the Indenture and use the
same degree of care and skill in its exercise as a prudent person would exercise
under the circumstances in the conduct of such person's own affairs. (ss.ss. 601
and 603)
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to realize on certain property received by it in respect of any such claim as
security or otherwise. The Trustee is permitted to engage in other transactions
with the Company or any Affiliate, provided, however, that if it acquires any
conflicting interest (as defined in the Indenture or in the Trust Indenture
Act), it must eliminate such conflict or resign. (ss. 608 and 613)
DESCRIPTION OF CERTAIN DEBT INSTRUMENTS
Set forth below is a summary of certain debt instruments to which the
Company is a party. The summary does not purport to be complete, and where
reference is made to particular provisions of a debt instrument, such
provisions, including the definition of certain terms, are incorporated by
reference as a part of such summaries or terms, which are qualified in their
entirety by such reference. Copies of such agreements have been filed as
Exhibits to the Registration Statement as to which this Prospectus is a part.
Credit Agreement
On February 1, 1995, the Company entered into the Prior Credit Agreement to
permit term loan borrowings of $100,000,000, and revolving working capital
facility borrowings of up to $15,000,000. On May 19, 1995, the Company amended
and restated the Prior Credit Agreement to increase the permitted term loan
borrowings up to $102,000,000, plus increase the revolving working capital
facility to permit borrowings of up to
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$60,000,000 (as amended and restated, the "Credit Agreement"). The Company paid
off all term loan borrowings (which amounts may not be reborrowed) and all
revolving credit borrowings with the net proceeds of the sale of the Old Notes.
The Company contemplates amending its Credit Agreement to increase the size of
the revolving credit facility (currently $60,000,000) on terms no less favorable
to the Company than those currently in place.
See "Use of Proceeds."
Borrowings under the Credit Agreement are (i) secured by a lien on
substantially all of the current and future assets of the Company, other than
broadcast licenses (except to the extent permitted by law), and the pledge of
all issued and outstanding shares of capital stock of the Company's current and
future subsidiaries and (ii) guaranteed by all present and future subsidiaries
of the Company. The Credit Agreement contains a negative pledge with respect to
the Company's broadcast licenses.
Outstanding principal balances under the Credit Agreement bear interest at
floating rates equal to the LIBOR Rate plus marginal rates between 1.50% and
2.75% (currently 2.75%) or the agent bank's prime rate plus marginal rates
between .25% and 1.50% (currently 1.5%). The marginal rates are subject to
adjustment under the Credit Agreement, based upon changes in the Company's ratio
of total funded debt to operating cash flow. The Company is required to pay all
the outstanding revolving credit borrowings on December 31, 2001. The Credit
Agreement contains representations and warranties, funding and yield protection
provisions, conditions precedent, financial and other covenants and
restrictions, events of default and other provisions customary for bank credit
agreements of this type.
Covenants and provisions contained in the Credit Agreement restrict with
certain exceptions, among other things, the Company's and its subsidiaries'
ability: (i) to incur additional indebtedness, (ii) to create or incur liens,
(iii) to create or become or remain liable with respect to certain contingent
liabilities, (iv) to make certain payments with respect to capital stock and
subordinated indebtedness; provided, that (a) the Company may pay cash dividends
on the Cumulative Convertible Exchangeable Preferred Stock if no default exists
or would be caused by such payment and (b) the Company may repurchase up to
$30,000,000 of the 12.75% Debentures or the 10 3/8% Notes if certain financial
tests are met, (v) to engage in mergers, acquisitions, divestitures, sales and
leasebacks or changes of business, (vi) to engage in asset sales that exceed, in
the aggregate during a 12 month period, 10% of consolidated broadcast cash flow
for such 12 month period or if such asset sales would account for greater than
25% of consolidated broadcast cash flow for the period from the closing date to
such date of determination, (vii) to become liable under any capital lease, if
the total rental payments for all capital leases for any period of 12
consecutive months would be in excess of $4,500,000, (viii) to sell with
recourse or discount any of its notes or accounts receivable, (ix) to dispose of
any shares of capital stock of a subsidiary, (x) to engage in certain
transactions with affiliates and holders of equity interests, (xi) to amend,
modify or terminate certain material agreements, (xii) to invest in, or make
loans or advances to, other persons or entities in excess of $10,000,000 or
(xiii) to enter into agreements prohibiting the creation of liens or restricting
the ability of a subsidiary to pay money or distribute assets to the Company.
The Credit Agreement also requires the Company to maintain specified financial
ratios.
Events of default under the Credit Agreement include, among other things:
(i) any failure of the Company to pay principal thereunder when due, or to pay
interest or any other amount due within three days after the date due; (ii)
default or breach on any indebtedness in an individual principal amount of
$1,000,000 or more on any items of indebtedness with an aggregate principal
amount of $2,000,000 or more; (iii) breach by the Company of certain covenants
contained therein; (iv) material inaccuracy of any representation or warranty
given by the Company therein; (v) the continuance of a default by the Company in
the performance of or the compliance with other covenants and agreements for 30
days after the occurrence thereof; (vi) certain changes of control and acts of
bankruptcy, insolvency or dissolution; (vii) certain judgments, writs or
warrants of attachment of similar process remaining undischarged, unvacated,
unbonded, or unstayed for a period of 60 days; (viii) the occurrence of certain
reportable events under ERISA; (ix) certain changes in the executive officers of
the Company; and (x) any FCC License of the Company or its subsidiaries being
terminated, denied renewal or modified in any material adverse respect.
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12.75% Senior Subordinated Debentures
In September 1992, the Company completed an offering of $60,000,000
aggregate principal amount of its 12.75% Rule 144A Senior Subordinated
Debentures due September 1, 2002. All of these debentures were exchanged for a
like principal amount of the publicly-registered 12.75% Senior Subordinated
Debentures due September 1, 2002, pursuant to an exchange offer completed in
January 1993 (the "12.75% Debentures"). The 12.75% Debentures are governed by an
indenture, dated as of September 1, 1992, between the Company and United States
Trust Company of New York, as trustee (the "12.75% Debenture Indenture"). The
12.75% Debenture Indenture is by its terms subject to and governed by the Trust
Indenture Act of 1939, as amended.
Interest on the 12.75% Debentures is payable in cash semi-annually on March
1 and September 1 of each year. The 12.75% Debentures do not have the benefit of
any sinking fund obligations, and are not convertible or exchangeable into any
other security.
The 12.75% Debentures are subordinated in right of payment to the
indebtedness under the Credit Agreement and to any other existing or future
Senior Debt (as defined in the 12.75% Debenture Indenture, which definition is
substantially identical to that contained in the Indenture, except that clause
(iv) of the definition Debt is not Senior Debt under the 12.75% Debenture
Indenture), are pari passu in right of payment, to the extent set forth in the
12.75% Debenture Indenture, with all senior subordinated debt of the Company,
including the Notes, and are senior in right of payment to all subordinated debt
of the Company, including the Exchange Debentures, if issued.
The 12.75% Debentures are redeemable on or after September 1, 1997, at the
option of the Company, in whole or in part from time to time, at 106.375% of
principal amount thereof, plus accrued interest, reducing to 100% of the
principal amount thereof, plus accrued interest, on or after September 1, 1999.
The Company is required to offer to purchase all outstanding 12.75%
Debentures at 101% of their principal amount, plus accrued interest, in the
event of a Change of Control (as defined in the 12.75% Debenture Indenture,
which definition is substantially identical to that contained in the Indenture).
The Company is required to make an offer to purchase the 12.75% Debentures
at 100% of their principal amount if the Company makes an Asset Disposition (as
defined in the 12.75% Debenture Indenture) and the sale proceeds are not
reinvested. The offer to purchase is limited to the net proceeds from such Asset
Disposition and is subject to (i) the prior claims of holders of Senior Debt and
(ii) there being net proceeds in excess of $5,000,000 that are not required to
be applied to Senior Debt.
The 12.75% Debenture Indenture contains certain covenants that, among other
things, limit the ability of the Company and its subsidiaries to incur debt, pay
cash dividends on or repurchase capital stock, enter into agreements prohibiting
the creation of liens or restricting the ability of a subsidiary to pay money or
transfer assets to the Company, enter into certain transactions with their
affiliates, dispose of certain assets and engage in mergers and consolidations.
Other than the restrictions contained in the 12.75% Debenture Indenture
relating to the incurrence of debt, there are no provisions in the 12.75%
Debenture Indenture that would protect the holders of the Notes in the event of
a highly leveraged transaction.
Events of Default under the 12.75% Debenture Indenture include: (i) failure
to pay principal of or premium, if any, on the 12.75% Debentures when due at
maturity, upon redemption or otherwise, including failure by the Company to
purchase the 12.75% Debentures upon a Change of Control or in connection with an
Asset Disposition (whether or not such payment shall be prohibited by the
subordination provisions of the Debenture Indenture); (ii) failure to pay any
interest on any 12.75% Debentures when due, continued for 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
12.75% Debenture Indenture); (iii) failure to perform any other covenant or
agreement of the Company in the 12.75% Debentures or the 12.75%
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Debenture Indenture, continued for 60 days after written notice as provided in
the 12.75% Debenture Indenture; (iv) failure to pay at final maturity in excess
of $2,000,000 principal amount of any indebtedness of the Company or any
subsidiary of the Company, or acceleration of any indebtedness of the Company or
any subsidiary of the Company in an aggregate principal amount in excess of
$2,000,000; and (v) certain events of bankruptcy, insolvency or reorganization
of the Company or any subsidiary.
10 3/8% Senior Subordinated Notes
In May 1995, the Company completed an offering of $175,000,000 aggregate
principal amount of its 10 3/8% Rule 144A Senior Subordinated Notes due May 15,
2005. All of these notes were exchanged for a like principal amount of the
publicly-registered 10 3/8% Senior Subordinated Notes due May 15, 2005, pursuant
to an exchange offer completed in November 1995 (the "10 3/8% Notes"). The 10
3/8% Notes are governed by an indenture, dated as of May 19, 1995, between the
Company and United States Trust Company of New York, as trustee (the "10 3/8%
Note Indenture"). The 10 3/8% Note Indenture is by its terms subject to and
governed by the Trust Indenture Act of 1939, as amended.
Interest on the 10 3/8% Notes is payable in cash semi-annually on May 15
and November 15 of each year. The 10 3/8% Notes do not have the benefit of any
sinking fund obligations, and are not convertible or exchangeable into any other
security.
The 10 3/8% Notes are subordinated in right of payment to the indebtedness
under the Credit Agreement and to any other existing or future Senior Debt (as
defined in the 10 3/8% Note Indenture, which definition is substantially
identical to that contained in the Indenture, are pari passu in right of
payment, to the extent set forth in the 10 3/8% Note Indenture, with all senior
subordinated debt of the Company, including the Notes, and are senior in right
of payment to all subordinated debt of the Company, including the Exchange
Debentures, if issued.
The 10 3/8% Notes are redeemable on or after May 15, 2000, at the option of
the Company, in whole or in part from time to time, at 105.188% of principal
amount thereof, plus accrued interest, reducing to 100% of the principal amount
thereof, plus accrued interest, on or after May 15, 2002.
The Company is required to offer to purchase all outstanding 10 3/8% Notes
at 101% of their principal amount, plus accrued interest, in the event of a
Change of Control (as defined in the 10 3/8% Note Indenture, which definition is
substantially identical to that contained in the Indenture).
The Company is required to make an offer to purchase the 10 3/8% Notes at
100% of their principal amount if the Company makes an Asset Disposition (as
defined in the 10 3/8% Note Indenture) and the sale proceeds are not reinvested.
The offer to purchase is limited to the net proceeds from such Asset Disposition
and is subject to: (i) the prior claims of holders of Senior Debt and (ii) there
being net proceeds in excess of $5,000,000 that are not required to be applied
to Senior Debt; and (iii) so long as any of the 12.75% Debentures are
outstanding, the Company making an offer to purchase the 12.75% Debentures in
accordance with the 12.75% Debenture Indenture.
The 10 3/8% Note Indenture contains certain covenants that, among other
things, limit the ability of the Company and its subsidiaries to incur debt, pay
cash dividends on or repurchase capital stock, enter into agreements prohibiting
the creation of liens or restricting the ability of a subsidiary to pay money or
transfer assets to the Company, enter into certain transactions with their
affiliates, dispose of certain assets and engage in mergers and consolidations.
Other than the restrictions contained in the 10 3/8% Note Indenture
relating to the incurrence of debt, there are no provisions in the 10 3/8% Note
Indenture that would protect the holders of the Notes in the event of a highly
leveraged transaction.
Events of Default under the 10 3/8% Note Indenture include: (i) failure to
pay principal of or premium, if any, on the 10 3/8% Notes when due at maturity,
upon redemption or otherwise, including failure by the Company
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to purchase the 10 3/8% Notes upon a Change of Control or in connection
with an Asset Disposition (whether or not such payment shall be prohibited by
the subordination provisions of the Debenture Indenture); (ii) failure to pay
any interest on any 10 3/8% Notes when due, continued for 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the 10
3/8% Note Indenture); (iii) failure to perform any other covenant or agreement
of the Company in the 10 3/8% Notes or the 10 3/8% Note Indenture, continued for
60 days after written notice as provided in the 10 3/8% Note Indenture; (iv)
failure to pay at final maturity in excess of $4,000,000 principal amount of any
indebtedness of the Company or any subsidiary of the Company, or acceleration of
any indebtedness of the Company or any subsidiary of the Company in an aggregate
principal amount in excess of $4,000,000; and (v) certain events of bankruptcy,
insolvency or reorganization of the Company or any subsidiary.
Exchange Debentures
If the Company elects to exchange the Company's Cumulative Convertible
Exchangeable Preferred Stock, par value $.01 per share (the "Exchangeable
Preferred Stock"), for the Exchange Debentures, the Company will issue the
Exchange Debentures under an Indenture (the "Exchange Debenture Indenture") to
be entered into between the Company and a trustee to be designated by the
Company prior to such exchange that would qualify at the time of such
designation as a trustee under the Trust Indenture Act of 1939, as amended. The
Exchange Debentures will be issued at a rate of $25.00 principal amount of the
Exchange Debentures for each share of Exchangeable Preferred Stock so exchanged.
The Company may only effect such exchange if accrued and unpaid dividends on the
Exchangeable Preferred Stock have been paid in full.
The Exchange Debentures will be general, unsecured, subordinated
obligations of the Company, limited to an aggregate principal amount equal to
the aggregate liquidation value of the Exchangeable Preferred Stock (excluding
accrued and unpaid dividends payable upon liquidation) and will mature on
December 15, 2005. The Exchange Debentures will bear interest at the rate of
7.75% per annum from the date of issuance, or from the most recent interest
payment date to which interest has been paid or provided for, payable
semiannually on June 15 and December 15 of each year.
The Exchange Debentures will be convertible into Common Stock (Nonvoting)
of the Company at the option of the holder at any time at the conversion price
for the Exchangeable Preferred Stock then in effect.
The payment of the principal of, premium, if any, and interest on Exchange
Debentures will, to the extent set forth in the Exchange Debenture Indenture, be
subordinated in right of payment to the prior payment in full of all Senior
Indebtedness (as defined in the Exchange Debenture Indenture), which generally
includes all indebtedness not expressly pari passu with or subordinated in right
of payment to the Exchange Debentures.
The Exchange Debentures will be redeemable, at the option of the Company at
any time on or after December 26, 1998, in whole or in part, at 103.875% of the
principal amount thereof, plus accrued interest, to the date fixed for
redemption, reducing to 100% of the principal amount thereof, plus accrued
interest to the date fixed for redemption on or after December 15, 2003.
The Company is required to offer to purchase all outstanding Exchange
Debentures at 101% of their principal amount plus accrued interest in the event
of a Change of Control (as defined in the Exchange Debenture Indenture, which
definition is identical to that contained in the provisions of the Company's
Certificate of Incorporation governing the Exchangeable Preferred Stock. See
"Description of Preferred Stock -- Exchangeable Preferred Stock."). The Company
may, at its option, pay all or a portion of the purchase price upon a Change of
Control in shares of its Common Stock (Nonvoting) or, if the Company is not the
survivor, common stock of the successor corporation ("Successor Stock"). Payment
may not be made in shares of Common Stock (Nonvoting) or Successor Stock unless
such shares have been, or will be no later than the Purchase Date, registered
under the Securities Act or are freely tradeable pursuant to an exemption
thereunder and are listed on a United States national securities exchange or
quoted on the Nasdaq National Market at the time of payment.
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There are no provisions in the Exchange Debenture Indenture that would
operate to protect the holders of the Notes in the event of a highly leveraged
transaction.
The following will be Events of Default under the Exchange Debenture
Indenture: (a) failure to pay principal of or premium, if any, on the Exchange
Debentures when due at maturity, upon redemption or otherwise, including failure
by the Company to redeem the Exchange Debentures upon a Change of Control
(whether or not such payment shall be prohibited by the subordination provisions
of the Exchange Debenture Indenture); (b) failure to pay any interest on any
Exchange Debentures when due, continued for 30 days (whether or not such payment
shall be prohibited by the subordination provisions of the Exchange Debenture
Indenture); (c) failure to perform any other covenant or agreement of the
Company in the Exchange Debentures or the Exchange Debenture Indenture,
continued for 30 days after written notice as provided in the Exchange Debenture
Indenture; (d) failure to pay at final maturity in excess of $2,000,000
principal amount of any indebtedness of the Company or any subsidiary of the
Company, or acceleration of any indebtedness of the Company or any subsidiary of
the Company in an aggregate principal amount in excess of $2,000,000; and (e)
certain events of bankruptcy, insolvency or reorganization of the Company or any
subsidiary.
DESCRIPTION OF PREFERRED STOCK
The following is a summary of the terms of the Company's preferred stock.
This summary is not intended to be complete and is subject to and qualified in
its entirety by reference to the Company's Third Amended and Restated
Certificate of Incorporation (the "Certificate of Incorporation"). A copy of the
Certificate of Incorporation has been filed as an Exhibit to the Registration
Statement as to which this Prospectus is a part.
Exchangeable Preferred Stock
Holders of the Exchangeable Preferred Stock are entitled to receive, when,
as and if declared by the Board of Directors, out of the funds of the Company
legally available therefor, cash dividends at the annual rate of $1.9375 per
share, payable quarterly on March 15, June 15, September 15 and December 15 of
each year (and, in the case of any accrued but unpaid dividends, at such
additional times and for such interim periods, if any, as determined by the
Company's Board of Directors). Dividends on the Exchangeable Preferred Stock are
cumulative and accrue without interest from December 23, 1993, the date of
original issuance. Payment of dividends is subject to limitations under the
Indenture, 12.75% Debenture Indenture, the 10 3/8% Note Indenture and the Credit
Agreement. See "Description of Certain Debt Instruments."
Each share of Exchangeable Preferred Stock may be converted at any time at
the option of the holder into fully paid, nonassessable shares of Common Stock
(Nonvoting). As of December 31, 1995, the conversion price was $5.00 per share
of Common Stock (Nonvoting), subject to adjustment from time to time as provided
in the Certificate of Incorporation. As of May 23, 1996, the closing price per
share of the Common Stock (Nonvoting), as reported by Nasdaq, was $12-15/16%.
All of the then outstanding shares of Exchangeable Preferred Stock are
required to be redeemed by the Company, out of funds legally available therefor,
at $25.00 per share plus accrued but unpaid dividends thereon, if any, to (and
including) the redemption date, whether or not earned or declared, on December
15, 2005. In the event the Company does not fulfill its mandatory redemption
obligation, holders of Exchangeable Preferred Stock will have the voting rights
described below. The Company's ability to redeem or repurchase its capital stock
may be subject to certain limitations under the agreements relating to the
Company's indebtedness existing at that time. See "Description of Notes" and
"Description of Certain Debt Instruments."
Shares of Exchangeable Preferred Stock will be redeemable at the option of
the Company at any time on or after December 26, 1998, in whole or in part, at
any time out of funds legally available therefor, at a per share redemption
price of $25.97, plus in each case an amount equal to accrued and unpaid
dividends, if any, to (and including) the redemption date, whether or not earned
or declared and reducing to $25.00 per share, plus accrued and unpaid dividends,
after December 15, 2003.
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The Exchangeable Preferred Stock is exchangeable in whole, but not in part,
at the option of the Company, for Exchange Debentures on any dividend payment
date beginning on December 15, 1995 at the rate of $25.00 principal amount of
Exchange Debentures for each share of Exchangeable Preferred Stock outstanding
at the time of exchange. See "Description of Certain Debt Instruments --
Exchange Debentures." The Company may only effect such exchange if accrued and
unpaid dividends on the Exchangeable Preferred Stock have been paid in full.
The Company's exchange of the Exchangeable Preferred Stock for the Exchange
Debentures would constitute an incurrence of indebtedness, and would therefore
be subject to certain restrictions, under the Indenture, 12.75% Debenture
Indenture and the 10 3/8% Note Indenture, and would require the consent of a
majority in interest of the lenders under the Credit Agreement. See "Description
of Certain Debt Instruments."
If (i) at any time the equivalent of six quarterly dividends payable on
they Exchangeable Preferred Stock are accrued and unpaid or (ii) the Company
fails to make any payment upon mandatory redemption of the Exchangeable
Preferred Stock, the number of directors of the Company will be increased by two
and the holders of all outstanding shares of Exchangeable Preferred Stock,
voting separately as a class, will be entitled to elect the additional two
directors to serve until all dividends accrued and unpaid have been paid or
declared and funds set aside to provide for payment in full or the Company
fulfills its mandatory redemption obligation, as the case may be.
If a Change of Control (as defined below) occurs, each holder of
Exchangeable Preferred Stock shall have the right, at the holder's option, to
require the Company to repurchase all of such holder's Exchangeable Preferred
Stock at a price per share equal to $25.00, plus accrued and unpaid dividends to
the date of repurchase. The Company may, at its option, pay all or any portion
of the repurchase price upon a Change of Control in shares of Common Stock
(Nonvoting) of the Company or, if the Company is not the survivor, Successor
Stock. Payment may not be made in shares of Common Stock (Nonvoting) or
Successor Stock unless such shares have been, or will be, no later than the
repurchase date, registered under the Securities Act or are freely tradeable
pursuant to an exemption thereunder and are listed on a United States national
securities exchange or quoted on the Nasdaq National Market at the time of
payment. The Company may not complete any Change of Control unless it makes
proper provision to satisfy the foregoing obligations under the Certificate of
Incorporation.
A Change of Control will be deemed to have occurred at such time as any
Person or any Persons (other than one or more Permitted Holders) acting together
that would constitute a "group" (a "Group") for purposes of Section 13(d) of the
Exchange Act becomes the beneficial owner of 50% or more of the total voting
power of all classes of voting stock of the Company or at such time as such
Person or Group succeeds in having sufficient of its nominees elected to the
Board of Directors of the Company such that such nominees, when added to any
existing director remaining on the Board of Directors of the Company after such
election who is an Affiliate of such Group, will constitute a majority of the
Board of Directors of the Company. "Permitted Holder" means W. Don Cornwell,
Stuart J. Beck, or the members of the immediate family of either of them or any
trustee for either of their estates. Notwithstanding the foregoing, a Change of
Control shall not occur if either (i) for any five trading days during the 10
trading days immediately preceding either the public announcement by the Company
of such transaction or the consummation of such transaction, the last sale price
of the Common Stock (Nonvoting) is equal to at least 105% of the conversion
price in effect on such trading days, or (ii) at least 90% of the consideration
(excluding cash payments for fractional shares) in such transaction or
transactions to the holders of Common Stock (Nonvoting) consists of shares of
common stock that are, or immediately upon issuance will be, listed on a
national securities exchange or quoted on the Nasdaq National Market, and as a
result of such transaction or transactions, the Preferred Stock or Exchange
Debentures, as the case may be, become convertible into such common stock.
Series Preferred Stock
Prior to August 4, 1995 there were three series of the Company's Series
Preferred Stock outstanding: the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock. On August 4, 1995, all of the
shares of Series A Preferred Stock was converted into Common Stock (Nonvoting)
and on September 15, 1995, all of the shares of Series B and Series C Preferred
Stock were converted into Common Stock (Nonvoting).
104
<PAGE>
Dividends on the Series A Preferred Stock accrued on October 31 of each
year at an annual rate of $0.40 per share until such shares were converted,
whether or not any funds were legally available therefor. Such dividends were
payable only as and when declared by the Board of Directors out of funds legally
available therefor, and accumulated, if not paid, without payment of interest on
such accumulations. Dividends that accrued and were unpaid prior to conversion
remain an obligation of the Company and are payable on the later of (i) December
31, 1999 and (ii) such date as they may be paid under loan agreements or
indentures of the Company, the obligations of which are senior in priority to
the Series A Preferred Stock. Dividends have never been paid on the Series A
Preferred Stock, and the aggregate amount of accrued but unpaid dividends
thereon was approximately $263,000 as of March 31, 1996. No dividends or other
distributions in respect of shares ranking junior in priority to the Series A
Preferred Stock may be declared, paid or made so long as there are any accrued
but unpaid dividends of Series A Preferred Stock.
105
<PAGE>
CERTAIN U.S. TAX CONSIDERATIONS
Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel to the Company, has
opined that, subject to the qualifications set forth below, the following
discussion accurately sets forth the anticipated material U.S. federal income
tax consequences applicable to the exchange of Old Notes for New Notes and the
ownership and disposition of the New Notes by holders who acquire the New Notes
pursuant to the Exchange Offer. The discussion is limited solely to U.S. federal
income tax matters. The discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations (including proposed
regulations), administrative rulings and pronouncements of the Internal Revenue
Service ("IRS"), and judicial decisions, all as of the date hereof and all of
which are subject to change at any time, possibly with retroactive effect.
This discussion is limited to holders who hold the Notes as "capital
assets" for U.S. federal income tax purposes. This discussion does not cover all
aspects of federal income taxation that may be relevant to, or the actual tax
effect that any of the matters described herein will have on, particular
holders. This discussion does not address U.S. federal income tax consequences
that may be applicable to particular categories of shareholders, including
insurance companies, tax-exempt persons, financial institutions, dealers in
securities, persons with significant holdings of Company stock, and non-United
States persons, including foreign corporations and nonresident alien
individuals. This discussion does not address any tax considerations under the
laws of any state, locality, or foreign country.
The Company has not sought, nor does it intend to seek, a ruling from the
IRS as to any of the matters covered by this discussion, and there can be no
assurance that the IRS will not successfully challenge the conclusions reached
in this discussion. BECAUSE THE U.S. FEDERAL INCOME TAX CONSEQUENCES DISCUSSED
BELOW DEPEND UPON EACH HOLDER'S PARTICULAR TAX STATUS, AND DEPEND FURTHER UPON
U.S. FEDERAL INCOME TAX LAWS, REGULATIONS, RULINGS AND DECISIONS WHICH ARE
SUBJECT TO CHANGE (WHICH CHANGES MAY BE RETROACTIVE IN EFFECT), HOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE
EXCHANGE OF OLD NOTES FOR NEW NOTES AND THE OWNERSHIP AND DISPOSITION OF THE NEW
NOTES.
Exchange
The exchange of Old Notes for New Notes pursuant to the Exchange Offer
should not be treated as an exchange or other tax event for federal income tax
purposes because the New Notes should not be considered to differ materially in
kind or extent from the Old Notes. Regulations proposed by the United States
Treasury would confirm this result. Accordingly, there should be no material
federal income tax consequences to holders exchanging Old Notes for New Notes
pursuant to the Exchange Offer, and a holder should have the same adjusted tax
basis and holding period in the New Notes as it had in the Old Notes immediately
before the exchange.
Interest
A holder of New Notes will be required to report interest income for
federal income tax purposes for any interest earned on the Notes in accordance
with such holder's method of tax accounting.
Original Issue Discount on the Notes
The Old Notes were issued with de minimis original issue discount ("OID")
for federal income tax purposes. Accordingly, the New Notes also will have de
minimis OID since the New Notes should be treated as a continuation of the Old
Notes for federal income tax purposes. OID is considered de minimis if the
amount of OID is less than .0025 multiplied by the product of the stated
redemption price at maturity of the indebtedness and the number of complete
years to maturity from the issue date. In the case of de minimis OID, the amount
of OID is treated as zero for federal income tax purposes.
106
<PAGE>
In general, a holder of New Notes will be required to include the amount of
de minimis OID in income upon the redemption of such Notes. Any amount of de
minimis OID includible in a holder's income will be treated as capital gain
recognized on the retirement of the Notes. Further, any gain attributable to de
minimis OID that is recognized on the sale or exchange of the Notes will be
treated as capital gain. An exchanging holder who purchased an Old Note at a
premium will not include the amount of de minimis OID in income. (For a
discussion regarding a purchase at a discount, see "Market Discount" below.)
Holders should consult their tax advisors concerning the treatment of de minimis
OID under these provisions.
Market Discount
Under the market discount rules of the Code, an exchanging holder (other
than a holder who made the election described below) who purchased an Old Note
with "market discount" (generally defined as the amount by which the stated
redemption price of the Old Note on the holder's date of purchase exceeded the
holder's purchase price) will be required to treat any gain recognized on the
redemption, sale or other disposition of the New Note received in the exchange
as ordinary income to the extent of the market discount that accrued during the
holder's holding period for such New Note (which period will include such
holder's holding period for the Old Note). In addition, a holder of a Note
acquired at market discount may be required to defer the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note. A holder who has elected under applicable Code
provisions to include market discount in income annually as such discount
accrues will not be required to treat any gain recognized as ordinary income (or
defer interest deductions) under the market discount rules described above.
Holders should consult their tax advisors as to the portion of any gain that
would be taxable as ordinary income under these provisions.
Amortizable Bond Premium
In general, if a holder's initial tax basis in the Old Notes at acquisition
exceeded the amount payable at maturity, the excess will be treated as
"amortizable bond premium" (including after the exchange of such Old Notes for
New Notes). In such case, the holder may elect under section 171 of the Code to
amortize the bond premium annually under a constant yield method. The holder's
adjusted tax basis in the Note is decreased by the amount of the allowable
amortization. Because the Notes have early call provisions, holders must take
such call provisions into account to determine the amount of amortizable bond
premium. Amortizable bond premium is treated as an offset to interest received
on the obligation rather than as an interest deduction, except as may be
provided in Treasury regulations. An election to amortize bond premium would
apply to amortizable bond premium on all taxable bonds held on or acquired after
the beginning of the holder's taxable year for which the election is made, and
may be revoked only with the consent of the IRS. Holders who acquire their Notes
with amortizable bond premium should consult their own tax advisors.
Sale, Exchange, Redemption or Other Disposition of Notes
On sale, exchange, redemption or other disposition of the Notes, and except
to the extent that the cash received is attributable to accrued interest (which
generally represents ordinary interest income) or market discount (the tax
consequences of which are described above), a holder generally will recognize
capital gain or loss measured by the difference between the amount realized and
such holder's adjusted tax basis in the Notes redeemed.
Backup Withholding
Federal income tax backup withholding at a rate of 31 percent on dividends,
interest payments, and proceeds from a sale, exchange, or redemption of New
Notes will apply unless the holder (i) is a corporation or comes within certain
other exempt categories (and, when required, demonstrates this fact) or (ii)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. The amount of any backup withholding from a
payment to a holder will be allowed as a credit against the holder's federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS. A holder of Notes who does not
provide
107
<PAGE>
the Company with his correct taxpayer identification number may be subject to
penalties imposed by the IRS. The Company will report to the holders of the
Notes and the IRS the amount of any "reportable payments" and any amount
withheld with respect to the Notes during the calendar year.
108
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that it will make this Prospectus, as
amended or supplemented, available to any broker-dealer for use in connection
with any such resale for a period until 180 days after the Exchange Offer has
been consummated, or such shorter period as will terminate when all Old Notes
acquired by broker-dealers for their own accounts as a result of market-making
activities or other trading activities have been exchanged for New Notes and
resold by such broker-dealers.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period until 180 days after the Exchange Offer has been consummated,
or such shorter period as will terminate when all Old Notes acquired by
broker-dealers for their own accounts as a result of market-making activities or
other trading activities have been exchanged for New Notes and resold by such
broker-dealers, the Company will promptly send additional copies of this
Prospectus and any amendment or supplement to this Prospectus to any
broker-dealer that requests such documents in the Letter of Transmittal. The
Company has agreed to pay all expenses incident to the Exchange Offer (including
the expenses of one counsel for the holders of the Notes) other than commissions
or concessions of any brokers or dealers and will indemnify the holders of the
Notes (including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
EXPERTS
The consolidated financial statements and schedule of the Company for each
of the three years in the period ended December 31, 1995 and the financial
statements of Austin Television for each of the three years in the period ended
December 31, 1994, the financial statements of WWMT for each of the three years
in the period ended January 1, 1995, and the combined financial statements of
San Joaquin Communications Corporation ("SJCC") and WTVH for each of the two
years in the period ended June 30, 1993, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports dated February 22, 1996,
with respect to the Company, February 3, 1995 with respect to Austin Television,
February 24, 1995, except for Note 1, as to which the date is May 3, 1995, with
respect to WWMT and August 31, 1993, with respect to SJCC and WTVH, and are
included in reliance upon such reports given upon the authority of said firm as
an expert in accounting and auditing. The consolidated financial statements for
Queen City for each of the three years in the period ended December 31, 1994,
have been audited by Leslie Sufrin and Company, P.C., as set forth in their
report dated February 18, 1995, except for Notes 1 and 12, as to which the date
is July 24, 1995 and are included in reliance upon such report given upon the
authority of said firm as an expert in accounting and auditing.
109
<PAGE>
LEGAL MATTERS
Certain legal matters will be passed upon for the Company by Akin, Gump,
Strauss, Hauer & Feld, L.L.P., a limited liability partnership including
professional corporations, 1333 New Hampshire Avenue, N.W., Suite 400,
Washington, D.C. 20036, counsel to the Company. Vernon E. Jordan, Jr., a partner
in Akin, Gump, Strauss, Hauer & Feld, L.L.P. holds, beneficially and of record,
8,264 shares of the Company's Common Stock (Nonvoting).
110
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
GRANITE BROADCASTING CORPORATION
Unaudited Consolidated Statements of Operations for the
Three Months Ended March 31, 1995 and 1996................................................... F-3
Consolidated Balance Sheets as of December 31, 1995 and March 31, 1996 (unaudited) ............ F-4
Unaudited Consolidated Statement of Stockholders' Equity for the
Three Months Ended March 31, 1996 ........................................................... F-5
Unaudited Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1995 and 1996................................................... F-6
Notes to Consolidated Financial Statements (unaudited) ........................................ F-7
Report of Independent Auditors................................................................. F-8
Consolidated Statements of Operations for the Years Ended December 31, 1993,
1994 and 1995................................................................................ F-9
Consolidated Balance Sheets as of December 31, 1994 and 1995 .................................. F-10
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1993, 1994 and 1995............................................................. F-11
Consolidated Statements of Cash Flows for the Years Ended December 31, 1993,
1994 and 1995................................................................................ F-12
Notes to Consolidated Financial Statements..................................................... F-13
SAN JOAQUIN COMMUNICATIONS CORPORATION AND WTVH
Report of Independent Auditors................................................................. F-29
Combined Statement of Operations and Net Worth for the Years Ended
June 30, 1992 and 1993 and for the period July 1, 1992 to
December 31, 1992 and July 1, 1993 to December 23, 1993 (unaudited) F-30
Combined Balance Sheet as of June 30, 1992 and 1993 and December 23, 1993 (unaudited) ......... F-31
Combined Statement of Cash Flows for the Years Ended June 30,
1992 and 1993 and for the period July 1, 1992 to December 31, 1992 and
July 1, 1993 to December 23, 1993 (unaudited)................................................ F-32
Notes to Combined Financial Statements......................................................... F-33
KBVO-TV (Austin Television, a Texas general partnership)
Report of Independent Auditors................................................................. F-36
Balance Sheets as of December 31, 1993 and 1994 and January 31, 1995 (unaudited) .............. F-37
Statements of Income and Partners' Deficit for the Years Ended December 31,
1992, 1993 and 1994, and the one month ended January 31, 1994 and 1995 (unaudited) .......... F-38
Statements of Cash Flows for the Years Ended December 31, 1992, 1993 and
1994 and the one month ended January 31, 1995 and 1994 (unaudited) .......................... F-39
Notes to Financial Statements.................................................................. F-40
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
Page
Reference
---------
<S> <C>
WWMT-TV (A Division of Busse Broadcasting Corporation)
Report of Independent Auditors................................................................. F-43
Balance Sheets as of January 2, 1994, January 1, 1995 and May 31, 1995 (unaudited) ............ F-44
Statements of Operations for each of the Three Years in the
Period Ended January 1, 1995 and the five months ended May 31, 1994 and 1995 (unaudited) .... F-45
Statements of Divisional Equity for each of the Three Years in the PeriodEnded
January 1, 1995 and the five months ended May 31, 1995 (unaudited) .......................... F-46
Statements of Cash Flows for each of the Three Years in the Period Ended
January 1, 1995 and the five months ended May 31, 1994 and 1995 (unaudited) ................. F-47
Notes to Financial Statements.................................................................. F-48
QUEEN CITY BROADCASTING, INC.
Report of Independent Auditors................................................................. F-52
Consolidated Balance Sheets as of December 31, 1993 and 1994 and
June 28, 1995 (unaudited).................................................................... F-53
Consolidated Statements of Operations for the Years Ended December 31, 1992,
1993 and 1994 and the period January 1, 1994 to June 30, 1994 and
January 1, 1995 to June 28, 1995 (unaudited)................................................. F-54
Consolidated Statements of Stockholders' Deficit for the Years Ended
December 31, 1992, 1993 and 1994 and the period January 1, 1995
to June 28, 1995 (unaudited)................................................................. F-55
Consolidated Statements of Cash Flow for the Years Ended December 31, 1992,
1993 and 1994 and the period January 1, 1994 to June 30, 1994 and
January 1, 1995 to June 28, 1995 (unaudited)................................................. F-56
Notes to Consolidated Financial Statements..................................................... F-57
</TABLE>
F-2
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31,
1995 1996
------------ ------------
(Unaudited)
<S> <C> <C>
Net revenues ....................................... $ 16,455,798 $ 28,629,635
Station operating expenses ......................... 10,337,693 17,517,927
Depreciation expense ............................... 804,940 1,473,380
Amortization expense ............................... 1,447,547 2,951,278
Corporate expense .................................. 811,816 990,014
Non-cash compensation expense ...................... 80,913 114,537
------------ ------------
Operating income ................................. 2,972,889 5,582,499
Other expenses:
Interest expense, net ............................ 3,710,095 8,849,730
Other ............................................ 94,260 125,633
------------ ------------
Loss before income taxes and extraordinary item .... (831,466) (3,392,864)
Provision for income taxes ......................... -- (61,089)
------------ ------------
Loss before extraordinary item ..................... (831,466) (3,453,953)
Extraordinary loss on early extinguishment of debt . -- (3,510,152)
------------ ------------
Net loss ........................................... $ (831,466) $ (6,964,105)
============ ============
Net loss attributable to common stockholders ....... $ (1,769,942) $ (7,845,424)
============ ============
Per common share:
Loss before extraordinary item ................... $ (0.39) $ (0.51)
Extraordinary loss on early extinguishment of debt -- (0.42)
------------ ------------
Net loss ......................................... $ (0.39) $ (0.93)
============ ============
Weighted average common shares outstanding ......... 4,577,524 8,464,012
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
------------- -------------
<S> <C> <C>
ASSETS (unaudited)
CURRENT ASSETS:
Cash and cash equivalents ................................................... $ 95,123 $ 4,354,430
Accounts receivable, less allowance for doubtful accounts
($255,827 in 1994 and $505,759 in 1995) ................................... 26,186,579 22,633,125
Film contract rights ........................................................ 5,813,366 4,516,019
Other assets ................................................................ 3,854,774 4,231,351
------------- -------------
TOTAL CURRENT ASSETS ................................................ 35,949,842 35,734,925
PROPERTY AND EQUIPMENT, NET ................................................... 32,132,126 32,204,637
FILM CONTRACT RIGHTS AND OTHER NONCURRENT ASSETS .............................. 3,725,612 4,281,976
DEFERRED FINANCING FEES, less accumulated amortization
($1,209,275 in 1994 and $2,947,833 in 1995) ................................. 14,849,529 14,045,461
INTANGIBLE ASSETS, less accumulated amortization
($17,906,588 in 1994 and $25,467,092 in 1995) ............................... 365,564,029 363,503,529
------------- -------------
$ 452,221,138 $ 449,770,528
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................................ $ 4,770,793 $ 2,703,803
Accrued interest ............................................................ 5,595,610 8,477,344
Other accrued liabilities ................................................... 3,252,518 3,511,490
Film contract rights payable and other current liabilities .................. 7,708,442 8,231,029
----------- -----------
TOTAL CURRENT LIABILITIES ............................................ 21,327,363 22,923,666
LONG-TERM DEBT ................................................................ 341,000,000 344,454,700
FILM CONTRACT RIGHTS PAYABLE .................................................. 3,669,534 3,881,370
DEFERRED TAX LIABILITY AND OTHER
NONCURRENT LIABILITIES ...................................................... 31,869,240 31,886,678
COMMITMENTS
REDEEMABLE PREFERRED STOCK (NOTE 8) ........................................... 45,487,500 45,487,500
STOCKHOLDERS' EQUITY:
Common stock: 41,000,000 shares authorized consisting of
1,000,000 shares of Class A Common Stock, $.01 par
value, and 40,000,000 shares of Common Stock
(Nonvoting), $.01 par value; 178,500 shares of Voting
Common Stock and 8,298,966 shares of Common Stock
(Nonvoting) (8,218,240 shares at December 31, 1995)
issued and outstanding ................................................... 83,967 84,774
Additional paid-in capital .................................................. 46,864,202 45,982,076
Accumulated deficit ......................................................... (36,590,198) (43,554,303)
Less: Unearned compensation ................................................ (1,490,470) (1,375,933)
------------- -------------
Total stockholders' equity .......................................... 8,867,501 1,136,614
------------- -------------
$ 452,221,138 $ 449,770,528
============= =============
</TABLE>
See accompanying notes.
F-4
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Class A Common Additional Total
Common Stock Paid-in (Accumulated Unearned Stockholders'
Stock (Nonvoting) Capital Deficit) Compensation Equity
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 ....... $ 1,785 $ 82,182 $ 46,864,202 $(36,590,198) $ (1,490,470) $ 8,867,501
Dividend on Cumulative
Convertible Exchangeable
Preferred Stock .................. (881,319) (881,319)
Issuance of Common Stock (Nonvoting) 807 (807)
Stock expense related to
Management Stock Plan ............ 114,537 114,537
Net loss ........................... (6,964,105) (6,964,105)
------------ ------------ ------------ ------------ ------------ ------------
Balance at March 31, 1996 .......... $ 1,785 $ 82,989 $ 45,982,076 $(43,554,303) $ (1,375,933) $ 1,136,614
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995 1996
------------- -------------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ......................................................... $ (831,466) $ (6,964,105)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of intangible assets and deferred financing fees ......... 1,447,547 2,951,278
Extraordinary loss on extinguishment of debt .......................... -- 3,510,152
Depreciation .......................................................... 804,490 1,473,380
Non-cash compensation expense ......................................... 80,913 114,537
Change in assets and liabilities net of effects from acquisition of stations:
Decrease in accounts receivable ....................................... 989 3,553,454
Increase (decrease) in accrued liabilities ............................ (1,106,304) 3,140,706
(Decrease) increase in accounts payable ............................... 476,695 (2,066,990)
Decrease (increase) in film contract rights and other
noncurrent assets ................................................... (733,385) 740,983
Increase in film contract rights
payable and other liabilities ....................................... 844,303 734,423
Increase in other assets .............................................. (1,756,072) (823,238)
------------- -------------
Net cash provided by (used in) operating activities ....................... (771,840) 6,364,580
------------- -------------
Cash flows from investing activities:
Payment for acquisition of stations,
net of cash acquired .................................................... (53,922,975) --
Capital expenditures ...................................................... (2,184,307) (1,443,898)
------------- -------------
Net cash used in investing activities ................................... (56,107,282) (1,443,898)
------------- -------------
Cash flows from financing activities:
Proceeds from bank loan ................................................... 62,250,000 1,000,000
Repayment of bank borrowings .............................................. -- (107,000,000)
Redemption of Adjustable Rate Preferred Stock ............................. (2,000,000) --
Payment of deferred financing fees ........................................ (1,919,009) (3,230,056)
Proceeds from Senior Subordinated Notes ................................... -- 109,450,000
Dividends paid ............................................................ (917,320) (881,319)
------------- -------------
Net cash provided by (used in) financing activities ..................... 57,413,671 (661,375)
------------- -------------
Net increase in cash and cash equivalents ................................... 534,549 4,259,307
Cash and cash equivalents, beginning of period .............................. 1,947,562 95,123
------------- -------------
Cash and cash equivalents, end of period .................................... $ 2,482,111 $ 4,354,430
============= =============
Supplemental information:
Cash paid for interest .................................................... $ 4,622,939 $ 5,967,996
Cash paid for income taxes ................................................ -- 12,500
Non-cash capital expenditures ........................................... -- 101,993
</TABLE>
See accompanying notes.
F-6
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 -- Basis of Presentation
The accompanying unaudited consolidated financial statements include the
accounts of Granite Broadcasting Corporation and its subsidiaries (the
"Company") and have been prepared in accordance with the instructions to Form
10-Q and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
Operating results for the three month period ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the Company's consolidated
financial statements and notes thereto for the year ended December 31, 1995
which are included herein. All significant intercompany accounts and
transactions have been eliminated. Data at December 31, 1995 is derived from the
Company's audited consolidated financial statements.
In the opinion of management, all adjustments of a normal recurring nature
which are necessary for a fair presentation of the results for the interim
periods have been made.
Note 2 -- Long Term Debt
On February 22, 1996, the Company completed an offering of $110,000,000
principal amount of its 9 3/8% Series A Senior Subordinated Notes (the "9 3/8%
Notes") due December 1, 2005. Proceeds from the sale of the 9 3/8% Notes were
used to repay all outstanding term loan and revolving credit borrowings under
the existing bank credit agreement and for general working capital purposes. In
connection with the repayment of the term loan (which is not subject to being
reborrowed), the Company incurred an extraordinary loss on the early
extinguishment of debt of $3,510,152 related to the write-off of deferred
financing fees.
Note 3 -- Net Loss Per Common Share
Net loss per common share for the three month periods ended March 31, 1996
and 1995 is calculated by dividing net loss attributable to common stockholders
by the weighted average number of shares of common stock outstanding. The
inclusion of additional shares assuming the exercise of outstanding stock
options and the conversion of certain convertible preferred stock would have
been antidilutive for the three month periods ended March 31, 1996 and 1995.
F-7
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Granite Broadcasting Corporation
We have audited the accompanying consolidated balance sheets of Granite
Broadcasting Corporation as of December 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1995. Our audit also
included the financial statement schedule listed in the Index at Item 14(a) of
the Granite Broadcasting Corporation Form 10-K for the fiscal year ended
December 31, 1995. These financial statements and the schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Granite
Broadcasting Corporation at December 31, 1995 and 1994, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
February 22, 1996
F-8
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1993 1994 1995
-------------- -------------- --------------
<S> <C> <C> <C>
Net revenue ...................................... $ 37,499,152 $ 62,856,425 $ 99,894,627
Station operating expenses ....................... 22,790,124 37,763,732 55,398,930
Depreciation ..................................... 2,398,301 3,420,850 4,513,919
Amortization ..................................... 3,864,199 4,714,721 9,329,444
Corporate expense ................................ 1,374,289 2,162,621 3,131,943
Non-cash compensation expense .................... 123,250 281,896 363,384
------------ ------------ ------------
Operating income ............................... 6,948,989 14,512,605 27,157,007
Other (income) expenses:
Equity in net income of investee ............... -- -- (439,033)
Interest expense, net .......................... 10,976,680 10,707,147 27,026,680
Other .......................................... 479,499 307,929 797,576
------------ ------------ ------------
Income (loss) before income taxes
and extraordinary item ....................... (4,507,190) 3,497,529 (228,216)
(Provision) benefit for income taxes ........... 471,735 (450,125) (554,884)
------------ ------------ ------------
Income (loss) before extraordinary item .......... (4,035,455) 3,047,404 (783,100)
Extraordinary loss on
extinguishment of debt ......................... (1,007,435) -- --
------------ ------------ ------------
Net income (loss) ............................ $ (5,042,890) $ 3,047,404 $ (783,100)
============ ============ ============
Net loss attributable to
common shareholders ............................ $ (5,278,109) $ (687,730) $ (4,333,381)
============ ============ ============
Per common share:
Loss before extraordinary item ............. $ (0.98) $ (0.15) $ (0.73)
Extraordinary loss on
extinguishment of debt ................... (0.23) -- --
------------ ------------ ------------
Net loss ................................. $ (1.21) $ (0.15) $ (0.73)
============ ============ ============
Weighted average common shares outstanding ....... 4,364,885 4,497,758 5,920,294
</TABLE>
See accompanying notes.
F-9
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
ASSETS 1994 1995
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................... $ 1,947,562 $ 95,123
Accounts receivable, less allowance for doubtful accounts
($255,827 in 1994 and $505,759 in 1995) ................... 13,095,909
26,186,579
Film contract rights ........................................ 2,557,064 5,813,366
Other assets ................................................ 1,909,411 3,854,774
------------- -------------
TOTAL CURRENT ASSETS ................................ 19,509,946 35,949,842
PROPERTY AND EQUIPMENT, NET ................................... 14,872,400 32,132,126
INVESTMENT, AT COST ........................................... 7,500,000 --
FILM CONTRACT RIGHTS AND OTHER NONCURRENT ASSETS .............. 2,015,748 3,725,612
DEFERRED FINANCING FEES, less accumulated amortization
($1,209,275 in 1994 and $2,947,833 in 1995) ................. 6,050,978 14,849,529
INTANGIBLE ASSETS, less accumulated amortization
($17,906,588 in 1994 and $25,467,092 in 1995) ............... 139,932,022 365,564,029
------------- -------------
$ 189,881,094 $ 452,221,138
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................ $ 2,036,885 $ 4,770,793
Accrued interest ............................................ 3,106,660 5,595,610
Other accrued liabilities ................................... 2,348,005 3,252,518
Film contract rights payable and other current liabilities .. 3,906,642 7,708,442
Current portion of long-term debt ........................... 4,250,000 --
------------- -------------
TOTAL CURRENT LIABILITIES ............................ 15,648,192 21,327,363
LONG-TERM DEBT ................................................ 95,000,000 341,000,000
FILM CONTRACT RIGHTS PAYABLE .................................. 1,689,572 3,669,534
DEFERRED TAX LIABILITY AND OTHER
NONCURRENT LIABILITIES ...................................... 16,643,672 31,869,240
COMMITMENTS
REDEEMABLE PREFERRED STOCK (NOTE 8) ........................... 49,170,962 45,487,500
STOCKHOLDERS' EQUITY:
Preferred Stock: $.01 par value, 2,276,000 shares authorized;
463,303 shares of Series B Convertible Preferred Stock
issued and outstanding at December 31, 1994; 1,007,915
shares of Series C Convertible Preferred Stock issued
and outstanding at December 31, 1994 ...................... 14,712 --
Common stock: 41,000,000 shares authorized consisting of
1,000,000 shares of Class A Common Stock, $.01 par
value, and 40,000,000 shares of Common Stock
(Nonvoting), $.01 par value; 178,500 shares of Voting
Common Stock and 8,218,240 shares of Common Stock
(Nonvoting) (4,396,616 shares at December 31, 1994)
issued and outstanding .................................... 45,751 83,967
Additional paid-in capital .................................. 48,688,435 46,864,202
Accumulated deficit ......................................... (35,807,098) (36,590,198)
Less: Unearned compensation ................................ (1,213,104) (1,490,470)
------------- -------------
Total stockholders' equity .......................... 11,728,696 8,867,501
------------- -------------
$ 189,881,094 $ 452,221,138
============= =============
</TABLE>
See accompanying notes.
F-10
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1993, 1994 and 1995
<TABLE>
<CAPTION>
Class A Common Series B Series C Additional
Common Stock Preferred Preferred Paid-in
Stock (Nonvoting) Stock Stock Capital
-------- -------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 ................... $ 1,785 $ 41,376 $ 5,232 $ 10,592 $ 50,963,660
Accretion of and dividends on Series A
Redeemable Preferred Stock ................... (83,358)
Conversion of Series A Redeemable Preferred
Stock and Series B and Series C Preferred
Stock into Common Stock (Nonvoting) .......... 1,170 (226) (411) 17,859
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock .............. (151,861)
Grant of Stock Award under Management Stock Plan 616,250
Stock Expense Related to Management Stock Plan .
Net loss .......................................
-------- -------- -------- -------- -------------
Balance at December 31, 1993 ................... 1,785 42,546 5,006 10,181 51,362,550
Accretion of and dividends on Series A
Redeemable Preferred Stock ................... (91,895)
Conversion of Redeemable Series A Preferred
Stock and Series B and Series C Preferred
Stock into Common Stock (Nonvoting) .......... 1,080 (373) (102) 59,359
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock .............. (3,643,239)
Issuance of 34,000 shares of Common
Stock (Nonvoting) ............................ 340 (340)
Grant of Stock Award under Management Stock Plan 1,002,000
Stock expense related to Management Stock Plan .
Net income .....................................
-------- -------- -------- -------- -------------
Balance at December 31, 1994 ................... 1,785 43,966 4,633 10,079 48,688,435
Accretion of and dividends on Series A
Redeemable Preferred Stock ................... (35,116)
Conversion of Series A Redeemable Preferred
Stock and Series B and C Preferred
Stock into Common Stock (Nonvoting) .......... 36,069 (4,633) (10,079) 1,200,518
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock .............. (3,550,281)
Exercise of Stock Options ...................... 1,574 31,376
Issuance of Common Stock (Nonvoting) ........... 573 (573)
Grant of Stock Award under Management Stock Plan 640,750
Stock expense related to Management Stock Plan . (110,907)
Net loss .......................................
-------- -------- -------- -------- -------------
Balance at December 31, 1995 ................... $ 1,785 $ 82,182 $ -- $ -- $ 46,864,202
======== ======== ======== ======== =============
Total
(Accumulated Unearned Stockholders'
Deficit) Compensation Equity
------------- ------------ -------------
<S> <C> <C> <C>
Balance at December 31, 1992 ................... $ (33,811,612) $ -- $ 17,211,033
Accretion of and dividends on Series A
Redeemable Preferred Stock ................... (83,358)
Conversion of Series A Redeemable Preferred
Stock and Series B and Series C Preferred
Stock into Common Stock (Nonvoting) .......... 18,392
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock .............. (151,861)
Grant of Stock Award under Management Stock Plan (616,250) --
Stock Expense Related to Management Stock Plan . 123,250 123,250
Net loss ....................................... (5,042,890) (5,042,890)
------------- ------------- -------------
Balance at December 31, 1993 ................... (38,854,502) (493,000) 12,074,566
Accretion of and dividends on Series A
Redeemable Preferred Stock ................... (91,895)
Conversion of Redeemable Series A Preferred
Stock and Series B and Series C Preferred
Stock into Common Stock (Nonvoting) .......... 59,964
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock .............. (3,643,239)
Issuance of 34,000 shares of Common
Stock (Nonvoting) ............................ --
Grant of Stock Award under Management Stock Plan (1,002,000)
Stock expense related to Management Stock Plan . 281,896 281,896
Net income ..................................... 3,047,404 3,047,404
------------- ------------- -------------
Balance at December 31, 1994 ................... (35,807,098) (1,213,104) 11,728,696
Accretion of and dividends on Series A
Redeemable Preferred Stock ................... (35,116)
Conversion of Series A Redeemable Preferred
Stock and Series B and C Preferred
Stock into Common Stock (Nonvoting) .......... 1,221,875
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock .............. (3,550,281)
Exercise of Stock Options ...................... 32,950
Issuance of Common Stock (Nonvoting) ...........
Grant of Stock Award under Management Stock Plan (640,750)
Stock expense related to Management Stock Plan . 363,384 252,477
Net loss ....................................... (783,100) (783,100)
------------- ------------- -------------
Balance at December 31, 1995 ................... $ (36,590,198) $ (1,490,470) $ 8,867,501
============= ============= =============
</TABLE>
See accompanying notes
F-11
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1993 1994 1995
------------ ------------ -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ............................................................... $ (5,042,890) $ 3,047,404 $ (783,100)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Amortization of intangible assets and deferred financing fees ............... 3,864,199 4,714,721 9,329,444
Extraordinary loss on extinguishment of debt ................................ 1,007,435 -- --
Non-cash interest expense on indebtedness ................................... 930,625 -- --
Depreciation ................................................................ 2,398,301 3,420,850 4,513,919
Non-cash compensation expense ............................................... 123,250 281,896 363,384
Income tax benefit .......................................................... (471,735) -- --
Non-cash deferred income taxes .............................................. -- -- 1,115,000
Deferred income taxes ....................................................... -- -- (824,116)
Equity in net income of investee ............................................ (439,033)
Change in assets and liabilities net of effects from acquisition of stations:
Increase in accounts receivable ............................................. (1,318,848) (1,499,860) (7,528,139)
Increase (decrease) in accrued liabilities .................................. (83,755) 1,496,559 2,060,230
Increase (decrease) in accounts payable ..................................... 784,638 (420,205) 2,174,225
Decrease (increase) in film contract rights and other
noncurrent assets ......................................................... 2,075,286 640,968 (3,448,429)
(Decrease) increase in film contract rights
payable and other liabilities ............................................. (1,052,022) (3,390,646) 3,985,170
Decrease (increase) in other assets ......................................... 396,225 (2,484,068) (1,712,859)
------------ ------------ -------------
Net cash provided by operating activities ....................................... 3,610,709 5,807,619 8,805,696
------------ ------------ -------------
Cash flows from investing activities:
Payment for acquisition of stations,
net of cash acquired .......................................................... (30,000,000) -- (228,660,507)
Capital expenditures ............................................................ (1,088,813) (2,627,793) (7,682,188)
------------ ------------ -------------
Net cash used in investing activities ......................................... (31,088,813) (2,627,793) (236,342,695)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from bank loan ......................................................... 39,000,000 1,500,000 174,250,000
Proceeds from issuance of stock ................................................. 38,000,000 -- --
Proceeds from exercise of stock options ......................................... -- -- 32,950
Repayment of bank borrowings .................................................... (44,310,673) (1,250,000) (107,500,000)
Redemption of Adjustable Rate Preferred Stock ................................... -- -- (2,000,000)
Payment of deferred financing fees .............................................. (4,867,700) (129,771) (10,537,110)
Proceeds from Senior Subordinated Notes ......................................... -- -- 175,000,000
Dividends paid .................................................................. -- (3,564,120) (3,561,280)
Other financing activities ...................................................... -- 663,894 --
------------ ------------ -------------
Net cash provided by (used in) financing activities ........................... 27,821,627 (2,779,997) 225,684,560
------------ ------------ -------------
Net increase (decrease) in cash and cash equivalents .............................. 343,523 399,829 (1,852,439)
Cash and cash equivalents, beginning of year ...................................... 1,204,210 1,547,733 1,947,562
------------ ------------ -------------
Cash and cash equivalents, end of year ............................................ $ 1,547,733 $ 1,947,562 $ 95,123
============ ============ =============
Supplemental information:
Cash paid for interest .......................................................... $ 9,922,747 $ 10,176,398 $ 24,699,248
Cash paid for income taxes ...................................................... -- 251,512 149,750
Non-cash investing and financing activities:
Non-cash capital expenditures ................................................. 141,634 350,409 459,786
Issuance of Adjustable Rate Preferred Stock ................................... 2,000,000 -- --
Issuance of Cumulative Convertible Exchangeable Preferred Stock ............... 7,500,000 -- --
</TABLE>
See accompanying notes.
F-12
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Financial statement presentation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain amounts in the prior years have been
reclassified to conform to the 1995 presentation.
Revenue recognition
The Company recognizes revenue from the sale of advertising at the time the
advertisements are aired.
Intangibles
Intangible assets at December 31, 1994 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995
------------- -------------
<S> <C> <C>
Goodwill ............................. $33,146,108 $75,192,619
Network affiliations ................. 108,908,641 247,941,641
Broadcast licenses ................... 15,783,861 67,896,861
------------- -------------
157,838,610 391,031,121
Accumulated amortization ............. (17,906,588) (25,467,092)
------------- -------------
$139,932,022 $365,564,029
============= =============
</TABLE>
The intangible assets are characterized as scarce assets with long and
productive lives. These intangible assets are being amortized on a straight line
basis over forty years.
The Company continually reevaluates the propriety of the carrying amount of
intangible assets as well as the related amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
value and/or revised estimates of useful lives. This evaluation is based on the
Company's projections of the undiscounted cash flows over the remaining lives of
the amortization period of the related intangible asset. To the extent such
projections indicate that the undiscounted cash flows are not expected to be
adequate to recover the carrying amounts of intangible assets, such carrying
amounts will be written down to their fair market value. At this time, the
Company believes that no significant impairment of intangible assets has
occurred and that no reduction of the estimated useful lives is warranted.
Deferred financing fees
The Company has incurred certain fees in connection with entering into a
bank credit agreement, the sale of 12.75% Debentures (as defined), the sale of
Cumulative Convertible Exchangeable Preferred Stock (as defined) and the sale of
10 3/8% Notes (as defined). The deferred financing fees related to the bank
credit agreement are being amortized over six years, ten years for the 12.75%
Debentures and for the 10 3/8% Notes and twelve years for the Cumulative
Convertible Exchangeable Preferred Stock.
F-13
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 1 -- Summary of Significant Accounting Policies -- (Continued)
Property and equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives ranging from three to 32
years.
Film contract rights
Film contract rights are recorded as assets at gross value when the license
period begins and the films are available for broadcasting, are amortized on an
accelerated basis over the estimated usage of the films, and are classified as
current or noncurrent on that basis. Film contract rights payable are classified
as current or noncurrent in accordance with the payment terms of the various
license agreements. Film contract rights are reflected in the consolidated
balance sheet at the lower of unamortized cost or estimated net realizable
value.
At December 31, 1995, the obligation for programming that had not been
recorded because the program rights were not available for airing aggregated
$17,776,432.
Barter transactions
Revenue from barter transactions is recognized when advertisements are
broadcast and merchandise or services received are charged to expense when
received or used.
Risks and uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reported
period. Actual results could differ from those estimates.
Cash and cash equivalents
Cash and cash equivalents include funds invested overnight in Eurodollar
deposits.
Net loss per common share
Net loss per common share for each of the three years in the period ended
December 31, 1995 are calculated by dividing net loss attributable to common
stockholders by the weighted average number of common shares outstanding. The
inclusion of additional shares assuming the exercise of outstanding stock
options and the conversion of convertible preferred stock would have been
antidilutive in all three years.
F-14
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Acquisitions
On February 1, 1995, the Company acquired substantially all of the assets
of KEYE-TV (formerly known as KBVO-TV), the CBS affiliate serving Austin, Texas
from Austin Television for $54,000,000 in cash and the assumption of certain
liabilities of KEYE-TV.
<TABLE>
The following comprises the allocation of the purchase price:
<S> <C>
Purchase price $54,000,000
Net tangible assets acquired, principally film
contract rights and property and equipment (978,000)
Broadcast license (5,302,000)
Network affiliation agreement (36,585,000)
-----------
Goodwill $11,135,000
===========
</TABLE>
On June 1, 1995, the Company acquired substantially all of the assets and
certain liabilities of WWMT-TV, the CBS affiliate serving Grand Rapids, Michigan
from Busse Broadcasting Corporation for $98,942,000 in cash (including
$3,942,000 of working capital and other adjustments) and the assumption of
certain liabilities of WWMT-TV.
<TABLE>
The following comprises the allocation of the purchase price:
<S> <C>
Purchase price $98,942,000
Net tangible assets acquired, principally film
contract rights and property and equipment (11,422,000)
Broadcast license (8,752,000)
Network affiliation agreement (60,389,000)
-----------
Goodwill $18,379,000
===========
</TABLE>
On June 29, 1995, the Company completed its acquisition of WKBW-TV, the ABC
affiliate serving Buffalo, New York. The Company paid approximately $16,000,000
(including certain related expenses) for the equity interests it did not already
own, assumed approximately $59,000,000 of debt and received working capital of
approximately $6,760,000, of which $3,491,000 was cash.
<TABLE>
The following comprises the allocation of the purchase price:
<S> <C>
Purchase price $23,982,000
Net tangible liabilities assumed, principally
long-term debt, partially offset by film
contract rights and property and equipment 65,039,000
Broadcast license (38,059,000)
Network affiliation agreement (42,059,000)
-----------
Goodwill $8,903,000
===========
</TABLE>
F-15
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 -- Acquisitions -- (Continued)
Prior to April 12, 1995, the Company viewed its investment in Queen City
III Limited Partnership ("QCIII"), the ultimate parent of WKBW-TV, as temporary
in nature given the strained relationship between the Company and QCIII. On that
basis, the Company believed it to be prudent to carry the investment at cost,
while periodically reviewing for impairment. On April 12, 1995, the Company
entered into a letter of intent to purchase the remaining equity interest in
QCIII it did not already own. At that time, the Company no longer viewed the
investment as temporary and commenced using the equity method under Accounting
Principles Board Opinion No. 18.
The following table summarizes the unaudited consolidated pro forma results
of operations for the years ended December 31, 1994 and 1995 assuming the
acquisitions of KEYE-TV, WWMT-TV and WKBW-TV had occurred as of January 1, 1994:
<TABLE>
<CAPTION>
1994 1995
------------ ------------
<S> <C> <C>
Net revenue ................................... $124,771,000 $124,749,000
Station operating expenses .................... 66,284,000 66,648,000
Depreciation and amortization ................. 17,661,000 17,224,000
Loss before extraordinary item ................ 490,000 460,000
Loss before extraordinary item per common share 0.91 0.68
</TABLE>
Note 3-- Property and Equipment
The major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Land .......................... $ 1,299,284 $ 2,527,708
Buildings and improvements .... 7,232,842 14,729,378
Furniture and fixtures ........ 3,405,365 4,380,475
Technical equipment and other . 15,767,921 27,711,903
----------- -----------
27,705,412 49,349,464
Less: Accumulated depreciation 12,833,012 17,217,338
----------- -----------
Net property and equipment .... $14,872,400 $32,132,126
=========== ===========
</TABLE>
F-16
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 4 -- Other Accrued Liabilities
Other accrued liabilities are summarized below:
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Compensation and benefits $1,221,800 $2,001,193
Other ................... 1,126,205 1,251,325
---------- ----------
Total ................... $2,348,005 $3,252,518
========== ==========
</TABLE>
Note 5 -- Other Current Assets
Other current assets are summarized below:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1995
---------- ----------
<S> <C> <C>
Barter and other receivables $ 966,280 $2,542,824
Other ...................... 943,131 1,311,950
---------- ----------
Total ...................... $1,909,411 $3,854,774
========== ==========
</TABLE>
Note 6 -- Long-term Debt
Long-term debt outstanding consists of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------
1994 1995
------------ ------------
<S> <C> <C>
Senior bank debt .................... $ 39,250,000 $106,000,000
10 3/8% Senior Subordinated Notes.... -- 175,000,000
12.75% Senior Subordinated Debentures 60,000,000 60,000,000
------------ ------------
99,250,000 341,000,000
Less: Current portion .............. 4,250,000 --
------------ ------------
Total ............................... $ 95,000,000 $341,000,000
============ ============
</TABLE>
F-17
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Long-term Debt -- (Continued)
Senior bank debt
The Company entered into a bank credit agreement on December 23, 1993
permitting term loan borrowings of up to $36,000,000 plus a revolving working
capital facility permitting borrowings of up to $4,000,000. The bank credit
agreement was amended on June 15, 1994 to, among other things, increase the
revolving working capital facility to $6,000,000. The bank credit agreement was
amended and restated on February 1, 1995 (as amended and restated the "Amended
and Restated Credit Agreement") to permit term borrowings of up to $100,000,000
plus a revolving working capital facility permitting borrowings of up to
$15,000,000. Additional borrowings under the Amended and Restated Credit
Agreement were used: (i) to fund the acquisition of KEYE-TV; (ii) to repurchase
all of the Company's outstanding Adjustable Rate Preferred Stock, par value $.01
per share, that was issued in connection with the acquisitions of WTVH-TV and
KSEE-TV in December 1993; (iii) to pay all of the Company's then existing
revolving bank indebtedness; (iv) to pay fees and expenses in connection with
such transactions; and (v) for general working capital purposes.
The Amended and Restated Credit Agreement was further amended and restated
on May 19, 1995 (as amended and restated the "Second Amended and Restated Credit
Agreement") to permit term borrowings of up to $102,000,000 plus a revolving
working capital facility permitting borrowings of up to $60,000,000. Proceeds
from the incremental borrowings under the Second Amended and Restated Credit
Agreement along with the proceeds from the sale of $175,000,000 principal amount
of the Company's 10 3/8% Senior Subordinated Notes due May 15, 2005 (the
"10 3/8% Notes") were used to fund the acquisition of WWMT-TV and WKBW-TV and to
pay fees and expenses incurred in connection with the offering of the 10 3/8%
Notes and the Second Amended and Restated Credit Agreement. As of December 31,
1995, the Company had $55,000,000 available under the revolving credit facility.
Outstanding principal balances under the Second Amended and Restated Credit
Agreement bear interest at floating rates equal to LIBOR (the "LIBOR Rate") plus
marginal rates between 1.50% and 2.75% or the prime rate plus marginal rates
between 0.25% and 1.50%. The LIBOR Rate was 5.75% - 5.938% plus a marginal rate
of 2.50% at December 31, 1995. The LIBOR Rate was 5.6875% - 6.0625% plus a
marginal rate of 2.25% at December 31, 1994. The marginal rate is subject to
change based upon changes in the ratio of outstanding principal balances to
operating cash flow.
In April 1994, the Company entered into a two year interest rate cap
agreement with respect to $13,000,000 of debt under the Amended and Restated
Credit Agreement. Under the agreement, the maximum LIBOR Rate that the Company
is required to pay with respect to the covered indebtedness is 6.5%. The
interest rate cap had no material effect on interest expense in 1994 or 1995.
The Second Amended and Restated Credit Agreement is secured by
substantially all of the assets of the Company, as well as a pledge of all
issued and outstanding shares of capital stock of the Company's present and
future subsidiaries and guaranteed by all present and future subsidiaries of the
Company. The Second Amended and Restated Credit Agreement requires the Company
to maintain compliance with certain financial ratios. Other provisions place
limitations on the incurrence of additional debt, payments for capital
expenditures, prepayment of subordinated debt, merger or consolidation with or
acquisition of another entity, the declaration or payment of cash dividends
other than on the Cumulative Convertible Exchangeable Preferred Stock and other
transactions by the Company.
F-18
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Long-term Debt -- (Continued)
Senior Subordinated Debentures
The Company has outstanding $60,000,000 aggregate principal amount of its
12.75% Senior Subordinated Debentures (the "12.75% Debentures") due September 1,
2002.
The 12.75% Debentures are redeemable after September 1, 1997, at the option
of the Company, in whole or in part from time to time, at certain prices
declining annually to 100% of the principal amount on or after September 1,
1999, plus accrued interest. The Company is required to offer to repurchase all
outstanding 12.75% Debentures at 101% of the principal amount plus accrued
interest in the event of a Change of Control (as defined in the Indenture
governing the 12.75% Debentures).
The 12.75% Debentures are subordinated in right of payment to the Second
Amended and Restated Credit Agreement and to future Senior Debt (as defined in
the Indenture governing the 12.75% Debentures) and rank pari passu with all
senior subordinated debt and senior to all subordinated debt of the Company. The
Indenture governing the 12.75% Debentures contains certain covenants that, among
other things, limit the ability of the Company and its subsidiaries to incur
debt, pay cash dividends on or repurchase capital stock, enter into agreements
prohibiting the creation of liens or restricting the ability of a subsidiary to
pay money or transfer assets to the Company, enter into certain transactions
with their affiliates, dispose of certain assets and engage in mergers and
consolidations.
Senior Subordinated Notes
The Company has outstanding $175,000,000 aggregate principal amount of its
10 3/8% Notes due May 15, 2005.
The 10 3/8% Notes will be redeemable in the event that on or before May 15,
1998 the Company receives net proceeds from the sale of its Capital Stock (other
than Disqualified Stock (each as defined in the Indenture governing the 10 3/8%
Notes)), in which case the Company may, at its option and from time to time, use
all or a portion of any such net proceeds to redeem certain amounts of the
10 3/8% Notes with certain limitations. In addition, the 10 3/8% Notes are
redeemable at any time on or after May 15, 2000, at the option of the Company,
in whole or in part from time to time, at certain prices declining annually to
100% of the principal amount on or after May 15, 2002, plus accrued interest.
The Company is required to offer to purchase all outstanding 10 3/8% Notes at
101% of the principal amount plus accrued interest in the event of a Change of
Control (as defined in the Indenture governing the 10 3/8% Notes).
The 10 3/8% Notes are subordinated in right of payment to the Second
Amended and Restated Credit Agreement and to future Senior Debt (as defined in
the Indenture governing the 10 3/8% Notes) and rank pari passu with all senior
subordinated debt and senior to all subordinated debt of the Company. The
Indenture governing the 10 3/8% Notes contains certain covenants that, among
other things, limit the ability of the Company and its subsidiaries to incur
debt, pay cash dividends on or repurchase capital stock, enter into agreements
prohibiting the creation of liens or restricting the ability of a subsidiary to
pay money or transfer assets to the Company, enter into certain transactions
with their affiliates, dispose of certain assets and engage in mergers and
consolidations.
F-19
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Long-term Debt -- (Continued)
On February 22, 1996, the Company completed an offering of $110,000,000
principal amount of its 9 3/8% Series A Senior Subordinated Notes (the "9 3/8%
Notes") due December 1, 2005. Proceeds from the sale of the 9 3/8% Notes were
used to repay all outstanding term loan and revolving credit borrowings under
the Company's Second Amended and Restated Credit Agreement and for general
working capital purposes. In connection with the repayment of the term loan
(which is not subject to being reborrowed), the Company will write-off
approximately $3.6 million of deferred financing costs. Such write-off will be
reflected as an extraordinary loss on the early extinguishment of debt in the
1996 consolidated financial statements.
As a result of the Company's subsequent offering of the 9 3/8% Notes,
there are no scheduled principal maturities of long-term debt within the next
five years.
Note 7 -- Commitments
Future minimum lease payments under long-term operating leases as of
December 31, 1995 are as follows:
<TABLE>
<S> <C>
1996.............................................. $704,000
1997.............................................. 576,000
1998.............................................. 448,000
1999.............................................. 357,000
2000 ............................................. 295,000
2001 and thereafter............................... 2,661,000
----------
$5,041,000
==========
</TABLE>
Rent expense, including escalation charges, was $128,000, $116,000 and
$559,000 for the years ended December 31, 1993, 1994 and 1995, respectively.
Note 8 -- Redeemable Preferred Stock
Redeemable preferred stock consists of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1995
----------- -----------
<S> <C> <C>
Series A Preferred Stock .......... $ 1,683,462 $ --
Cumulative Convertible Exchangeable
Preferred Stock ................. 45,487,500 45,487,500
Adjustable Rate Preferred Stock ... 2,000,000 --
----------- -----------
$49,170,962 $45,487,500
=========== ===========
</TABLE>
F-20
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Redeemable Preferred Stock -- (Continued)
Series A Preferred Stock
The Company authorized 100,000 shares of its Series A Convertible Preferred
Stock ("Series A Stock"), par value $.01 per share, which were issued at an
aggregate price of $1,210,000. All outstanding shares of the Series A Stock were
converted into shares of the Company's Common Stock (Nonvoting), par value $.01
per share (the "Common Stock (Nonvoting)") in August 1995. Prior to conversion,
dividends accrued on the Series A Stock at an annual rate of $.40 per share
which accumulated, without interest, if unpaid. Accrued but unpaid dividends on
the Series A Stock totaled $236,800 and $262,844 at December 31, 1994 and 1995,
respectively. Accrued dividends are due and payable on the later of December 31,
1999 or the date on which such dividends may be paid under the Company's debt
instruments.
Cumulative Convertible Exchangeable Preferred Stock
The Company has authorized 3,000,000 shares of its Cumulative Convertible
Exchangeable Preferred Stock (the "Cumulative Convertible Exchangeable Preferred
Stock"), par value $.01 per share, of which 1,520,000 shares were issued on
December 23, 1993 at a price of $25.00 per share. The Company also issued on
December 23, 1993 300,000 shares of its Cumulative Convertible Exchangeable
Preferred Stock valued at $7,500,000 as consideration for acquiring certain
outstanding securities of QCIII, the ultimate parent of WKBW-TV. Holders of the
Cumulative Convertible Exchangeable Preferred Stock are entitled to receive cash
dividends at an annual rate of $1.9375 per share, payable quarterly on each
March 15, June 15, September 15 and December 15 in each year, when, as and if
declared by the Company's Board of Directors. Dividends on the Cumulative
Convertible Exchangeable Preferred Stock are cumulative and accrue without
interest, if unpaid.
Each share of Cumulative Convertible Exchangeable Preferred Stock is
convertible, at the option of the holder, into shares of Common Stock
(Nonvoting). The Cumulative Convertible Exchangeable Preferred Stock is
convertible into Common Stock (Nonvoting) on a 5 for 1 share basis. The current
conversion price of the Cumulative Convertible Exchangeable Preferred Stock is
$5.00 per share, subject to adjustment upon the occurrence of certain events.
The Cumulative Convertible Exchangeable Preferred Stock is entitled to a
preference of $25.00 per share plus accrued and unpaid dividends in the event of
liquidation, dissolution or winding up of the Company ($45,487,500 liquidation
value at December 31, 1995). The Company is required, to the extent permitted by
loan agreements or indentures to which the Company is then a party, the
obligations of which are senior in priority to the Cumulative Convertible
Exchangeable Preferred Stock, to redeem the Cumulative Convertible Exchangeable
Preferred Stock at a price of $25.00 per share plus accrued and unpaid dividends
on December 15, 2005.
The Cumulative Convertible Exchangeable Preferred Stock is exchangeable in
whole, but not in part, at the option of the Company, for the Company's 7.75%
Junior Subordinated Convertible Exchange Debentures (the "Exchange Debentures")
on any dividend payment date beginning on December 15, 1995 at the rate of
$25.00 principal amount of Exchange Debentures for each share of Cumulative
Convertible Exchangeable Preferred Stock outstanding at the time of the
exchange. The Company may only effect such exchange if accrued and unpaid
dividends on the Cumulative Convertible Exchangeable Preferred Stock have been
paid in full.
F-21
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Redeemable Preferred Stock -- (Continued)
Adjustable Rate Preferred Stock
The Company has authorized, issued and outstanding 200 shares of Adjustable
Rate Preferred Stock ("Adjustable Rate Stock"), par value $.01 per share as of
December 31, 1994. The Adjustable Rate Stock was issued as partial consideration
for the acquisition of WTVH-TV and KSEE-TV on December 23, 1993. The Adjustable
Rate Stock was redeemable, at the option of the Company, in whole or in part, at
any time, at a redemption price of $10,000 per share plus accrued and unpaid
dividends thereon to the date of redemption. On February 1, 1995, the Company
redeemed all 200 outstanding shares of the Adjustable Rate Stock for $2,000,000,
plus accrued and unpaid dividends.
Note 9 -- Stockholders' Equity
Effective December 21, 1993, the Company amended its Certificate of
Incorporation to authorize the issuance of 3,000,000 shares of Cumulative
Convertible Exchangeable Preferred Stock, 200 shares of Adjustable Rate Stock
and 310,000 shares of PIK Cumulative Convertible Exchangeable Preferred Stock.
Effective March 7, 1994, the Company amended its Certificate of Incorporation to
cancel the authorization to issue the PIK Cumulative Convertible Exchangeable
Preferred Stock.
Effective May 16, 1994, the Company amended its Certificate of
Incorporation to increase the number of authorized shares of the Company's
Common Stock (Nonvoting) from 14,000,000 to 40,000,000, and thereby increase the
total number of authorized shares of the Company's capital stock from 20,376,000
to 46,376,000.
Series B Convertible Preferred Stock
The Company issued 592,013 shares of Series B Convertible Preferred Stock
("Series B Stock"), par value $.01 per share, in October 1988 at a price of
$12.10 per share. All outstanding shares of the Series B Stock were converted
into Common Stock (Nonvoting) in September 1995.
Series C Convertible Preferred Stock
The Company issued 1,060,163 shares of Series C Convertible Preferred Stock
("Series C Stock"), par value $.01 per share, in December 1989 and February
1990, at a price of $15.00 per share. All outstanding shares of Series C Stock
were converted into Common Stock (Nonvoting) in September 1995.
Stock option plans
In October 1988, the Company entered into a Target Cash Flow Option Plan
and Agreement (the "Target Plan") with two members of management (the
"Recipients"). The Target Plan granted to the Recipients options to purchase an
aggregate of 150,000 shares of Common Stock (Nonvoting) at an exercise price of
$.01 per share. All of these options were exercised in April 1995.
F-22
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Stockholders' Equity -- (Continued)
The Company has a stock option plan (the "Stock Option Plan") for officers,
directors and certain key employees. On July 25, 1995, the Stock Option Plan was
amended to increase the shares of Common Stock (Nonvoting) subject to options
available for grant to 2,000,000 from 800,000. Options may be granted under the
Stock Option Plan at an exercise price (for tax-qualified incentive stock
options) of not less than 100% of the fair market value of the Common Stock
(Nonvoting) on the date the option is granted, or 110% of such fair market value
for option recipients who hold 10% or more of the Company's voting stock. The
exercise price for non-qualified stock options may be less than, equal to or
greater than the fair market value of the Common Stock (Nonvoting) on the date
the option is granted. Options are normally exercisable at a rate of 20% per
year beginning on the date of grant (or the next preceding January 1) and expire
ten years after the date of grant, except for incentive stock options granted to
recipients who also own 10% or more of the Company's voting stock. At December
31, 1993, 1994 and 1995, 152,800, 204,700 and 467,850, respectively, options
were exercisable.
On March 1, 1994, the Company adopted a Director Stock Option Plan (the
"Director Option Plan") providing for the grant, from time to time, of
non-qualified stock options to non-employee directors of the Company to purchase
an aggregate of 300,000 shares of Common Stock (Nonvoting). As of December 31,
1994 and 1995, options granted under the Director Option Plan were outstanding
for the purchase of 67,600 and 101,700 shares of Common Stock (Nonvoting),
respectively. Under the Director Option Plan as initially adopted, once every
three years, a director was permitted to make an irrevocable triennial election
to receive options, in lieu of cash compensation, for attendance in person at
each regular quarterly meeting ("Regular Quarterly Meeting") of the Company's
Board of Directors during the triennial option period covered by such election.
Under the Director Option Plan as amended in 1995, at the end of the current
triennial option period and each third anniversary thereafter all directors will
automatically receive an option to purchase 18,000 shares of Common Stock
(Nonvoting) ("Automatic Director Service Awards") as compensation for attendance
at Regular Quarterly Meetings during the triennial option period subsequent to
the grant in lieu of cash compensation. In addition, under the Director Option
Plan, directors receive options ("Automatic Committee Awards") for service on
certain of the committees of the Board of Directors (each a "Committee").
Options become exercisable one year (or immediately in the case of Automatic
Director Service Awards, or Automatic Committee Awards granted after February
27, 1997) from the date of attendance by a director at a Regular Quarterly
Meeting or a Committee meeting, as applicable.
F-23
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Stockholders' Equity -- (Continued)
Additional information with respect to shares subject to stock options
granted under the Stock Option Plan and the Director Option Plan for the years
ended December 31, 1993, 1994 and 1995 follows:
<TABLE>
<CAPTION>
Option price Number
per Share of Shares
------------ ---------
<S> <C> <C>
Outstanding at December 31, 1992 .... 299,250
Granted ............................. $3.00 to $5.25 351,500
Canceled ............................ $5.25 (1,500)
---------
Outstanding at December 31, 1993 .... 649,250
Granted ............................. $4.25 67,600
Canceled ............................ $5.25 (2,000)
---------
Outstanding at December 31, 1994 .... 714,850
Granted ............................. $6.88 to $11.38 348,400
Exercised ........................... $4.25 (7,400)
Canceled ............................ $4.25 to $11.38 (6,900)
---------
Outstanding at December 31, 1995 .... 1,048,950
=========
</TABLE>
Management Stock Plan
In April 1993, the Company adopted a Management Stock Plan providing for
the grant from time to time of awards denominated in shares of Common Stock
(Nonvoting) (the "Bonus Shares") to salaried executive employees of the Company.
The Company has set aside a reserve of 470,000 shares of Common Stock
(Nonvoting) for grant under the Management Stock Plan. The Company has the
option to distribute cash in lieu of all or any part of the Bonus Shares
allocated to an eligible employee. Such cash payment would be made as of the
date the corresponding Bonus Shares would otherwise be issued in an amount equal
to the fair market value of such Bonus Shares on that date. As of December 31,
1995, a total of 466,000 Bonus Shares have been allocated pursuant to the
Management Stock Plan.
The total number of common shares outstanding at December 31, 1995 assuming
conversion of all outstanding convertible preferred stock and exercise of all
outstanding stock options is as follows:
<TABLE>
<S> <C>
Class A Common Stock............................ 178,500
Common Stock (Nonvoting)........................ 8,218,240
Conversion of Cumulative Convertible
Exchangeable Preferred Stock.................. 9,097,500
Stock option plans.............................. 1,048,950
----------
18,543,190
==========
</TABLE>
F-24
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 10 -- Income Taxes
The Company files a consolidated federal income tax return for its entities
with the exception of the subsidiary that holds the investment in WKBW-TV. For
all periods presented, the Company provides for income taxes as required under
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("SFAS No. 109"). Under SFAS No. 109, the Company records income taxes
using a liability approach for financial accounting and reporting which results
in the recognition and measurement of deferred tax assets based on the
likelihood of realization of tax benefits in future years.
The (benefit) provision for income taxes for the years ended December 31,
1993, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
Current taxes:
Federal ......................... $ -- $ 100,000 $ --
State ........................... -- 416,125 264,000
--------- --------- ---------
-- 516,125 264,000
Deferred taxes:
Federal ......................... (403,800) (101,000) 154,400
State ........................... (67,935) 35,000 136,484
--------- --------- ---------
(471,735) (66,000) 290,884
--------- --------- ---------
(Benefit) provision for income taxes $(471,735) $ 450,125 $ 554,884
========= ========= =========
</TABLE>
The provision for income taxes for the year ended December 31, 1995 is
comprised of a non-cash provision for income taxes, relating to WKBW-TV of
$1,100,000, partially offset by the deferred tax benefit recorded on companies
included in the Granite Broadcasting Corporation U.S. consolidated income tax
return. Also included are the provisions for state and local taxes.
During 1995, the Company utilized approximately $2,800,000 of net operating
loss carryforwards relating to WKBW-TV to eliminate its income tax liability.
This tax benefit of approximately $1,100,000 reduced goodwill. The Company has
remaining net operating loss carryforwards relating to WKBW-TV of approximately
$10,000,000, which expire no sooner than December 31, 2004. The net operating
loss carryforwards are restricted to offsetting future years' U.S. federal
income tax liabilities of that subsidiary. If realized, the benefit will be used
to further reduce goodwill.
The provision for income taxes for the year ended December 31, 1994
includes a provision for federal alternative minimum tax and state and local
taxes. For the year ended December 31, 1993, the Company recorded a deferred tax
benefit due to the loss incurred for the year.
F-25
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 10 -- Income Taxes -- (Continued)
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's deferred tax asset and liability as of December 31, 1994 and 1995 are
as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1994 1995
----------- -----------
<S> <C> <C>
Deferred tax liability from excess carrying value
of non-goodwill intangible assets over tax basis..... $21,703,277 $31,245,043
Deferred tax assets:
Net operating loss carryforward...................... 8,750,000 15,168,786
Other................................................ 365,134 400,134
----------- -----------
Total deferred tax assets.............................. 9,115,134 15,568,920
Valuation allowance.................................... (3,069,769) (6,542,673)
---------- -----------
Net deferred tax assets................................ 6,045,365 9,026,247
---------- -----------
Net deferred tax liability............................. $15,657,912 $22,218,796
=========== ===========
</TABLE>
The difference between the U.S. federal statutory tax rate and the
Company's effective tax rate for the years ended December 31, 1993, 1994 and
1995 is as follows:
<TABLE>
<CAPTION>
1993 1994 1995
--------- --------- -------
<S> <C> <C> <C>
U.S. statutory rate ...................... (35.0%) 35.0% (35.0%)
Nondeductible amortization ............... 5.1 7.4 201.4
State and local taxes .................... -- 10.0 160.8
Alternative minimum tax .................. -- 2.9 --
Increase (decrease) in valuation allowance 19.4 (42.4) (84.1)
--------- ------- -------
Effective tax rate ....................... (10.5%) 12.9% 243.1%
======== ====== =====
</TABLE>
At December 31, 1995, the Company had a net operating loss carryforward for
federal tax purposes of approximately $33,000,000 which will expire no sooner
than December 31, 2004. The future utilization of the net operating losses may
be subject to limitation under Section 382 of the Internal Revenue Code. This
possible limitation has been reflected in the valuation allowance. The Company
has provided a valuation allowance against a portion of the net deferred tax
asset as the past history of the Company makes realization of taxable income
uncertain. During 1993, 1994 and 1995, the change in valuation allowance relates
to the utilization of or increase in net operating loss carryforwards.
F-26
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 11 -- Defined Contribution Plan
The Company has a trusteed profit sharing and savings plan covering
substantially all of its employees. Contributions by the Company to the Plan are
based on a percentage of the amount of employee contributions to the Plan and
are made at the discretion of the Board of Directors. Company contributions,
which are funded quarterly, amounted to $155,000, $237,000 and $499,000 for the
years ended December 31, 1993, 1994 and 1995, respectively.
Note 12 -- Related Party
The Company paid a company, as to which a director of Granite was the
Chairman and Chief Executive Officer until August 19, 1994, $299,638 and
$518,257 for the years ended December 31, 1993 and 1994, respectively, relating
to services rendered as the exclusive representative and sales agent for three
of the stations' national broadcasting revenue.
In 1995, the Company lent two of its officers an aggregate of approximately
$570,000 to pay certain personal taxes. The terms of the loans provide for an
annual interest rate of 9% payable semi-annually on December 29 and June 29 of
each year, with all principal and remaining interest due on December 29, 2004.
Note 13 -- Price Range of Common Stock (Nonvoting) and
Cumulative Convertible Exchangeable Preferred Stock (unaudited)
The Company's Common Stock (Nonvoting) is traded in the over-the-counter
market and is quoted on the Nasdaq National Market under the symbol "GBTVK". The
following table sets forth the market price ranges per share of Common Stock
(Nonvoting) during 1994 and 1995, as reported by Nasdaq:
<TABLE>
<CAPTION>
1994 High Low
---- ---- ---
<S> <C> <C>
First Quarter.................... $4-5/8 $2-7/8
Second Quarter................... 4-1/2 3-1/2
Third Quarter.................... 5-1/8 3-3/4
Fourth Quarter................... 7-1/4 4-5/8
1995
First Quarter.................... $7-3/8 $6-1/8
Second Quarter................... 8-3/8 6-3/4
Third Quarter.................... 13-1/4 7-1/2
Fourth Quarter................... 11-3/4 8-5/8
</TABLE>
As of February 29, 1996, the closing price per share for the Company's
Common Stock (Nonvoting), as reported by Nasdaq was $11 3/8 per share.
F-27
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 13 -- Price Range of Common Stock (Nonvoting) and
Cumulative Convertible Exchangeable Preferred Stock (unaudited)
The Cumulative Convertible Exchangeable Preferred Stock is traded
over-the-counter and is quoted on the Nasdaq National Market under the symbol
"GBTVP". The following table sets forth the market price ranges per share of
Cumulative Convertible Exchangeable Preferred Stock during 1994 and 1995, as
reported by Nasdaq:
<TABLE>
<CAPTION>
1994 High Low
---- ---- ---
<S> <C> <C>
First Quarter.................. $25-1/4 $23-1/2
Second Quarter................. 25-1/2 21-3/4
Third Quarter.................. 29-1/2 24-3/4
Fourth Quarter................. 37 28-1/2
1995
First Quarter.................. $40-3/8 $34
Second Quarter................. 45 38-1/4
Third Quarter.................. 67-1/2 43-1/2
Fourth Quarter................. 58-3/8 48
</TABLE>
As of February 29, 1996, the closing price for the Company's Cumulative
Convertible Exchangeable Preferred Stock, as reported by Nasdaq, was $59 1/2 per
share.
F-28
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Granite Broadcasting Corporation
We have audited the accompanying combined balance sheets of San Joaquin
Communications Corporation and WTVH as of June 30, 1993 and 1992, and the
related combined statements of operations and net worth and cash flows for each
of the two years in the period ended June 30, 1993. 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 combined financial position of San Joaquin
Communications Corporation and WTVH at June 30, 1993 and 1992, and the combined
results of their operations and their cash flows for each of the two years in
the period ended June 30, 1993, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
New York, New York
August 31, 1993
F-29
<PAGE>
SAN JOAQUIN COMMUNICATIONS CORPORATION
AND WTVH-TV
COMBINED STATEMENT OF OPERATIONS AND NET WORTH
<TABLE>
<CAPTION>
For the Period For the Period
For the Years Ended June 30, July 1, 1992 to July 1, 1993 to
1992 1993 December 31, 1992 December 23, 1993
-------------- -------------- ----------------- -----------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net revenues ................................ $ 18,182,711 $ 18,395,520 $ 9,269,149 $ 9,211,323
Operating expenses:
Direct operating expense .................. 9,612,202 9,782,598 4,794,741 4,544,382
Selling, general and administrative expense 6,172,234 6,543,717 3,349,997 3,388,003
Depreciation expense ...................... 1,404,486 1,304,403 667,120 621,433
Amortization expense ...................... 304,260 304,260 152,130 152,130
-------------- -------------- -------------- --------------
Total operating expenses ............... 17,493,182 17,934,978 8,963,988 8,705,948
-------------- -------------- -------------- --------------
Operating income ............................ 689,529 460,542 305,161 505,375
Other income ................................ 15,019 12,217 4,724 4,500
-------------- -------------- -------------- --------------
Income before income taxes .................. 704,548 472,759 309,885 509,875
Provision in lieu of income taxes ........... 418,993 359,914 -- --
-------------- -------------- -------------- --------------
Net income ............................. 285,555 112,845 309,885 509,875
Beginning balance, net worth,
beginning of period ....................... 21,335,545 20,384,732 20,384,732 18,098,021
Cash remitted to Meredith, net
of expenses paid on behalf of
the Stations by Meredith .................. (1,236,368) (2,399,556) (1,949,493) (905,097)
-------------- -------------- -------------- --------------
Net worth, end of period ............... $ 20,384,732 $ 18,098,021 $ 18,745,124 $ 17,702,799
============== ============== ============== ==============
</TABLE>
See accompanying notes.
F-30
<PAGE>
SAN JOAQUIN COMMUNICATIONS CORPORATION
AND WTVH-TV
COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
June 30,
-------------------------- December 23,
1992 1993 1993
------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash .............................................. $ 1,100 $ 1,100 $ --
Accounts receivable less allowance for doubtful
accounts ($57,532 in 1992 and $58,370 in 1993) .. 3,493,671 3,615,536 4,006,936
Film contract rights .............................. 2,651,077 1,780,961 1,717,278
Other assets ...................................... 83,488 90,409 102,325
------------ ------------ ------------
Total current assets ........................... 6,229,336 5,488,006 5,826,539
Property and equipment, net ......................... 6,862,965 6,019,033 5,530,311
Film contract rights and other noncurrent assets .... 2,351,466 1,687,082 1,695,178
Intangible assets, less accumulated amortization
($3,519,645 in 1992 and $3,823,905 in 1993) ....... 8,816,727 8,512,467 8,360,337
------------ ------------ ------------
$ 24,260,494 $ 21,706,588 $ 21,412,365
============ ============ ============
LIABILITIES AND NET WORTH
Current liabilities:
Accounts payable .................................. $ 229,863 $ 284,377 $ 81,824
Accrued compensation .............................. 480,571 501,118 --
Other accrued liabilities ......................... 148,824 165,512 464,759
Film contract rights .............................. 1,381,462 1,355,146 1,271,207
------------ ------------ ------------
Total current liabilities ...................... 2,240,720 2,306,153 1,817,790
Film contract rights and other noncurrent liabilities 1,635,042 1,302,414 1,891,776
Net worth ........................................... 20,384,732 18,098,021 17,702,799
------------ ------------ ------------
$ 24,260,494 $ 21,706,588 $ 21,412,365
============ ============ ============
</TABLE>
See accompanying notes.
F-31
<PAGE>
SAN JOAQUIN COMMUNICATIONS CORPORATION
AND WTVH-TV
COMBINED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Period
For the Years Ended June 30, July 1, 1992 to July 1, 1993 to
1992 1993 December 31, 1992 December 23, 1993
--------------- --------------- ----------------- -----------------
(Unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 285,555 $ 112,845 $ 309,885 $ 509,875
Adjustment to reconcile net income to net
cash provided by operating activities:
Provision in lieu of income taxes ............... 418,993 359,914 -- --
Amortization expense ............................ 304,260 304,260 152,130 152,130
Depreciation expense ............................ 1,404,486 1,304,403 667,120 621,143
Non-cash corporate allocations .................. 1,153,331 1,183,864 515,083 652,848
Change in assets and liabilities:
(Increase) decrease in accounts receivable ...... (23,399) (121,865) 269,556 (391,400)
Increase (decrease) in accrued liabilities ...... (73,599) (305,039) 336,969 (201,871)
Increase (decrease) in accounts payable ......... (174,756) 54,514 38,849 (202,553)
(Increase) decrease in film contract rights
and other noncurrent assets ................... 1,443,702 1,534,500 4,242 55,587
Increase (decrease) in film contract rights
payable and other liabilities ................. (2,026,959) (358,944) 579,955 505,423
(Increase) decrease in other assets ............. (24,519) (6,921) (86,661) (11,916)
Expenses paid on behalf of the
Stations by Meredith ............................ 1,214,880 1,030,164 605,170 580,614
----------- ----------- ----------- -----------
Net cash provided by operating activities ..... 3,901,975 5,091,695 3,392,298 2,269,880
----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures .............................. (297,396) (460,471) (322,553) (132,421)
----------- ----------- ----------- -----------
Net cash used in investing activities (297,396) (460,471) (322,553) (132,421)
Cash flows from financing activities:
Cash remitted to Meredith ......................... (3,604,579) (4,631,224) (3,069,745) (2,138,559)
----------- ----------- ----------- -----------
Net cash used in financing activities ......... (3,604,579) (4,631,224) (3,069,745) (2,138,559)
----------- ----------- ----------- -----------
Net increase (decrease) in cash ..................... -- -- -- (1,100)
Cash, beginning of period ........................... 1,100 1,100 1,100 1,100
----------- ----------- ----------- -----------
Cash and cash equivalents, end of period ............ $ 1,100 $ 1,100 $ 1,100 $ --
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-32
<PAGE>
SAN JOAQUIN COMMUNICATIONS CORPORATION
AND WTVH-TV
NOTES TO COMBINED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Financial statement presentation
The combined financial statements include the accounts of San Joaquin
Communications Corporation, a wholly-owned subsidiary of Meredith Corporation
("Meredith") and owner and operator of television station KSEE-TV and WTVH-TV, a
division of Meredith, hereinafter referred to as the "Stations." On June 15,
1993, Meredith entered into a definitive agreement to sell the Stations to
Granite Broadcasting Corporation for $32,000,000.
Revenue recognition
The Stations recognize revenue from the sale of advertising at the time the
advertisements are broadcast.
Barter transactions
The Stations account for barter transactions at the fair market value of
goods or services received. Accordingly, the fair value of the goods or services
acquired is capitalized and amortized to expense as the goods or services are
used. The related liability for these barter transactions is also recorded at
the fair value of the goods or services acquired and is amortized to income as
commercial time is aired. Net revenues from barter transactions were not
material for the periods presents.
Intangibles
Intangible assets consist of amounts by which the cost of acquired net
assets exceeds the values assigned to net tangible assets and are amortized on a
straight-line basis over 40 years. The intangible assets are characterized as
scarce assets with long and productive lives.
The Stations continually reevaluates the propriety of the carrying amount
of intangible assets as well as the related amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
value and/or revised estimates of useful lives. This evaluation is based on the
Stations' projections of the undiscounted cash flows over the remaining lives of
the amortization period of the related intangible asset. To the extent such
projections indicate that the undiscounted cash flows are not expected to be
adequate to recover the carrying amounts of intangible assets, such carrying
amounts will be written down to their fair market value. At this time, the
Stations' believes that no significant impairment of intangible assets has
occurred and that no reduction of the estimated useful lives is warranted.
Property and equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives ranging from 3 to 25
years.
Film contracts rights
Film contract rights are recorded as assets at gross value, together with
the related liability when the license period begins and the films are available
for broadcasting. The asset is amortized on an accelerated basis over the
estimated usage of the films, and is classified as current or noncurrent on that
basis. Film contract rights payable
F-33
<PAGE>
are classified as current or noncurrent in accordance with the payment terms of
the various license agreements. Film rights are reflected in the accompanying
balance sheet at the lower of unamortized cost or estimated net realizable
value.
Amortization of film contract rights amounted to $2,736,007 and $2,705,043
for the years ended June 30, 1992 and 1993, respectively.
At June 30, 1993, the obligation for programming that had not been recorded
because the program rights were not available for airing aggregated $1,445,500.
Note 2 - Property and Equipment
The major classifications of property and equipment were as follows:
<TABLE>
<CAPTION>
June 30,
----------------------------
1992 1993
---------- ----------
<S> <C> <C>
Land...................................... $1,031,044 $1,031,044
Buildings and improvements................ 4,344,788 4,396,793
Furniture and fixtures.................... 688,122 688,122
Technical equipment and other............. 13,165,640 13,460,598
----------- -----------
$19,229,594 $19,576,557
Less: Accumulated depreciation........... 12,366,629 13,557,524
----------- -----------
Net property and equipment................ $6,862,965 $6,019,033
=========== ===========
</TABLE>
Note 3 - Transactions with Parent Company
The accompanying financial statements include certain expenses for services
incurred by Meredith on behalf of the Stations and consist principally of
medical and life insurance premiums, property insurance premiums, contributions
to the defined benefit pension plan and various administrative expenses. These
expenses totaled $1,214,880 and $1,030,164 for the years ended June 30, 1992 and
1993, respectively. Management believes the method of allocation for these
expenses is reasonable and are representative of what would have been incurred
by the Stations on a stand-alone basis. The net worth of the Stations represents
amounts contributed to the Stations by Meredith and the accumulated earnings of
the Stations, offset by payments to Meredith by the Stations.
Note 4 - Income Taxes
The Stations results of operations are included in the consolidated tax
return of Meredith. Meredith did not allocate income taxes to the Stations. For
purposes of the accompanying financial statements, adjustments were made to
reflect federal and state income taxes computed on a separate return basis. Such
income taxes have been reflected in the accompanying financial statements as a
provision in lieu of income taxes because such provision did not require a cash
payment.
The difference between the statutory and effective income tax rates as
reflected in the accompanying statement of operations relates principally to
amortization of intangible assets not deductible for income tax purposes.
Reconciliation of these rates is as follows:
<TABLE>
<CAPTION>
1992 1993
---- ----
<S> <C> <C>
Federal income tax rate ............................... 34% 34%
Amortization of goodwill .............................. 15 22
State and local income taxes, net
of federal income tax benefit ....................... 11 20
-- --
60% 76%
== ==
</TABLE>
F-34
<PAGE>
Note 5 - Commitments
Future minimum lease payments under long-term operating leases as of
June 30, 1993 are as follows:
<TABLE>
<S> <C>
1994................................................... $32,473
1995................................................... 21,040
1996................................................... 9,385
1997................................................... 1,800
1998................................................... 1,800
1999 and thereafter.................................... 93,600
--------
$160,098
========
</TABLE>
Note 6 - Supplementary Income Statement Information
Supplementary income statement information for the years ended June 30,
1992 and 1993 is as follows:
<TABLE>
<CAPTION>
1992 1993
-------- --------
<S> <C> <C>
Maintenance and repairs................. $301,647 $408,241
Music license fee....................... 277,111 271,865
Property tax............................ 184,781 267,631
Advertising costs....................... 102,628 212,984
</TABLE>
F-35
<PAGE>
Report of Independent Auditors
The Partners
Austin Television, a Texas general partnership
We have audited the accompanying balance sheets of Austin Television, a
Texas general partnership (the "Partnership") as of December 31, 1994 and 1993,
and the related statements of income and partners' deficit and cash flows for
each of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Partnership'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 financial position of the Partnership at December
31, 1994 and 1993, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
Ernst & Young LLP
New York, New York
February 3, 1995
F-36
<PAGE>
AUSTIN TELEVISION, A TEXAS GENERAL PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, January 31,
1993 1994 1995
---------- ---------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $956,746 $1,622,629 $633,043
Accounts receivable, less allowance for doubtful
accounts ($64,934 in 1993 and 1994) 1,968,764 2,602,426 2,418,990
Film contract rights.............................................. 586,182 421,826 339,591
Other assets...................................................... 15,352 81,323 106,390
---------- ---------- ---------
TOTAL CURRENT ASSETS.......................................... 3,527,044 4,728,204 3,498,014
PROPERTY AND EQUIPMENT, NET......................................... 1,397,385 1,103,669 1,071,220
FILM CONTRACT RIGHTS AND OTHER NONCURRENT ASSETS 866,626 590,328 590,328
BROADCAST LICENSE, net of accumulated amortization
($104,170 in 1993 and $114,587 in 1994) ......................... 312,525 302,108 296,840
LOAN COSTS, net of accumulated amortization
($57,193 in 1993 and $109,987 in 1994) .......................... 206,778 153,984 149,584
---------- ---------- ----------
TOTAL ASSETS.................................................... $6,310,358 $6,878,293 $5,605,986
========== ========== ==========
LIABILITIES AND PARTNERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable.................................................. $38,332 $154,333 $56,906
Accrued compensation.............................................. 113,910 87,520 81,723
Other accrued liabilities......................................... 116,430 65,529 8,153
Current maturities of long-term debt.............................. 815,000 899,000 374,250
Film contract payable............................................. 521,302 348,317 384,157
--------- --------- ---------
TOTAL CURRENT LIABILITIES...................................... 1,604,974 1,554,699 905,189
COMMITMENTS AND CONTINGENCIES:
LONG-TERM DEBT...................................................... 8,443,000 5,294,000 5,294,000
FILM CONTRACT RIGHTS PAYABLE AND OTHER
NONCURRENT LIABILITIES............................................ 540,390 281,995 242,978
PARTNERS' DEFICIT................................................... (4,278,006) (252,401) (836,181)
----------- ---------- ----------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $6,310,358 $6,878,293 $5,605,986
=========== =========== ===========
</TABLE>
See accompanying notes.
F-37
<PAGE>
AUSTIN TELEVISION, A TEXAS GENERAL PARTNERSHIP
STATEMENTS OF INCOME AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
Years ended December 31, One Month Ended One Month Ended
------------------------------------------ January 31, January 31,
1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues .......................... $ 9,040,013 $ 10,990,381 $ 13,518,985 $ 657,074 $ 874,706
Operating expenses:
Direct operating expenses ........... 3,597,989 3,473,240 3,701,359 182,441 175,148
Selling, general and administrative
expense ........................... 2,334,949 2,306,440 2,513,844 193,088 204,645
Depreciation and amortization expense 402,284 504,065 515,107 47,688 42,117
------------ ------------ ------------ ------------ ------------
Total operating expenses .............. 6,335,222 6,283,745 6,730,310 423,217 421,910
Operating income ...................... 2,704,791 4,706,636 6,788,675 233,857 452,796
------------ ------------ ------------ ------------ ------------
Other income (expense):
Interest income ..................... 34,026 31,352 46,802 2,819 5,682
Interest expense .................... (127,387) (852,531) (725,371) (63,234) (54,683)
Other, net .......................... 83,565 63,584 (147,267) -- (20,510)
------------ ------------ ------------ ------------ ------------
(9,796) (757,595) (825,836) (60,415) (69,511)
------------ ------------ ------------ ------------ ------------
Net income ............................ 2,694,995 3,949,041 5,962,839 173,442 383,285
Partners' (deficit) capital, beginning
of year ........................... 3,127,172 (6,779,643) (4,278,006) (4,278,006) (252,401)
Capital distributions ............... (1,100,000) (1,447,404) (1,937,234) -- (967,065)
Purchase of partnership interest .... (11,501,810) -- -- -- --
------------ ------------ ------------ ------------ ------------
Partners' deficit, end of year ........ $ (6,779,643) $ (4,278,006) $ (252,401) $ (4,104,564) $ (836,181)
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-38
<PAGE>
AUSTIN TELEVISION, A TEXAS GENERAL PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31, One Month Ended One Month Ended
-------------------------------------------- January 31, January 31,
1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 2,694,995 $ 3,949,041 $ 5,962,839 $ 173,442 $ 383,285
Adjustments to reconcile net income to
net cash provided by operating activities:
Amortization expense ............................ 14,718 63,210 63,211 9,668 9,668
Depreciation expense ............................ 387,566 440,855 451,896 38,020 32,449
Change in assets and liabilities:
(Increase) decrease in accounts
receivable .................................. 2,791 (419,796) (633,662) 311,958 183,436
Increase (decrease) in accounts
payable, accrued compensation
and accrued liabilities ..................... 107,996 (252,207) 38,710 (67,000) (160,600)
Decrease in film contract rights and
other noncurrent assets ..................... 148,019 401,590 440,654 77,434 82,235
Decrease in film contract payable and
other liabilities ........................... (116,648) (513,930) (431,380) (27,336) (3,177)
Increase in other assets ...................... -- (15,352) (65,971) (21,653) (25,067)
Net cash provided by operating
activities ...................................... 3,239,437 3,653,411 5,826,297 494,533 502,229
Cash flows from investing activities:
Capital expenditures ............................ (330,116) (197,716) (158,180) -- --
------------ ------------ ------------ ------------ ------------
Net cash used in investing activities ........... (330,116) (197,716) (158,180) -- --
------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of
long-term debt ................................ 12,000,000 -- -- -- --
Repayments of long-term debt .................... (800,000) (2,742,000) (3,065,000) (300,000) (524,750)
Purchase of partnership interest ................ (11,501,810) -- -- -- --
Capitalized loan costs .......................... (263,872) -- -- -- --
------------ ------------ ------------ ------------ ------------
Partner capital distributions ................... (1,100,000) (1,447,404) (1,937,234) -- (967,065)
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities ........... (1,665,682) (4,189,404) (5,002,234) (300,000) (1,491,815)
------------ ------------ ------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents ..................................... 1,243,639 (733,709) 665,883 194,533 (989,586)
Cash and cash equivalents, beginning
of period ....................................... 446,816 1,690,455 956,746 956,746 1,622,629
------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period .......... $ 1,690,455 $ 956,746 $ 1,622,629 $ 1,151,279 $ 633,043
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-39
<PAGE>
AUSTIN TELEVISION, A TEXAS GENERAL PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Note 1 -- Summary of Significant Accounting Policies
Financial Statement Presentation
Austin Television, a Texas general partnership (the "Partnership") was
organized as a general partnership in 1983 to acquire and operate KBVO, a UHF
television station in Austin, Texas. The Partnership consists of two general
partners with respective ownership percentages of 70 and 30. Capital
attributable to each general partner is based on relative percentage of
ownership. Revenue is generated from the sale of air time to local and national
advertisers.
Revenue Recognition
Revenue from the sale of advertising is recognized at the time the
advertisements are aired.
Cash Equivalents
Cash equivalents consist of money market accounts.
Barter Transactions
Barter transactions are accounted for at the fair market value of goods or
services received. Accordingly, the fair value of the programming or goods and
services acquired is capitalized and amortized to expense as the goods or
services are used. The related liability for these barter transactions is also
recorded at the fair value of the programming or goods or services acquired and
is amortized to income as commercial time is aired.
Broadcast License and Loan Costs
The cost of acquiring the Partnership's broadcast license are amortized on
a straight-line basis. The broadcast license is amortized over 40 years. The
broadcast license is characterized as a scarce asset with a long and productive
life. Loan costs are amortized over the term of the loan.
The Partnership continually reevaluates the propriety of the carrying
amount of the broadcast license as well as the related amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying value and/or revised estimates of the useful life. This evaluation is
based on the Partnership's projections of the undiscounted cash flows over the
remaining life of the amortization period of the broadcast license. To the
extent such projections indicate that the undiscounted cash flows are not
expected to be adequate to recover the carrying amount of the broadcast license,
such carrying amount will be written down to fair market value. At this time,
the Partnership believes that no significant impairment of the broadcast license
has occurred and that no reduction of the estimated useful life is warranted.
Property and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives ranging from 5 to 15
years.
F-40
<PAGE>
Film Contract Rights
Film contract rights are recorded as assets at gross value, together with
the related liability when the license period begins and the films are available
for broadcasting. The asset is amortized either on a straight-line basis over
the asset's license period or based on the usage of the assets, whichever is
shorter, and is classified as current or noncurrent on that basis. Film contract
rights payable are classified as current or noncurrent in accordance with the
payment terms of the various license agreements. Payments on the film rights
payable are due as follows:
<TABLE>
<S> <C>
1995............................................... $348,317
1996............................................... 156,718
1997............................................... 97,126
1998............................................... 28,151
--------
$630,312
========
</TABLE>
At December 31, 1994, the obligation for programming that had not been
recorded because the programming rights were not available for airing were
$376,200.
Film contract rights are reflected in the accompanying balance sheet at the
lower of unamortized cost or estimated net realizable value.
Income Taxes
No provision has been made for income taxes since the Partnership is
not a taxable entity.
Note 2 -- Property and Equipment
The major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1994
--------- ---------
<S> <C> <C>
Building improvements........................... $214,922 $214,922
Furniture and fixtures.......................... 219,392 234,771
Technical equipment and other................... 5,051,098 5,182,399
--------- ---------
5,485,412 5,632,092
Less: Accumulated depreciation.................. 4,088,027 4,528,423
--------- ---------
Net property and equipment...................... $1,397,385 $1,103,669
========== ==========
</TABLE>
Note 3 -- Long-Term Debt
A summary of long-term debt is as follows:
<TABLE>
<CAPTION>
December 31,
1993 1994
---------- ----------
<S> <C> <C>
Prime rate plus 2% (10.5% at December 31, 1994) principal due in quarterly
installments of $185,550 increasing to $274,750, plus interest, balance due
December 1, 1997, secured by all
partnership assets............................................................. $9,258,000 $6,193,000
Less current installments......................................................... 815,000 899,000
---------- ----------
Long-term debt, excluding current installments.................................... $8,443,000 $5,294,000
========== ==========
</TABLE>
F-41
<PAGE>
The amount of scheduled principal maturities on long-term debt for each of
the years subsequent to December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995............................................... $899,000
1996............................................... 995,000
1997............................................... 4,299,000
----------
$6,193,000
==========
</TABLE>
The loan agreement restricts partner distributions, limits capital
expenditures to $200,000 annually without approval of lender, and requires
maintenance of certain ratios and debt service coverage.
The Partners have issued person guarantees on the loan totaling $3,500,000.
Interest paid was $127,387, $852,531 and $725,371, during 1992, 1993 and
1994.
Note 4 -- Commitments
The Company leases its main offices and tower space under long-term
operating lease agreements expiring in 1998.
Future minimum rental payments required under long-term operating leases as
of December 31, 1994 are as follows:
<TABLE>
<S> <C>
1995...................................................... $236,124
1996...................................................... 241,104
1997...................................................... 185,276
1998...................................................... 38,890
--------
$701,394
========
</TABLE>
Rental expense under these leases was $221,149, $228,507 and $231,132 in
1992, 1993 and 1994, respectively.
Note 5 -- Purchase of Partnership Interests
In November 1992, two Austin Television partners purchased the remaining
partnership interests for $11,501,810, using the proceeds from the issuance of
long-term debt. The purchase has been recorded as a reduction in partners'
capital.
Note 6 -- Subsequent Event
On February 1, 1995, the Partnership sold certain assets to Granite
Broadcasting Corporation for $54,000,000 and the assumption of certain
liabilities by Granite.
F-42
<PAGE>
Report of Independent Auditors
The Board of Directors
Busse Broadcasting Corporation
We have audited the accompanying balance sheets of WWMT-TV, a division of
Busse Broadcasting Corporation (the "Company"), as of January 1, 1995 and
January 2, 1994, and the related statements of operations, divisional equity and
cash flows for each of the three years in the period ended January 1, 1995.
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.
As discussed in Note 1, WWMT-TV is a division of Busse Broadcasting
Corporation and has no separate legal status or existence. As more fully
described in Note 5, Busse Broadcasting Corporation has entered into an
agreement to sell the broadcasting assets of WWMT-TV.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of WWMT-TV as of January 1,
1995 and January 2, 1994, and the results of its operations and its cash flows
for each of the three years in the period ended January 1, 1995, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
WWMT-TV will continue as a going concern. As more fully described in Note 1,
Busse Broadcasting Corporation is in default under substantially all of its debt
agreements and on March 10, 1995, Busse Broadcasting Corporation and its wholly
owned subsidiary, WWMT, Inc., filed voluntary petitions for a joint plan of
reorganization under Chapter 11 of the United States Bankruptcy Code. On April
20, 1995, the United States Bankruptcy Court for the district of Delaware
confirmed the joint plan of reorganization and such plan became effective on May
3, 1995. The financial statements do not include any adjustments that will
result from the adoption of fresh start reporting on the effective date of the
confirmation as discussed in Note 1.
Ernst & Young LLP
Milwaukee, Wisconsin
February 24, 1995, except for Note 1,
as to which the date is May 3, 1995
F-43
<PAGE>
WWMT-TV
(A DIVISION OF BUSSE BROADCASTING CORPORATION)
BALANCE SHEETS
<TABLE>
<CAPTION>
January 2, January 1, May 31,
1994 1995 1995
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................................. $ 504,000 $ 299,000 $ 1,969,000
Accounts receivable, net of allowances of $67,000 and
$81,000, respectively.......................................... 3,784,000 4,641,000 4,724,000
Film contract rights............................................. 1,784,000 1,793,000 735,000
Other assets..................................................... 65,000 125,000 187,000
----------- ----------- -----------
TOTAL CURRENT ASSETS.......................................... 6,137,000 6,858,000 7,615,000
PROPERTY, PLANT AND EQUIPMENT, NET................................ 8,865,000 8,044,000 7,733,000
FILM CONTRACT RIGHTS.............................................. 203,000 82,000 82,000
INTANGIBLE ASSETS................................................. 20,912,000 20,272,000 20,019,000
----------- ----------- -----------
TOTAL ASSETS.................................................. $36,117,000 $35,256,000 $35,449,000
=========== =========== ===========
LIABILITIES AND DIVISION EQUITY
CURRENT LIABILITIES:
Accounts payable................................................. $ 138,000 $ 139,000 $ 162,000
Film contracts payable........................................... 1,633,000 1,451,000 606,000
Accrued payroll.................................................. 218,000 277,000 94,000
Other............................................................ 261,000 226,000 248,000
----------- ----------- -----------
TOTAL CURRENT LIABILITIES..................................... 2,250,000 2,093,000 1,110,000
FILM CONTRACT RIGHTS PAYABLE...................................... 106,000 -- --
DEFERRED INCOME TAXES............................................. 8,101,000 7,655,000 7,655,000
COMMITMENTS AND CONTINGENCIES:
DIVISIONAL EQUITY................................................. 25,660,000 25,508,000 26,684,000
----------- ----------- -----------
TOTAL LIABILITIES AND PARTNERS' DEFICIT $36,117,000 $35,256,000 $35,449,000
=========== =========== ===========
</TABLE>
See accompanying notes.
F-44
<PAGE>
WWMT-TV
(A DIVISION OF BUSSE BROADCASTING CORPORATION)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended
---------------------------------------------- Five Months Five Months
January 3, January 2, January 1, Ended May 31, Ended May 31,
1993 1994 1995 1994 1995
------------ ------------ ------------ ---------- ----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues ................................. $ 15,713,000 $ 16,740,000 $ 19,083,000 $7,214,000 $7,934,000
Operating costs and expenses, excluding
depreciation and amortization .............. 8,418,000 8,869,000 9,007,000 3,742,000 4,182,000
Depreciation ................................ 1,314,000 1,155,000 1,225,000 478,000 360,000
Amortization of intangible assets ........... 1,593,000 1,659,000 640,000 265,000 253,000
------------ ------------ ------------ ---------- ----------
Total operating costs and expenses ........... 11,325,000 11,683,000 10,872,000 4,485,000 4,795,000
Corporate expenses ........................... 282,000 282,000 282,000 -- --
------------ ------------ ------------ ---------- ----------
Income from operations ....................... 4,106,000 4,775,000 7,929,000 2,729,000 3,139,000
Other income (expense):
Loss on disposition of property, plant and
equipment .................................. (400,000) (228,000) (52,000) -- --
Other ....................................... (1,000) 8,000 19,000 4,000 43,000
------------ ------------ ------------ ---------- ----------
Income before income taxes ................... 3,705,000 4,555,000 7,896,000 2,733,000 3,182,000
Income taxes ................................. 1,377,000 1,674,000 2,824,000 -- --
------------ ------------ ------------ ---------- ----------
Net income ................................... $ 2,328,000 $ 2,881,000 $ 5,072,000 $2,733,000 $3,182,000
============ ============ ============ ========== ==========
</TABLE>
See accompaning notes.
F-45
<PAGE>
WWMT-TV
(A DIVISION OF BUSSE BROADCASTING CORPORATION)
STATEMENTS OF DIVISIONAL EQUITY
<TABLE>
<S> <C>
Divisional equity of WWMT-TV at December 29, 1991 ............ $ 28,438,000
Net income for year ended January 3, 1993 .................. 2,328,000
Net intercompany transactions .............................. (3,985,000)
------------
Balance at January 3, 1993 ................................... 26,781,000
Net income for year ended January 2, 1994 .................. 2,881,000
Net intercompany transactions .............................. (4,002,000)
------------
Balance at January 2, 1994 ................................... 25,660,000
Net income for year ended January 1, 1995 .................. 5,072,000
Net intercompany transactions .............................. (5,224,000)
------------
Balance at January 1, 1995 ................................... 25,508,000
Net income for the five months ended May 31, 1995 .......... 3,182,000
Net intercompany transactions .............................. (2,006,000)
------------
Balance at May 31, 1995 (unaudited) .......................... $ 26,684,000
============
</TABLE>
See accompanying notes.
F-46
<PAGE>
WWMT-TV
(A DIVISION OF BUSSE BROADCASTING CORPORATION)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended
----------------------------------------- Five Months Five Months
January 3, January 2, January 1, Ended May 31, Ended May 31,
1993 1994 1995 1994 1995
----------- ----------- ----------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income ........................................ $ 2,328,000 $ 2,881,000 $ 5,072,000 $ 2,733,000 $ 3,182,000
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization .................... 2,907,000 2,814,000 1,865,000 743,000 613,000
Film payments in excess of
film amortization .............................. (293,000) (567,000) (176,000) (82,000) 213,000
Loss on disposition of property, plant and
equipment ...................................... 400,000 228,000 52,000 -- --
Deferred income taxes ............................ (671,000) (525,000) (446,000) -- --
Change in current assets and liabilities:
Accounts receivable ............................. (401,000) (96,000) (857,000) 61,000 (83,000)
Other current assets ............................ (46,000) 34,000 (60,000) (114,000) (62,000)
Accounts payable and accrued expenses ........... 9,000 (35,000) 25,000 (84,000) (138,000)
----------- ----------- ----------- ----------- -----------
Net cash provided by operating activities ......... 4,233,000 4,734,000 5,475,000 3,257,000 3,725,000
Investing activities:
Additions to property, plant
and equipment ................................... (490,000) (333,000) (464,000) (227,000) (49,000)
Proceeds from disposition of property,
plant and equipment ............................. 3,000 -- 8,000 -- --
----------- ----------- ----------- ----------- -----------
Net cash used for investing activities ............ (487,000) (333,000) (456,000) (227,000) (49,000)
Financing activity:
Net intercompany transactions ..................... (3,985,000) (4,002,000) (5,224,000) (3,256,000) (2,006,000)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash ................... (239,000) 399,000 (205,000) (226,000) 1,670,000
Cash at beginning of period ....................... 344,000 105,000 504,000 504,000 299,000
----------- ----------- ----------- ----------- -----------
Cash at end of period ............................. $ 105,000 $ 504,000 $ 299,000 $ 278,000 $ 1,969,000
=========== =========== =========== =========== ===========
Supplemental cash flow information --
Income taxes paid ................................ $ 2,048,000 $ 2,199,000 $ 3,270,000 $ -- $ --
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-47
<PAGE>
WWMT-TV
(A DIVISION OF BUSSE BROADCASTING CORPORATION)
NOTES OF FINANCIAL STATEMENTS
January 1, 1995
(Dollars in Thousands)
Note 1 -- Summary of Significant Accounting Policies
Basis of Presentation
The financial statements present the financial position, results of
operations, divisional equity, and cash flows of WWMT-TV, a division of Busse
Broadcasting Corporation (the "Company"). WWMT-TV has no separate legal status
or existence. Its assets are legally available for the satisfaction of debts of
the Company of which it is a part, not solely those appearing on the
accompanying financial statements, and its debts may result in claims against
assets not appearing herein.
The accompanying financial statements have been prepared assuming that
WWMT-TV will continue as a going concern. The Company is in default under
substantially all of its debt agreements, and on March 10, 1995, the Company and
its wholly owned subsidiary filed voluntary petitions for a joint plan of
reorganization under Chapter 11 of the United States Bankruptcy Code. On April
30, 1995, the United States Bankruptcy Court for the district of Delaware
confirmed the joint plan of reorganization and such plan became effective on May
3, 1995. The prepackaged plan of reorganization provides for a restructuring of
substantially all of the Company's debt and the cancellation of all prior equity
interests. The Company will account for the reorganization using fresh start
accounting. These financial statements do not include any adjustments that will
result from the adoption of fresh start accounting.
Divisional equity includes net intercompany balances that result from
various transactions between WWMT-TV and the Company. There are no terms of
settlement or interest charges associated with these balances. The balances are
primarily the result of WWMT-TV's participation in the Company's central cash
management program, wherein the month-end cash balances in excess of certain
levels are remitted to the Company. Other transactions include the allocation of
corporate expenses to WWMT-TV and the current income taxes that would have been
due to the Company. WWMT-TV's receivable from the Company, which has been netted
in the divisional equity balance, totaled $27,784,000 and $36,561,000 at January
2, 1994 and January 1, 1995, respectively, and averaged $19,533,000, $24,886,000
and $32,173,000 for the years ended January 3, 1993, January 2, 1994 and January
1, 1995, respectively.
WWMT-TV is a CBS affiliate operating in the Grand Rapids -- Kalamazoo --
Battle Creek, Michigan television market.
Revenue recognition
WWMT recognizes revenue from the sale of advertising time at the time the
advertisements are aired.
Barter transactions
Revenue from barter transactions is recognized when advertisements are
broadcast and merchandise or services received are charged to expense when
received or used.
F-48
<PAGE>
Television Program Contract Rights
The rights to broadcast non-network programs are recorded at gross value.
These costs are amortized based upon the usage of the programs, under methods
which generally result in accelerated amortization. The cost of program rights
expected to be used within one year is classified as a current asset.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is
calculated generally on the straight-line method based on the following useful
lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Leasehold and land improvements.................................. 5 - 10
Buildings........................................................ 30
Machinery and equipment.......................................... 3 - 20
Automobiles and trucks........................................... 3 - 7
</TABLE>
Intangible Assets
The amounts allocated to FCC licenses, network contracts and goodwill
represent the excess of the purchase price of assets acquired over the fair
market value assigned to the net tangible and certain other intangible assets at
the date of acquisition and are being amortized on a straight-line basis over
forty years. The broadcasting intangible assets are characterized as scarce
assets with long and productive lives. The costs of other intangible assets with
determinable lives are charged to operations based on their respective economic
lives, under methods which generally result in accelerated amortization.
Accumulated amortization of intangible assets at January 2, 1994 and January 1,
1995, was $20,544 and $21,184, respectively.
WWMT continually reevaluates the propriety of the carrying amount of the
broadcast license as well as the related amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
value and/or revised estimates of the useful life. This evaluation is based on
WWMT's projections of the undiscounted cash flows over the remaining life of the
amortization period of the broadcast license. To the extent such projections
indicate that the undiscounted cash flows are not expected to be adequate to
recover the carrying amount of the broadcast license, such carrying amount will
be written down to fair market value. At this time, WWMT believes that no
significant impairment of the broadcast license has occurred and that no
reduction of the estimated useful life is warranted.
Income Taxes
WWMT-TV is included in the consolidated federal income tax return of the
Company. For financial reporting purposes, WWMT-TV has provided for federal
income taxes as if it filed a separate income tax return. Current income taxes
reflect the payments that would have been required had WWMT-TV filed a separate
income tax return. WWMT-TV adopted Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" on January 4, 1993 and the adoption has
no effect on the deferred tax liability at that date. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
F-49
<PAGE>
Reporting Period
The Company's annual reporting period is a 52/53-week year ending on the
Sunday nearest December 31. The year ended January 3, 1993, included 53 weeks,
whereas the years ended January 2, 1994 and January 1, 1995, each included 52
weeks.
Note 2 -- Supplementary Balance Sheet Information
The composition of property, plant and equipment is as follows:
<TABLE>
<CAPTION>
January 2, January 1,
1994 1995
---- ----
<S> <C> <C>
Land, land improvements, buildings and improvements ..... $ 5,571 $ 5,594
Machinery and equipment ................................. 9,074 9,310
Office equipment ........................................ 975 973
Vehicles ................................................ 316 325
------- -------
15,936 16,202
Accumulated depreciation ................................ 7,071 8,158
------- -------
$ 8,865 $ 8,044
======= =======
</TABLE>
The composition of intangible assets is as follows:
<TABLE>
<CAPTION>
January 2, January 1,
1994 1995
---- ----
<S> <C> <C>
Broadcasting licenses, network contracts and goodwill ... $15,745 $15,278
Other tangible assets ................................... 5,167 4,994
------- -------
$20,912 $20,272
======= =======
</TABLE>
Note 3 -- Income Taxes
The income tax provisions consist of the following:
<TABLE>
<CAPTION>
For the Year Ended
------------------
January 3, January 2, January 1,
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Current -- federal ....................... $ 1,874 $ 2,010 $ 3,061
Current -- state ......................... 174 189 209
Deferred ................................. (671) (525) (446)
------- ------- -------
$ 1,377 $ 1,674 $ 2,824
======= ======= =======
</TABLE>
F-50
<PAGE>
The income tax provisions differ from the amount computed by applying the
U.S. statutory rate due to the following:
<TABLE>
<CAPTION>
For the Year Ended
------------------
January 3, January 2, January 1,
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
Provision at federal statutory rate.... $1,260 $1,549 $2,685
State taxes, net of federal benefit.... 115 125 138
Other.................................. 2 -- 1
- -- -
------ ------ ------
$1,377 $1,674 $2,824
====== ====== ======
</TABLE>
The significant components of WWMT-TV's deferred tax liabilities are as
follows:
<TABLE>
<CAPTION>
January 2, January 1,
1994 1995
---- ----
<S> <C> <C>
Property, plant and equipment basis differences... $1,820 $1,512
Intangible assets basis differences............... 6,304 6,174
Other............................................. (23) (31)
------ ------
$8,101 $7,655
====== ======
</TABLE>
Note 4 -- Commitments
The Company has entered into contracts to purchase rights to air certain
programs at future dates. The Company records these contracts as assets and
corresponding liabilities when the license period begins. The aggregate amount
of these contracts is approximately $7,885.
Note 5 -- Subsequent Events
In February 1995, the Company contributed substantially all of the assets
and liabilities of WWMT-TV to WWMT, Inc., a newly formed, wholly owned
subsidiary.
On February 20, 1995, the Company and WWMT, Inc., entered into an agreement
to sell substantially all of the assets of WWMT-TV. The sales agreement provides
for a base purchase price of $95 million and an increase or decrease, as the
case may be, for the net working capital of WWMT, Inc. as of the closing date,
as defined in the agreement. The sale agreement also includes a condition
requiring the approval of the joint plan of reorganization by the bankruptcy
court.
A significant portion of the Company's debt that is to be restructured
(including the debt claims that are expected to receive 100% of the new common
stock of the Company) is owned by six investment funds whose investment advisor
is Greycliff Partners (collectively, the "Greycliff Investment Funds"). One of
the nine members of the board of directors of the buyer is a general partner of
Greycliff Partners and, together with his immediate family, owns an aggregate
1.75% limited partnership interest in the Greycliff Investment Funds. The
Greycliff Investment Funds and the general partner of the Greycliff Partners
also hold equity interests in the buyer.
The termination provisions of the sales agreement require, among other
things, that if the buyer is not then in material default of the agreement and
the transaction is not approved by the bankruptcy court, then (i) the Company is
required to pay the buyer a non-approval fee of up to $500,000 and (ii) if,
within 15 months after termination, the Company sells substantially all of the
assets of WWMT-TV or more than 50% of the stock of WWMT, Inc. or more than 50%
of the stock of the Company then the buyer is entitled to a non-completion fee
of $1,000,000.
F-51
<PAGE>
Independent Auditor's Report
The Board of Directors and Stockholders
Queen City Broadcasting, Inc.
We have audited the accompanying consolidated balance sheets of Queen City
Broadcasting, Inc. ("Queen City") as of December 31, 1993 and 1994, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the years ended December 31, 1992, 1993 and 1994. These financial
statements are the responsibility of Queen City's management. Our responsibility
is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Queen City at December 31, 1993 and 1994, and the consolidated results of its
operations and its cash flows for the years ended December 31, 1992, 1993 and
1994 in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 5, approximately $23 million and as much as $22
million of the debt of Queen City Broadcasting of New York, Inc. (the
"Company"), a wholly-owned subsidiary of Queen City, was scheduled to mature on
June 29, 1995 and January 2, 1996, respectively. Furthermore, Queen City III
Limited Partnership ("QC III"), which owns approximately 98% of Queen City's
outstanding stock, has pledged such stock of Queen City, QC III's principal
asset, as collateral for an approximate $28,750,000 note (the "QC III Note")
which also became due on June 29, 1995. A default in the payment of the QC III
Note could have caused defaults in the Company's debt (See Note 5). The
Company's and QC III's operating cash flow was insufficient to fully fund their
respective 1995 and 1996 scheduled payments of debt. As discussed in Note 12,
Granite Broadcasting Corporation ("GBC"), the sole limited partner of QC III and
the owner of the QC III Note, prior to its acquisition of all the General
Partnership Interests of QC III on June 29, 1995, converted the QC III Note into
additional capital of QC III. In connection with the acquisition of all of the
General Partnership Interests of QC III, GBC lent the Company funds sufficient
to repay substantially all of the Company's debt. The GBC acquisition was
consummated prior to the FCC's approval of the transaction becoming a final
order. On July 24, 1995, the FCC order approving the transaction became final.
The accompanying consolidated financial statements do not include any
adjustments as a result of these transactions.
Leslie Sufrin and Company, P.C.
New York, N.Y.
February 18, 1995, except for Notes 1 and 12,
as to which date is July 24, 1995.
F-52
<PAGE>
QUEEN CITY BROADCASTING, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, December 31, June 28,
1993 1994 1995
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................... $ 1,735,257 $ 2,920,270 $ 5,231,818
Accounts receivable, less allowance for doubtful
accounts of $106,491 in 1993 and $85,951 in 1994 ......... 4,589,383 5,708,256 5,298,274
Program rights -- current portion........................... 951,497 1,227,169 403,296
Prepaid expenses and other current assets .................. 186,936 212,943 520,928
----------- ----------- -----------
Total current assets...................................... 7,463,073 10,068,638 11,454,316
----------- ----------- -----------
Property, plant and equipment, less accumulated
depreciation of $11,493,136 in 1993 and
$12,199,488 in 1994 (Note 3)................................ 4,525,273 4,317,270 4,476,665
Intangible assets, net (Note 4)............................... 40,582,571 39,313,301 38,687,430
Deferred financing charges, net............................... 417,129 311,681 262,470
Program rights -- non-current portion ........................ 124,875 210,508 137,800
Other assets.................................................. 1,793 1,152 7,758
----------- ----------- -----------
$53,114,714 $54,222,550 $55,026,439
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities ................... $ 464,717 $ 581,070 $ 495,254
Accrued interest............................................ 1,092,491 1,093,474 2,464,664
Accrued compensation........................................ 434,857 710,499 608,349
Program rights payable -- current portion .................. 1,265,317 1,337,102 351,156
Long-term debt -- current portion (Note 5) ................. 471,206 23,000,000 45,058,850
Revolving credit line (Note 5).............................. 625,000 614,500 --
----------- ----------- -----------
Total current liabilities................................. 4,353,588 27,336,645 48,978,273
----------- ----------- -----------
Program rights payable -- non-current portion ................ 78,000 328,011 266,001
Long-term debt (Note 5)....................................... 64,495,985 41,102,222 19,355,000
Commitments and contingencies (Note 10)
Stockholders' deficit:
Common stock -- $.01 par value, authorized 2,000,000
shares, outstanding 1,010,000 shares after deducting
10,000 shares held in treasury............................ 10,100 10,100 10,100
Additional paid-in capital.................................. 10,089,900 10,089,900 10,089,900
Accumulated deficit......................................... (25,912,859) (24,644,328) (23,672,835)
----------- ----------- -----------
Total stockholders' deficit............................... (15,812,859) (14,544,328) (13,572,835)
----------- ----------- -----------
$53,114,714 $54,222,550 $55,026,439
=========== =========== ===========
</TABLE>
See accompanying notes.
F-53
<PAGE>
QUEEN CITY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For Years Ended December 31, Six Months For the Period
-------------------------------------------- Ended June 30, January 1, 1995 to
1992 1993 1994 1994 June 28, 1995
------------ ------------ ------------ -------------- ------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues ................................... $ 21,966,637 $ 22,633,806 $ 25,563,951 $ 11,376,703 $ 12,889,476
Direct operating expenses ..................... 9,746,655 9,252,898 9,158,059 4,348,826 5,139,477
Selling, general and
administrative expenses ..................... 4,518,523 4,818,669 5,402,472 2,612,927 2,437,904
General and administrative-- New York .......... 397,031 399,687 396,000 198,229 395,195
Interest expense ............................... 7,788,142 7,342,685 7,180,546 3,529,165 3,001,736
Depreciation ................................... 616,301 648,006 706,352 353,250 331,200
Amortization of intangible assets .............. 1,269,270 1,269,270 1,269,270 634,704 629,381
Amortization of deferred
financing charges ............................ 125,287 121,181 105,449 52,793 45,696
Other income, net .............................. (76,422) (152,721) (55,728) (10,868) (86,606)
------------ ------------ ------------ ------------ ------------
Income (loss) before income taxes
and extraordinary gain ....................... (2,418,150) (1,065,869) 1,401,531 (342,323) 995,493
Income taxes (Note 6) .......................... 8,968 10,000 133,000 9,000 24,000
------------ ------------ ------------ ------------ ------------
Income (loss) before extraordinary gain ........ (2,427,118) (1,075,869) 1,268,531 (351,323) 971,493
Extraordinary gain (Note 7) .................... 219,705 347,732 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) .............................. $ (2,207,413) $ (728,137) $ 1,268,531 $ (351,323) $ 971,493
============ ============ ============ ============ ============
Per common share:
Income (loss) before extraordinary gain ....... $ (2.40) $ (1.07) $ 1.26 $ (0.35) $ 0.96
Extraordinary gain ............................ 0.22 0.34 -- -- --
------------ ------------ ------------ ------------ ------------
Net income (loss) ............................. $ (2.18) $ (0.73) $ 1.26 $ (0.35) $ 0.96
============ ============ ============ ============ ============
Average common shares outstanding during the
period ..................................... 1,010,000 1,010,000 1,010,000 1,010,000 1,010,000
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-54
<PAGE>
QUEEN CITY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated
Stock Capital Deficit Total
----- ------- ------- -----
<S> <C> <C> <C> <C>
Balance at January 1, 1992 ..... $10,100 $10,089,900 $(22,977,309) $(12,877,309)
Net loss ....................... -- -- (2,207,413) (2,207,413)
------- ----------- ------------ ------------
Balance at December 31, 1992 ... 10,100 10,089,900 (25,184,722) (15,084,722)
Net loss ....................... -- -- (728,137) (728,137)
------- ----------- ------------ ------------
Balance at December 31, 1993 ... 10,100 10,089,900 (25,912,859) (15,812,859)
Net income ..................... -- -- 1,268,531 1,268,531
------- ----------- ------------ ------------
Balance at December 31, 1994 ... 10,100 10,089,900 (24,644,328) (14,544,328)
Net income (unaudited) ......... -- -- 971,493 971,493
------- ----------- ------------ ------------
Balance at June 28, 1995 ....... $10,100 $10,089,900 $(23,672,835) $(13,572,835)
======= =========== ============ ============
</TABLE>
See accompanying notes.
F-55
<PAGE>
QUEEN CITY BROADCASTING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For Years Ended December 31, Six Months For the Period
----------------------------------------- Ended June 30, January 1, 1995 to
1992 1993 1994 1994 June 28, 1995
------------ ------------ ----------- ------------ ------------------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................ $(2,207,413) $ (728,137) $ 1,268,531 $ (351,323) $ 971,493
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization of
intangibles ................................ 1,885,571 1,917,276 1,975,622 987,954 960,581
Deferred interest--
subordinated note .......................... 1,917,869 1,208,432 (393,764) (258,646) 311,628
Amortization of deferred
financing charges .......................... 125,287 121,181 105,449 52,793 45,696
Extraordinary gain ........................... (219,705) (347,732) -- -- --
Decrease (increase) in:
Accounts receivable ........................ 177,331 142,037 (1,118,873) (719,557) 409,982
Program rights ............................. 1,022,577 1,004,400 (361,305) 697,644 896,631
Prepaid expenses and other
current assets ........................... (8,649) (6,893) (25,366) (56,742) (314,591)
Increase (decrease) in:
Accounts payable and accrued
liabilities .............................. (430,960) 109,448 116,353 130,508 (85,816)
Accrued interest ........................... (38,215) (94,775) 983 (3,327) 1,371,140
Accrued compensation ....................... (48,389) 83,883 275,642 34,797 (102,150)
Program rights payable ..................... (634,388) (872,261) 321,796 (793,082) (1,047,956)
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
operating activities ................... 1,540,916 2,536,859 2,165,068 (278,981) 3,416,638
----------- ----------- ----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures ............................ (210,942) (848,799) (498,349) (248,847) (490,190)
Proceeds from disposition of
other assets .................................. 2,651 806 -- 518 (400)
----------- ----------- ----------- ----------- -----------
Net cash used for investing activities ...... (208,291) (847,993) (498,349) (248,329) (490,590)
----------- ----------- ----------- ----------- -----------
Cash flows from financing activities:
Purchase of subordinated debentures ............. (438,750) (1,365,000) -- -- --
Payments on Senior Notes ........................ (1,528,798) (1,000,000) (471,206) (471,206) --
Borrowings under revolving credit line .......... -- 625,000 1,000,000 -- --
Payments on revolving credit line ............... -- -- (1,010,500) (625,000) (614,500)
----------- ----------- ----------- ----------- -----------
Net cash used for financing activities ........ (1,967,548) (1,740,000) (481,706) (1,096,206) (614,500)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents ..................................... (634,923) (51,134) 1,185,013 (1,623,516) 2,311,548
Cash and cash equivalents at
beginning of period ............................. 2,421,314 1,786,391 1,735,257 1,735,257 2,920,270
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents at end
of period ....................................... $ 1,786,391 $ 1,735,257 $ 2,920,270 $ 111,741 $ 5,231,818
=========== =========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Interest paid ................................... $ 5,908,494 $ 6,229,034 $ 7,573,320 $ 3,791,133 $ 1,318,918
=========== =========== =========== =========== ===========
Income taxes paid ............................... $ 8,530 $ 10,723 $ 41,122 $ 6,502 $ 161,849
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-56
<PAGE>
QUEEN CITY BROADCASTING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1992, 1993 and 1994
Note 1 -- Business, ownership and basis of presentation
Queen City Broadcasting, Inc. ("Queen City") was organized as a Delaware
corporation in July 1985. On January 2, 1986, Queen City acquired, through its
wholly-owned subsidiary, Queen City Broadcasting of New York, Inc. (the
"Company"), American Broadcasting Company ("ABC") network-affiliated television
station WKBW-TV (the "Station") in Buffalo, New York.
In connection with the acquisition, Queen City obtained $10,000,000 from
accredited investors and certain WKBW-TV employees by selling 1,000,000 shares
of stock at $10 per share.
During 1988, Queen City repurchased 10,000 shares of common stock owned by
a retired employee at $10 per share, as required by covenants in the
subscription agreements which are now no longer in effect.
During 1989, options on 20,000 shares were exercised at $10 per share. The
options were granted in a prior year to two officers (including a then member of
the Board of Directors of the Company) of a company that received consulting
fees in connection with the acquisition transaction.
On June 29, 1989, all but one of the shareholders of Queen City exchanged
their shares for a 55% general partnership interest and other consideration in
Queen City III Limited Partnership ("QCIII"). The Prudential Insurance Company
of America ("Prudential") was the sole limited partner of QC III, owning a 45%
interest in that partnership. As a result of the exchange, the individuals who
previously controlled the Company remain in control. The shares of Queen City's
common stock owned by QC III have been pledged to Prudential as security for
certain obligations of QC III to Prudential (the "QC III obligations") incurred
in connection with the financing of the exchange. As discussed below, prior to
the conversion of the QC III obligations into additional capital of QC III, the
QC III obligations were due on June 29, 1995 and approximated $28,750,000.
Further, as a result of a series of transfers in 1993 (See Note 10), Granite
Broadcasting Corporation ("GBC") purportedly acquired the entire interest of the
sole limited partner of QC III, which was originally purchased by Prudential on
June 29, 1989 as well as the QC III obligations.
The shares that were not exchanged on June 29, 1989 are subject to transfer
restrictions pursuant to the subscription agreement under which such shares were
issued. The agreement provides that shares cannot be sold to others unless first
offered to Queen City.
As further discussed in Note 5, approximately $23 million and as much as
$22 million of Company debt was scheduled to mature on June 29, 1995 and January
2, 1996, respectively. Furthermore, QC III has pledged its shares of Queen
City's stock, QC III's principal asset, as collateral for the QC III
obligations. A default in the payment of the QC III obligations could have
caused defaults in the Company's debt (See Note 5). The Company's and QC III's
operating cash flow was insufficient to fully fund their respective 1995 and
1996 scheduled payments of debt. As discussed in Note 12, in June 1995, Granite
Broadcasting Corporation ("GBC"), the sole limited partner of QC III and owner
of the QC III obligations, prior to its acquisition of all the General
Partnership Interests of QC III, converted the QC III obligations into
additional limited partnership interests of QC III. In connection with its
acquisition of all of the General Partnership Interests of QC III, GBC lent the
Company funds sufficient to repay substantially all of the Company's debt. The
GBC acquisition was consummated prior to the FCC's approval of the transaction
becoming a final order. On July 24, 1995, the FCC order approving the
transaction became final. The accompanying consolidated financial statements do
no include any adjustments that might result from the outcome of this
uncertainty.
F-57
<PAGE>
Note 2 -- Summary of significant accounting principles
Principles of consolidation -- Queen City's consolidated financial
statements include the accounts of Queen City and the Company. All significant
intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts in prior years have been reclassified to conform to the 1994
presentation.
Summarized financial information with respect to the Company has not been
presented herein because such financial information does not differ
significantly from that reflected in the consolidated financial statements of
Queen City. The parent has no significant operations separate from the
subsidiary.
Cash and cash equivalents -- Cash and cash equivalents consist of cash in
bank and overnight time deposits and other investments that can be liquidated on
demand or within 90 days. The Company maintains substantially all of its cash
balances in one financial institution located in Buffalo, New York. The balances
are insured by the Federal Deposit Insurance Corporation up to $100,000. The
Company has not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash equivalents.
Program rights -- Program rights consist principally of rights to broadcast
films and programs and are recorded as an asset at cost, together with the
related liability, when the programs are available for first showing. Program
rights are amortized, beginning with the first broadcast, primarily using
accelerated methods over the terms of the contracts or the usage of films. The
current portion of the program rights represents the estimated costs to be
amortized in the next fiscal year. The liability to licensor is classified as
current or long-term in accordance with the payment terms of various licenses.
Program rights are reflected in the accompanying balance sheet at the lower of
unamortized cost or estimated net realizable value.
Amortization of program rights was $3,344,702 in 1992, $2,143,730 in 1993
and $1,497,603 in 1994.
Depreciation -- Depreciation has been computed over the estimated useful
lives of the related assets using the straight-line method.
Deferred financing charges -- Deferred financing charges represent costs
incurred in connection with refinancing of the Company's debt and are being
amortized by the straight-line method over the term of the related debt.
Intangible assets -- Intangible assets consist principally of FCC licenses,
network affiliation and goodwill, which represents the excess of the purchase
price over the fair value of the other assets acquired. These intangible assets
are being amortized by the straight-line method over 40 years. The broadcasting
intangible assets are characterized as scarce assets with long and productive
lives. Queen City continually reevaluates the propriety of the carrying amount
of intangible assets as well as the related amortization period to determine
whether current events and circumstances warrant adjustments to the carrying
value and/or revised estimates of useful lives. This evaluation is based on the
Company's projections of the undiscounted cash flows over the remaining lives of
the amortization period of the related intangible asset. To the extent such
projections indicate that the undiscounted cash flows are not expected to be
adequate to recover the carrying amounts of intangible assets, such carrying
amounts will be written down to their fair market value. At this time, Queen
City believes that no significant impairment of intangible assets has occurred
and that no reduction of the estimated useful lives is warranted.
Income taxes -- In 1993, Queen City, as required, adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," ("SFAS
109"). SFAS 109 requires that the deferred tax effects of timing differences in
income and expense recognition be reflected at tax rates expected to be in
effect at the time such timing differences are realized for tax purposes. In
addition, SFAS 109 requires that tax benefits related to the future realization
of net operating loss carryforwards be reflected net of a valuation allowance to
the extent realization of such tax benefits is considered to be less than
likely.
F-58
<PAGE>
Revenue -- Revenue is presented net of advertising agency commissions of
$3,476,035 in 1992, $3,576,236 in 1993 and $4,114,803 in 1994. Revenues are
derived principally from national and local advertising and to a lesser extent
from network compensation and are recognized at the time the advertisement is
aired.
Barter transactions - Revenue from barter transactions is recognized when
advertisements are broadcast and merchandise or services received are charged to
expense when received or used.
Net income (loss) per share -- Net income (loss) per share is based on the
weighted average number of common shares outstanding during the periods.
Note 3 -- Property, plant and equipment
Property, plant and equipment consists of:
<TABLE>
<CAPTION>
Estimated
Useful
Life in
1993 1994 years
---- ---- -----
<S> <C> <C> <C>
Land and improvements ............ $ 946,120 $ 946,120
Building and improvements ........ 2,585,762 2,589,147 30
Broadcasting and other equipment . 12,486,527 12,981,491 3-6
------------ ------------
16,018,409 16,516,758
Less accumulated depreciation .... (11,493,136) (12,199,488)
------------ ------------
$ 4,525,273 $ 4,317,270
============ ============
</TABLE>
Note 4 -- Intangible assets
Intangible assets consist of:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
Goodwill, FCC licenses and network affiliation ... $ 49,955,001 $ 49,955,001
Other intangible assets .......................... 777,067 777,067
------------ ------------
50,732,068 50,732,068
Less accumulated amortization .................... (10,149,497) (11,418,767)
------------ ------------
$ 40,582,571 $ 39,313,301
============ ============
</TABLE>
F-59
<PAGE>
Note 5 -- Long-term debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1993 1994
---- ----
<S> <C> <C>
(a) Subordinated debentures, due August 1, 1999,
13.50% interest payable semi-annually........... $19,355,000 $19,355,000
(b) Senior Guaranteed Notes due June 29, 1995,
interest ranging from 11.75%-11.875% payable
semi-annually .................................. 23,471,206 23,000,000
(c) Subordinated Note due January 2, 1996........... 20,775,130 20,775,130
Subordinated note -- accrued interest........... 1,365,855 545,348
-- deferred interest (d)...... -- 426,744
----------- -----------
64,967,191 64,102,222
Less current portion............................ (471,206) (23,000,000)
----------- -----------
Long-term debt.................................. $64,495,985 $41,102,222
=========== ===========
</TABLE>
(a) The indenture agreement provides for a sinking fund payment of $4,355,000
on August 1, 1998. This amount can be reduced by the redemption of
outstanding debentures.
In addition, under the terms of the debenture agreement, the Company and
Queen City are restricted from paying dividends and transferring funds in
the form of cash dividends.
(b) Senior Guaranteed Notes (the "Notes") originally issued to Prudential in
the amount of $26,000,000 were the principal funds used to finance prior
repurchases of the subordinated debentures. The terms of the Notes restrict
the ability of the Company and Queen City to incur additional borrowings,
sell certain assets, and pay cash dividends, among other restrictions.
The terms of the Notes also required the prepayment on June 29, 1992 and
1993 of 10% of the sum of the outstanding principal amount of the Notes
outstanding as of July 1, 1990. The amount of the Notes outstanding at July
1, 1990 was $20,000,000. In 1992 and 1993, the Company and Prudential
entered into Agreements permitting the deferral of a portion of the
required prepayments equal to the amount paid to repurchase its
subordinated debentures. In accordance with these Agreements, the Company
made prepayments to the holder of the Notes of $1,000,000 and $471,206 in
1993 and 1994, respectively.
On August 5, 1993, Prudential transferred ownership of the Notes to Lazard
Freres & Co. (See Notes 1 and 10).
(c) The Subordinated Note due to Capital Cities/ABC was issued in connection
with the acquisition of WKBW - TV. The Note, in the face amount of
$18,425,836, is due January 2, 1996 and originally provided for no interest
payments until April 2, 1992, when interest payments were to commence on a
quarterly basis until maturity. In August 1987, the Subordinated Note was
amended to increase the interest rate to the same interest rate as is
payable on the (13.50%) subordinated debentures, discussed in (a) above.
The Subordinated Note has been discounted using the interest method on the
basis of the average expected yield to maturity. The resulting effective
annual interest rate is 12.47%. In December 1991, the Company and Capital
Cities/ABC agreed to further amend the terms of the Subordinated Note. This
amendment deferred the interest payments through July 2, 1993. The deferred
interest payments were added to the principal amount of the Subordinated
Note effective July 2, 1993. The rate of interest was changed to 8.5% per
annum effective January 2, 1992 through July 2, 1993 resulting in an
effective annual interest rate of 9.739%. As of July 3, 1993, the
Subordinated Note was again amended to change the rate of interest to 10.5%
per annum, resulting in an effective interest rate of 8.127%.
F-60
<PAGE>
In January 1995, the Company and Capital Cities/ABC agreed to further amend
the terms of the Subordinated Note; certain provisions of which were made
in conjunction with the extension of the Company's network affiliation
agreement (the "Network Affiliation Agreement") with American Broadcasting
Companies, Inc. ("ABC") (See Note 10). As a result of this amendment,
commencing on January 2, 1995, interest on the Subordinated Note is to
accrue and be added to the agreed principal and interest balance at that
date (the "Agreed Principal and Interest Balance") in the amount of
$262,500 per calendar quarter until the principal balance reaches
$22,000,000. Thereafter, the Company agrees to pay interest to Capital
Cities/ABC in the amount of $262,500 per calendar quarter (or portion
thereof based on a 90 day calendar quarter) on October 2, 1995 and January
2, 1996.
(d) At December 31, 1994, Queen City's consolidated financial statements
reflect aggregate principal, accrued and deferred interest due on the
Subordinated Note of $21,747,222 (the "Aggregate Subordinated Note
Amount"). The Agreed Principal and Interest Balance is $21,320,478 with the
$426,744 difference between the Aggregate Subordinated Note Amount and the
Agreed Principal and Interest reflected as deferred interest (the "Deferred
Interest"). From an accounting perspective, the impact of the January 1995
modification of payment terms is required to be reflected prospectively.
Accordingly, the Deferred Interest will be amortized, as a reduction of
interest expense, over the remaining term of the Subordinated Note.
Furthermore, Capital Cities/ABC agreed to forgive between $5.3 million and
$12 million of the Subordinated Note at the earlier of January 2, 1996 or
the date the Station is sold; provided that, if sold, the Station's buyer
agrees to assume the Company's Network Affiliation Agreement, as amended
prior to such sale. The extent of the Subordinated Note forgiveness will be
principally a function of the extent, if any, ABC agrees to increase the
Station's annual network affiliation fees from existing levels. (See Note
10). The Subordinated Note provides that if there is a change in control of
the Company within the meaning of the FCC rules and regulations, the face
amount of the Note, as adjusted, together with any additional accrued
interest thereon, will become immediately due and payable.
The Company has an unsecured revolving credit facility with a bank which
provides for aggregate borrowings up to $5,000,000 of which $625,000 and
$614,500 was outstanding at December 31, 1993 and 1994, respectively.
Borrowings under the revolving credit facility are due on demand with
interest at prime (6% at December 31, 1993 and 8.5% at December 31, 1994).
Subsequent to December 31, 1994, $257,000 of borrowings under the revolving
credit facility were repaid. Further, all remaining unpaid borrowings are
due and scheduled to be repaid by March 31, 1995. No fees are charged for
this revolving credit facility.
Maturities of long-term debt are:
<TABLE>
<S> <C>
1995...................................................... $23,000,000
1996...................................................... 21,747,222
1997...................................................... --
1998...................................................... 4,355,000
1999...................................................... 15,000,000
-----------
$64,102,222
===========
</TABLE>
All Company debt is subject to certain cross default provisions, wherein a
default in one class of debt will become, under certain circumstances, an
event of default in all other Company debt.
In addition, a default in the payment of the QC III obligations (See Note
1) constitutes an event of default under the Company's Senior Guaranteed
Notes. In addition, Queen City, whose principal asset is the stock of the
Company, guarantees the Subordinated debentures, the Notes and, on a
subordinated basis, the Subordinated Note.
F-61
<PAGE>
Note 6 -- Income Taxes
Queen City files a consolidated federal tax return with the Company and the
Company files a separate New York State tax return. At December 31, 1994, Queen
City had net operating loss carryforwards of approximately $13,800,000 for
federal income tax purposes which expire in varying amounts from the years 2001
through 2007, subject to adjustment on examination by income tax authorities.
Operating loss carryforwards on a book basis approximate $13,000,000 at December
31, 1994, reflecting an adjustment for amortization of certain intangible assets
that is not deductible for tax purposes. It was determined that there was no
cumulative effect on prior year earnings for fiscal year 1993.
At December 31, 1993 and 1994, Queen City had unused tax benefits of
approximately $5,500,000 and $4,800,000, respectively, related to net operating
loss carryforwards for income tax purposes. A valuation allowance at December
31, 1993 and 1994 of $5,500,000 and $4,800,000, respectively, has been
recognized to offset the related deferred tax assets due to the uncertainty of
realizing the benefit of the loss carryforwards. The tax provision reflected in
the financial statements for the year ended December 31, 1994 represents Federal
AMT ($54,000), New York AMT ($71,000) and Delaware franchise tax ($8,000). The
tax provision for the years ended December 31, 1992 and 1993 represents New York
AMT and Delaware franchise tax (See Note 12).
The difference between the U.S. Federal statutory tax rate and the
Company's effective tax rate on income (loss) before income taxes and
extraordinary gain are summarized as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
U.S. Federal statutory tax rate on income (loss) .. (34.0)% (34.0)% 34.0%
Amortization of intangible assets ................. 17.8 40.5 30.8
(Utilization) Deferral of net operating
loss carryforwards .............................. 16.2 (6.5) (64.8)
Federal and state AMT and franchise taxes ......... .4 .9 9.5
----- ----- ----
Effective tax rate ................................ .4% .9% 9.5%
===== ===== ====
</TABLE>
Note 7 -- Extraordinary gain
In 1992, the Company repurchased $675,000 of its 13.50% subordinated
debentures for $438,750 resulting in an extraordinary gain of $219,705 after
writing off $16,545 of applicable deferred financing charges. In 1993, the
Company repurchased $1,750,000 of its 13.50% subordinated debentures for
$1,365,000 resulting in an extraordinary gain of $347,732 after writing off
$37,268 of applicable deferred financing charges.
Note 8 -- Employee benefits
The Company adopted a profit sharing plan (the "Plan") for the benefit of
employees who are not covered by other retirement plans under collective
bargaining agreements. Contributions, other than voluntary employee
contributions, are solely within the discretion of the Board of Directors. In
1991, the Company amended the Plan to include a 401(K) Plan. Participants may
elect to contribute up to 15% of their compensation to the Plan. The Company may
contribute to the Plan a percentage of each participants' contribution. For
1992, 1993 and 1994, the Company's contribution to the Plan was $24,989, $27,549
and $28,480, respectively.
The Company has adopted a Stock Appreciation Plan, which provides for
payments of cash based on increases in value of the Company's common stock as
determined by a formula prescribed in the plan. The plan provides that the
granting of units is solely within the discretion of the Board of Directors. The
valuation of the units at the date of grant was set at $10 for purposes of
determining the appreciation in value under the formula. At December 31, 1994,
no amount was required to be provided relative to awards granted to date.
F-62
<PAGE>
Note 9 -- Other income, net
In 1993, the American Society of Composers, Authors & Publishers ("ASCAP")
and the Television Music License Committee reached an agreement regarding
additional royalty fees for the years 1985 through 1994 to be paid to ASCAP by
television stations. The Company's share of this settlement for years prior to
1993 was approximately $26,000. Accordingly, the reversal of prior years' excess
accruals of $104,000 has been reflected in the 1993 statement of operations as
other income. The remaining balance consists principally of interest earned on
cash and cash equivalents.
Note 10 -- Commitments and contingencies
(a) Network affiliation agreement
In accordance with the Network Affiliation Agreement, the Company agreed to
serve as ABC's primary affiliate to broadcast network programs in the
Buffalo market. The Network Affiliation Agreement also provides for
compensation to the Company based upon "daypart" percentages as determined
by, among other things, the Station's level of clearance of network
programming in the 1993 -- 1994 television broadcast season (i.e., the last
two quarters of 1993 and the first two quarters of 1994.) The extension of
the Network Affiliation Agreement is effective December 1, 1994 and expires
on December 1, 2004. Network affiliation fees for 1992, 1993 and 1994
approximated $1,094,000, $1,042,000 and $971,000, respectively. The Network
Affiliation Agreement is cancelable, at the option of ABC, upon a change in
control of the Company.
(b) Consulting agreement
Queen City has entered into consulting contracts with an officer/director
of the Company and a corporation wholly-owned by an officer and director.
The consulting agreements provide for aggregate base annual compensation of
$200,000 and $100,000, respectively. The terms of these agreements are for
one year, with automatic one year extensions. However, these agreements can
be terminated by either party on their anniversary dates upon prescribed
notice.
(c) Programming commitments
At December 31, 1994, the obligation for programming that had not been
recorded because the program rights were not available for airing
aggregated $4,994,570.
(d) Litigation matters
The Company is a defendant in various lawsuits arising in the ordinary
course of business. In the opinion of management, none of these actions
will result in a material adverse effect on the Company's financial
position.
On December 21, 1993, the Company, QC III and certain general partners of
QC III commenced a lawsuit in the Superior Court of New Jersey, Law
Division -- Essex County, against Prudential, GBC, Lazard Freres & Co. et
al (See Notes 1 and 5). Such suit charges the defendants with fraud,
tortious interference with contract, and breach of contract. The complaint
seeks money damages in an unliquidated amount, recision of certain
transactions and other forms of relief. The court has ruled that the action
should be stayed pending arbitration of the issues before the American
Arbitration Association. Management believes in the merits of this lawsuit
and intends to vigorously pursue arbitration, but the outcome of neither
this suit nor this arbitration can be predicted at this time (See Note 12).
F-63
<PAGE>
Note 11 -- Supplementary information
Supplementary statement of operations information is as follows:
<TABLE>
<CAPTION>
1992 1993 1994
---- ---- ----
<S> <C> <C> <C>
Music license fees............... $310,185 $285,635 $307,395
Maintenance and repairs.......... 249,207 287,716 405,049
</TABLE>
Valuation and qualifying accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance at
Beginning Costs and End of
of Year Expenses Deductions Year
------- -------- ---------- ----
<S> <C> <C> <C> <C>
Allowance for doubtful accounts:
1992............................ $133,953 $100,000 $ 41,880 $192,073
1993............................ 192,073 151,000 236,582 106,491
1994............................ 106,491 133,000 153,540 85,951
</TABLE>
Note 12 -- Subsequent event (Unaudited)
On June 29, 1995, GBC effectively acquired the Station through its
acquisition of all of the General Partnership Interests of QC III. GBC paid
$16,000,000 for the General Partnership Interests and lent the Company funds
sufficient to repay substantially all of Company's debt. In addition, prior to
the acquisition, GBC, on June 28, 1995, converted the QC III obligations into
additional limited partnership interests of QC III. Furthermore, all the assets
of the Company and of QC III were pledged to guaranty certain GBC bank
obligations incurred, in connection with the acquisition.
The sale was consummated prior to the FCC's approval becoming a final
order. On July 24, 1995, the FCC issued its final order approving the
transaction. In addition, in connection with the sale, the Company, QC III and
the general partners of QC III executed general releases with GBC, Lazard Freres
& Co. et al (except for continuing litigation with Prudential), See Note 10(d).
Furthermore, the timing and extent of Queen City's future utilization of
its net operating loss carryforward will be affected by Section 382 of the
Internal Revenue Code. Under Section 382, after a change in ownership, the
preacquisition net operating loss carryforwards which are available annually to
offset taxable income is limited to an amount computed by multiplying the value
of the equity of the corporation just prior to the ownership change by the
federal long-term tax-exempt rate in effect on the date of the change. The
amount of this limitation has not been determined at this time.
F-64
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Pursuant to Section 102(b)(7) of the Delaware General Corporation Law (the
"DGCL"), Article Eighth of the Company's Third Amended and Restated Certificate
of Incorporation, as amended (the "Certificate of Incorporation") (incorporated
by reference as Exhibit 3.1 to this Registration Statement), eliminates the
liability of the Company's directors to the Company or its stockholders, except
for liabilities related to breach of duty of loyalty, actions not in good faith
and certain other liabilities.
Section 145 of the DGCL provides, in substance, that Delaware corporations
shall have the power, under specified circumstances, to indemnify their
directors, officers, employees and agents in connection with actions, suits or
proceedings brought against them by a third party or in the right of the
corporation, by reason of the fact that they were or are such directors,
officers, employees or agents, against expenses incurred in any such action,
suit or proceeding. The DGCL also provides that Delaware corporations may
purchase insurance on behalf of any such director, officer, employee or agent.
Article Eighth of the Certificate of Incorporation provides that the
Company shall indemnify any current or former director or officer to the fullest
extent permitted by the DGCL. Article Eighth further contemplates that the
indemnification provisions permitted thereunder are not exclusive of any other
rights to which such directors and officers are otherwise entitled by means of
Bylaw provisions, contracts, agreements, or otherwise. Article VIII of the
Company's Bylaws provides that the Company shall indemnify to the fullest extent
permitted by DGCL its current and former directors and officers and persons
serving as directors and officers of any corporation at the request of the
Company. The Company also maintains officers' and directors' liability insurance
which insures against liabilities that officers and directors of the Company may
incur in such capacities.
Reference is made to the Granite Broadcasting Corporation Stock Option Plan
(incorporated by reference as Exhibit 10.1 to this Registration Statement),
which provides that the Company shall indemnify and hold harmless each member of
the Stock Option Committee of the Plan against certain liabilities arising by
reason of such person's membership on such committee and the board of directors
of the Company, except liabilities arising from such person's gross negligence
or willful misconduct.
Reference is made to the Exchange and Registration Rights Agreement filed
as Exhibit 4.39 to this Registration Statement which provides for
indemnification for the officers and directors of the Company signing a Resale
Registration Statement and certain control persons of the Company against
certain liabilities, including those arising under the Securities Act in certain
circumstances by selling Holders.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
1.14(6) Agreement Among Purchasers, dated February 13, 1996, among
Granite Broadcasting Corporation, Goldman, Sachs & Co., BT
Securities Corporation, Lazard Freres & Co. LLC for
$110,000,000 of 9 3/8% Series A Senior Subordinated Notes due
December 1, 2005.
1.24(6) Purchase Agreement, dated February 13, 1996, among Granite
Broadcasting Corporation, Goldman, Sachs & Co., BT Securities
Corporation, Lazard Freres & Co. LLC for $110,000,000 of 9 3/8%
Series A Senior Subordinated Notes due December 1, 2005.
II-1
<PAGE>
3.1(i) Third Amended and Restated Certificate of Incorporation of the
Company, as amended.
3.2(i) Amended and Restated Bylaws of the Company, as amended.
4.27(2) Indenture dated as of September 1, 1992 between Granite
Broadcasting Corporation and The United States Trust Company of
New York, as Trustee, relating to the Company's $60,000,000
Principal Amount 12.75% Senior Subordinated Debentures due
September 1, 2002.
4.28(2) Form of 12.75% Senior Subordinated Debenture due September 1,
2002.
4.30(3) Form of Indenture relating to the Company's Junior Subordinated
Convertible Debentures issuable upon the exchange of the
Company's Cumulative Convertible Exchangeable Preferred Stock.
4.31(3) Form of Junior Subordinated Convertible Debenture.
4.35(f) Second Amended and Restated Credit Agreement, dated as of May
19, 1995, among Granite Broadcasting Corporation, the Lenders
party thereto, Bankers Trust Company, as Administrative Agent,
Collateral Agent and Documentation Agent, First Union National
Bank of North Carolina, as Co-Agent, Pearl Street L.P., as a
Co-Agent, BT Securities Corporation, as a Co-Syndication Agent,
and Goldman, Sachs & Co., as a Co-Syndication Agent for the
Lenders.
4.36(4) First Amendment to Second Amended and Restated Credit Agreement,
dated as of June 2, 1995.
4.37(4) Indenture, dated as of May 19, 1995, between Granite
Broadcasting Corporation and United States Trust Company of New
York for the Company's $175,000,000 Principal Amount 10 3/8%
Senior Subordinated Notes due May 15, 2005.
4.38(5) Form of 10 3/8% Senior Subordinated Note due May 15, 2005.
4.39(i) Exchange and Registration Rights Agreement, dated as of February
22, 1996, by and between Granite Broadcasting Corporation and
Goldman Sachs & Co., BT Securities Corporation and Lazard Freres
& Co. LLC.
4.40(i) Second Amendment to Second Amended and Restated Credit
Agreement, dated as of February 12, 1996.
4.41(i) Indenture, dated as of February 22, 1996, between Granite
Broadcasting Corporation and The Bank of New York relating to
the Company's $110,000,000 Principal Amount 9 3/8% Series A
Senior Subordinated Notes due December 1, 2005.
4.42(i) Form of 9 3/8% Series A Senior Subordinated Note due December 1,
2005.
4.43 Form of 9 3/8% Senior Subordinated Note due December 1, 2005.
5.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning the legality of the 9 3/8% Subordinated Notes.
II-2
<PAGE>
7.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning liquidation preference.
8.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning certain tax matters.
10.1(5) Granite Broadcasting Corporation Stock Option Plan, as amended
on July 25, 1995.
10.2(1) Target Cash Flow Option Plan and Agreement dated as of October
31, 1988 among Granite Broadcasting Corporation, W. Don Cornwell
and Stuart J. Beck.
10.9(5) Network Affiliation Agreement (KBJR-TV).
10.10(5) Network Affiliation Agreement (WEEK-TV).
10.11(i) Network Affiliation Agreement (KNTV(TV)).
10.12(i) Network Affiliation Agreement (WPTA-TV).
10.13(1) Employment Agreement dated as of September 20, 1991 between
Granite Broadcasting Corporation and W. Don Cornwell.
10.14(1) Employment Agreement dated as of September 20, 1991 between
Granite Broadcasting Corporation and Stuart J. Beck.
10.15(5) Granite Broadcasting Corporation Management Stock Plan, as
amended July 25, 1995.
10.16(a) Purchase and Sale Agreement between the Company and Meredith
Corporation, dated June 15, 1993.
10.17(b) Letter Agreement between the Company and the Sellers (as defined
therein) to acquire certain securities of Queen City III Limited
Partnership dated as of October 20, 1993.
10.18(3) Letter Agreement, dated December 7, 1993, between Granite and
Meredith Corporation, amending the Purchase and Sale Agreement
dated June 15, 1993.
10.19(h) Granite Broadcasting Corporation Director Stock Option Plan, as
amended on July 25, 1995.
10.20(4) Network Affiliation Agreement (WTVH-TV).
10.21(5) Network Affiliation Agreement (KSEE-TV).
10.22(c) Purchase and Sale Agreement among Granite Broadcasting
Corporation, Austin Television, a Texas general partnership,
Cannan Communications, Inc. and Beard Management, Inc. dated as
of October 2, 1994.
10.23(d) Purchase and Sale Agreement, dated as of February 20, 1995,
among Granite Broadcasting Corporation, Busse Broadcasting
Corporation and WWMT, Inc.
10.24(4) Network Affiliation Agreement (KEYE-TV).
II-3
<PAGE>
10.25(d) Granite Broadcasting Corporation Employee Stock Purchase Plan,
dated February 28, 1995.
10.26(4) Network Affiliation Agreement (WWMT).
10.27(e) Purchase Agreement, dated May 15, 1995, among Granite
Broadcasting Corporation, Queen City III Limited Partnership,
Queen City Broadcasting of New York, Inc. and the General
Partners of Queen City III Limited Partnership.
10.28(g) Network Affiliation Agreement (WKBW).
11. Statement of Computation of Per Share Earnings.
12. Statement of Computation of Financial Ratios.
22.(i) Subsidiaries of the Company.
23.1 Consent of Independent Auditors (Ernst & Young LLP).
23.2 Consent of Independent Auditors (Leslie Suffrin & Company,
P.C.).
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included
in Exhibit 5.1).
24. Power of Attorney for the Company (included as part of the
signature page to the Company's Registration No. 333-3376 filed
on April 11, 1996).
25.(6) Statement of Eligibility of Trustee (bound separately from the
other exhibits).
99.1 Letter of Transmittal.
99.2 Notice of Guaranteed Delivery.
- ----------
(1) Incorporated by reference to the similarly numbered exhibits to
the Company's Registration Statement No. 33-43770 filed on
November 5, 1991.
(2) Incorporated by reference to the similarly numbered exhibits to
the Company's Registration Statement No. 33-52988 filed on
October 6, 1992.
(3) Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-71172 filed
December 16, 1993.
(4) Incorporated by reference to the similarly numbered exhibits to
the Company's Registration Statement No. 33-94862 filed on July
21, 1995.
(5) Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-94862 filed on
October 6, 1995.
II-4
<PAGE>
(6) Incorporated by reference to the similarly numbered exhibits to
the Company's Registration No. 333-3376 filed on April 11, 1996.
(a) Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed on June 25, 1993.
(b) Incorporated by reference to the similarly numbered exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993, Commission File No. 0-19728, filed on
November 15, 1993.
(c) Incorporated by reference to the similarly numbered exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1994, Commission File No. 0-19728, filed on
November 14, 1994.
(d) Incorporated by reference to the similarly numbered exhibit to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994, filed on March 29, 1995.
(e) Incorporated by reference to Exhibit Number 3 to the Company's
Report on Form 8-K filed on May 19, 1995.
(f) Incorporated by reference to the similarly numbered exhibit to
the Company's Report on Form 8-K filed on June 16, 1995.
(g) Incorporated by reference to the similarly numbered exhibit to
the Company's Report on Form 8-K filed on July 14, 1995.
(h) Incorporated by reference to the similarly numbered exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995, Commission File No. 0- 19728, filed on
November 14, 1995.
(i) Incorporated by reference to the similarly numbered exhibits to
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995, filed on March 28, 1996.
(b) Financial Statement Schedules
Schedule II - Granite Broadcasting Corporation: Valuation of
Qualifying Assets.
Item 22. Undertakings
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the DGCL, the Certificate of Incorporation and Bylaws, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such
II-5
<PAGE>
indemnification by it is against public policy as expressed in such Securities
Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to the Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 3rd day of June, 1996.
GRANITE BROADCASTING CORPORATION
By: /s/ W. DON CORNWELL
-----------------------------------
W. Don Cornwell
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ W. DON CORNWELL Chief Executive Officer (Principal June 3, 1996
- ---------------------------- Executive Officer) and Chairman of
W. Don Cornwell the Board of Directors
/s/ STUART J. BECK* President, Secretary (Principal June 3, 1996
- ---------------------------- Financial Officer) and Director
Stuart J. Beck
/s/ LAWRENCE I. WILLS* Vice President, Finance and June 3, 1996
- ---------------------------- Controller (Principal Accounting
Lawrence I. Wills Officer)
/s/ ELLEN McCLAIN*
- ---------------------------- Vice President, Corporate June 3, 1996
Ellen McClain Development and Treasurer
/s/ MARTIN F. BECK* Director June 3, 1996
- ----------------------------
Martin F. Beck
/s/ JAMES L. GREENWALD* Director June 3, 1996
- ----------------------------
James L. Greenwald
/s/ VICKEE JORDAN ADAMS* Director June 3, 1996
- ----------------------------
Vickee Jordan Adams
/s/ EDWARD DUGGER III* Director June 3, 1996
- ----------------------------
Edward Dugger III
/s/ CHARLES J. HAMILTON, JR.* Director June 3, 1996
- ----------------------------
Charles J. Hamilton, Jr.
/s/ THOMAS R. SETTLE* Director June 3, 1996
- ----------------------------
Thomas R. Settle
/s/ MIKAEL SALOVAARA* Director June 3, 1996
- ----------------------------
Mikael Salovaara
*By: /s/ W. DON CORNWELL
- ----------------------------
W. Don Cornwell
As Attorney-in fact
II-7
<PAGE>
SCHEDULE II
GRANITE BROADCASTING CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Acquired Amount charged Balance
Allowance for beginning allowance for to costs Amount at end
Doubtful Accounts of period doubtful accounts and expenses written off(1) of period
----------------- --------- ----------------- ------------ -------------- ---------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1993 $ 165,999 $ -- $ 186,198 $ 124,832 $ 227,365
For the year ended December 31, 1994 227,365 -- 347,382 318,920 255,827
For the year ended December 31, 1995 255,827 229,171 402,619 381,858 505,759
</TABLE>
- ----------
(1) Net of recoveries.
S-1
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
1.14(6) Agreement Among Purchasers, dated February 13,
1996, among Granite Broadcasting Corporation,
Goldman, Sachs & Co., BT Securities Corporation,
Lazard Freres & Co. LLC for $110,000,000 of 9 3/8%
Series A Senior Subordinated Notes due December 1,
2005.
1.24(6) Purchase Agreement, dated February 13, 1996, among
Granite Broadcasting Corporation, Goldman, Sachs &
Co., BT Securities Corporation, Lazard Freres &
Co. LLC for $110,000,000 of 9 3/8% Series A Senior
Subordinated Notes due December 1, 2005.
3.1(i) Third Amended and Restated Certificate of
Incorporation of the Company, as amended.
3.2(i) Amended and Restated Bylaws of the Company, as
amended.
4.27(2) Indenture dated as of September 1, 1992 between
Granite Broadcasting Corporation and The United
States Trust Company of New York, as Trustee,
relating to the Company's $60,000,000 Principal
Amount 12.75% Senior Subordinated Debentures due
September 1, 2002.
4.28(2) Form of 12.75% Senior Subordinated Debenture due
September 1, 2002.
4.30(3) Form of Indenture relating to the Company's Junior
Subordinated Convertible Debentures issuable upon
the exchange of the Company's Cumulative
Convertible Exchangeable Preferred Stock.
4.31(3) Form of Junior Subordinated Convertible Debenture.
4.35(f) Second Amended and Restated Credit Agreement,
dated as of May 19, 1995, among Granite
Broadcasting Corporation, the Lenders party
thereto, Bankers Trust Company, as Administrative
Agent, Collateral Agent and Documentation Agent,
First Union National Bank of North Carolina, as
Co- Agent, Pearl Street L.P., as a Co-Agent, BT
Securities Corporation, as a Co-Syndication Agent,
and Goldman, Sachs & Co., as a Co-Syndication
Agent for the Lenders.
4.36(4) First Amendment to Second Amended and Restated
Credit Agreement, dated as of June 2, 1995.
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
4.37(4) Indenture, dated as of May 19, 1995, between
Granite Broadcasting Corporation and United States
Trust Company of New York for the Company's
$175,000,000 Principal Amount 10 3/8% Senior
Subordinated Notes due May 15, 2005.
4.38(5) Form of 10 3/8% Senior Subordinated Note due May 15,
2005.
4.39(i) Exchange and Registration Rights Agreement, dated
as of February 22, 1996, by and between Granite
Broadcasting Corporation and Goldman Sachs & Co.,
BT Securities Corporation and Lazard Freres & Co.
LLC.
4.40(i) Second Amendment to Second Amended and Restated
Credit Agreement, dated as of February 12, 1996.
4.41(i) Indenture, dated as of February 22, 1996, between
Granite Broadcasting Corporation and The Bank of
New York relating to the Company's $110,000,000
Principal Amount 9 3/8% Series A Senior Subordinated
Notes due December 1, 2005.
4.42(i) Form of 9 3/8% Series A Senior Subordinated Note due
December 1, 2005.
4.43 Form of 9 3/8% Senior Subordinated Note due December
1, 2005.
5.1 Legal Opinion of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. concerning the legality of the 9 3/8%
Subordinated Notes.
7.1 Legal Opinion of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. concerning liquidation preference.
8.1 Legal Opinion of Akin, Gump, Strauss, Hauer &
Feld, L.L.P. concerning certain tax matters.
10.1(5) Granite Broadcasting Corporation Stock Option
Plan, as amended on July 25, 1995.
10.2(1) Target Cash Flow Option Plan and Agreement dated
as of October 31, 1988 among Granite Broadcasting
Corporation, W. Don Cornwell and Stuart J. Beck.
10.9(5) Network Affiliation Agreement (KBJR-TV).
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
10.10(5) Network Affiliation Agreement (WEEK-TV).
10.11(i) Network Affiliation Agreement (KNTV(TV)).
10.12(i) Network Affiliation Agreement (WPTA-TV).
10.13(1) Employment Agreement dated as of September 20,
1991 between Granite Broadcasting Corporation and
W. Don Cornwell.
10.14(1) Employment Agreement dated as of September 20,
1991 between Granite Broadcasting Corporation and
Stuart J. Beck.
10.15(5) Granite Broadcasting Corporation Management Stock
Plan, as amended July 25, 1995.
10.16(a) Purchase and Sale Agreement between the Company
and Meredith Corporation, dated June 15, 1993.
10.17(b) Letter Agreement between the Company and the
Sellers (as defined therein) to acquire certain
securities of Queen City III Limited Partnership
dated as of October 20, 1993.
10.18(3) Letter Agreement, dated December 7, 1993, between
Granite and Meredith Corporation, amending the
Purchase and Sale Agreement dated June 15, 1993.
10.19(h) Granite Broadcasting Corporation Director Stock
Option Plan, as amended on July 25, 1995.
10.20(4) Network Affiliation Agreement (WTVH-TV).
10.21(5) Network Affiliation Agreement (KSEE-TV).
10.22(c) Purchase and Sale Agreement among Granite
Broadcasting Corporation, Austin Television, a
Texas general partnership, Cannan Communications,
Inc. and Beard Management, Inc. dated as of
October 2, 1994.
10.23(d) Purchase and Sale Agreement, dated as of February
20, 1995, among Granite Broadcasting Corporation,
Busse Broadcasting Corporation and WWMT, Inc.
10.24(4) Network Affiliation Agreement (KEYE-TV).
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
10.25(d) Granite Broadcasting Corporation Employee Stock
Purchase Plan, dated February 28, 1995.
10.26(4) Network Affiliation Agreement (WWMT).
10.27(e) Purchase Agreement, dated May 15, 1995, among
Granite Broadcasting Corporation, Queen City III
Limited Partnership, Queen City Broadcasting of
New York, Inc. and the General Partners of Queen
City III Limited Partnership.
10.28(g) Network Affiliation Agreement (WKBW).
11. Statement of Computation of Per Share Earnings.
12. Statement of Computation of Financial Ratios.
22.(i) Subsidiaries of the Company.
23.1 Consent of Independent Auditors (Ernst & Young LLP).
23.2 Consent of Independent Auditors (Leslie Suffrin &
Company, P.C.).
23.3 Consent of Akin, Gump, Strauss, Hauer & Feld,
L.L.P. (included in Exhibit 5.1).
24. Power of Attorney for the Company (included as
part of the signature page to the Company's
Registration No. 333-3376 filed on April 11,
1996).
25.(6) Statement of Eligibility of Trustee (bound
separately from the other exhibits).
99.1 Letter of Transmittal.
99.2 Notice of Guaranteed Delivery.
- --------
(1) Incorporated by reference to the similarly numbered exhibits
to the Company's Registration Statement No. 33-43770 filed
on November 5, 1991.
(2) Incorporated by reference to the similarly numbered exhibits
to the Company's Registration Statement No. 33-52988 filed
on October 6, 1992.
(3) Incorporated by reference to the similarly numbered exhibits
to Amendment No. 2 to Registration Statement No. 33-71172
filed December 16, 1993.
<PAGE>
Sequentially
Exhibit Numbered
Number Exhibit Page
------ ------- ----
(4) Incorporated by reference to the similarly numbered exhibits
to the Company's Registration Statement No. 33-94862 filed
on July 21, 1995.
(5) Incorporated by reference to the similarly numbered exhibits
to Amendment No. 2 to Registration Statement No. 33-94862
filed on October 6, 1995.
(6) Incorporated by reference to the similarly numbered exhibits
to the Company's Registration No. 333-3376 filed on April
11, 1996.
(a) Incorporated by reference to Exhibit 10.1 to the Company's
Current Report on Form 8-K, filed on June 25, 1993.
(b) Incorporated by reference to the similarly numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993, Commission File No. 0-
19728, filed on November 15, 1993.
(c) Incorporated by reference to the similarly numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994, Commission File No. 0-
19728, filed on November 14, 1994.
(d) Incorporated by reference to the similarly numbered exhibit
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994, filed on March 29, 1995.
(e) Incorporated by reference to Exhibit Number 3 to the
Company's Report on Form 8-K filed on May 19, 1995.
(f) Incorporated by reference to the similarly numbered exhibit
to the Company's Report on Form 8-K filed on June 16, 1995.
(g) Incorporated by reference to the similarly numbered exhibit
to the Company's Report on Form 8-K filed on July 14, 1995.
(h) Incorporated by reference to the similarly numbered exhibit
to the Company's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1995, Commission File No. 0-
19728, filed on November 14, 1995.
(i) Incorporated by reference to the similarly numbered exhibits
to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995, filed on March 28, 1996.
REGISTERED REGISTERED
R-
GBC
GRANITE BROADCASTING CORPORATION
9 3/8% SENIOR SUBORDINATED NOTES DUE DECEMBER 1, 2005
CUSIP 387241 AH5
Granite Broadcasting Corporation, a corporation duly organized and existing
under the laws of Delaware (herein called the "Company", which term includes any
successor Person under the Indenture hereinafter referred to ), for value
received, hereby promises to pay to
, or registered assigns,
the principal sum of DOLLARS
on December 1, 2005, and to pay interest thereon from February 22, 1996 or from
the most recent Interest Payment Date to which interest has been paid or duly
provided for, semi-annually on June 1 and December 1 in each year, commencing
December 1, 1996, at the rate of 9 3/8% per annum, until the principal hereof is
paid or made available for payment. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
regular Record Date for such interest, which shall be the May 15 or November 15
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest
to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be
listed, and upon such notice, as may be required by such exchange, all as
more fully provided in said Indenture.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for
that purpose in the Borough of Manhattan, The City of New York, New York, in
such coin or currency of the United States of America as at the time of payment
is legal tender for the payment of public and private debts; PROVIDED, HOWEVER,
that at the option of the Company payment of interest may be made by check
mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
Dated:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION GRANITE BROADCASTING CORPORATION
This is one of the Securities referred to in the
within-mentioned Indenture.
THE BANK OF NEW YORK
By as Trustee
Authorized Signatory
Granite Broadcasting Corporation
Corporate
SEAL
1988
Delaware
Attest: By:
/s/ Stuart J. Beck /s/ W. Don Cornwell
President and Secretary Chairman of the Board
<PAGE>
This security is one of a duly authorized issue of Securities of the
Company designated as its 9 3/8% Senior Subordinated Notes due December 1, 2005
(the "Exchange Securities") issued under an Indenture, dated as of February 22,
1996 (herein called the "Indenture"), between the Company and The Bank of New
York, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), together with the 9 3/8% Series A
Senior Subordinated Notes due December 1, 2005 of the Company (the "Rule 144A
Securities" and the collectively with the Exchange Securities, the
"Securities"). The Securities are limited in aggregate principal amount to
$110,000,000. Reference is hereby made to the Indenture for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee, the holders of the Senior Debt and the Holders of the
Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered.
The Securities are subject to redemption upon not less than 30 nor more
than 60 days' notice by mail in the event that on or before February 22, 1999
the Company receives net proceeds from any sale of its Capital Stock (other than
Disqualified Stock) in one or more offerings, in which case the Company may, at
its option and from time to time, use all or a portion of any such net proceeds
to redeem Securities in a principal amount of at least $5,000,000 and up to an
aggregate of $36,300,000 within 75 days of any such sale at a Redemption Price
of 109.375% of the principal amount of the Securities plus accrued interest to
but excluding the Redemption Date, but interest installments whose Stated
Maturity is on or prior to such Redemption Date will be payable to the Holders
of such Securities, or one or more Predecessor Securities, of record at the
close of business on the relevant Record Dates referred to on the face hereof,
all as provided in the Indenture.
In addition, the Securities are subject to redemption upon not less than 30
nor more than 60 days' notice by mail, at any time on or after December 1, 2000,
as a whole or in part, at the election of the Company, at the following
Redemption Prices (expressed as percentages of the principal amount), if
redeemed during the 12-month period beginning December 1, of each of the years
indicated below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- ----------
<S> <C>
2000 104.687%
2001 102.344%
2002 100%
</TABLE>
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to but
excluding the Redemption Date, but interest installments whose Stated Maturity
is on or prior to such Redemption Date will be payable to the Holders of such
Securities, or one or more Predecessor Securities, of record at the close of
business on the relevant Record Dates referred to on the face hereof, all as
provided in the Indenture.
The Securities do not have the benefit of any sinking fund obligations.
The Indenture provides that, subject to certain conditions, if (i) a Change
of Control (as defined in the Indenture) occurs or (ii) certain Net Available
Proceeds are available to the Company as a result of any Asset Disposition, the
Company shall be required to make an Offer to Purchase for all or a specified
portion of the Securities.
In the event of redemption or purchase pursuant to an Offer to Purchase of
this Security in part only, a new Security or Securities of like tenor for the
unredeemed or unpurchased portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
The indebtedness evidenced by this Security is, to the extent provided in
the Indenture, subordinate and subject in right of payment to the prior payment
in full of all Senior Debt, and this Security is issued subject to the
provisions of the Indenture with respect thereto. Each Holder of this Security,
by accepting the same, (a) agrees to and shall be bound by such provisions, (b)
authorizes and directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination so provided and (c)
appoints the Trustee his attorney-in-fact for any and all such purposes. The
Exchange Securities and the Rule 144A Securities shall rank PARI PASSU.
If an Event of Default shall occur and be continuing, the principal of all
the Securities may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture contains provisions for defeasance at any time of (i) the
entire indebtedness of this Security, (ii) certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth therein or (ii) the subordination provisions
contained in the Indenture.
Unless the context otherwise requires, the Rule 144A Securities and the
Exchange Securities shall constitute one series for all purposes under the
Indenture, including without limitation, amendments, waivers, redemptions and
Offers to Purchase.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture
at any time by the Company and the Trustee with the consent of the Holders of
a majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional to pay the principal of (and premium, if any) and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain limitations therein
set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in the Borough of Manhattan, The City of New
York, New York, duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Security Registrar duly
executed by, the Holder hereof or his attorney duly authorized in writing, and
thereupon one or more new Securities, of authorized denominations and like
tenor and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
The Exchange Securities and issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof, and the
Rule 144A Securities are issuable only in registered form without coupons in
denominations of $250,000 and any integral multiple of $1,000 in excess thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities are exchangeable for a like tenor and aggregate principal
amount of Securities of a different authorized denomination, as requested by the
Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
This Security shall be governed by and construed in accordance with the
laws of the State of New York, without regard to conflicts of laws principles
thereof.
Interest on this Security shall be computed on the basis of a 360-day year
of twelve 30-day months, PROVIDED, HOWEVER, that Additional Interest shall be
computed on the basis of a 365- or 366-day year, as the case may be, and the
number of days actually elapsed.
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company pursuant to
Sections 1013 or 1017 of the Indenture, check the box: / /
If you want to elect to have only a part of this Security purchased by the
Company pursuant to Sections 1013 or 1017 of the Indenture, state the amount:
$___________
Dated:___________________ Your Signature:___________________________________
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee:________________________________________
(Signature must be guaranteed by an "eligible guarantor institution"
meeting the requirements of the Security Registrar, which requirements
include membership or participation in the Security Transfer Agent
Medallion Program ("STAMP") or such other "signature guarantee program" as
may be determined by the Security Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities Exchange Act
of 1934, as amended).
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- ________ Custodian _________________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act ___________________________
(State)
Additional abbreviations may also be used though not in the above list
__________________________________________________________________________
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s), and
transfer(s) unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
_____________________________________________________________________ Attorney
to transfer said Note on the books of the within-named Company, with full power
of substitution in the premises.
Dated:___________________ __________________________________________________
NOTICE: The signature to this assignment must
correspond with the name as written upon the face
of the within instrument in every particular,
without alteration or enlargement or any change
whatever.
EXHIBIT 5.1
[LETTERHEAD OF AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.]
June 3, 1996
Granite Broadcasting Corporation
767 Third Avenue
34th Floor
New York, New York 10017
Ladies and Gentlemen:
We have acted as counsel to Granite Broadcasting Corporation, a Delaware
corporation (the "Issuer"), in connection with the proposed exchange by the
Issuer of an aggregate of $110,000,000 principal amount of the Issuer's 9 3/8%
Senior Subordinated Notes due December 1, 2005 (the "New Notes") for an
aggregate of $110,000,000, principal amount of the Issuer's 9 3/8% Series A
Senior Subordinated Notes due December 1, 2005 (the "Old Notes"). The Old Notes
were, and the New Notes will be, issued pursuant to the Indenture, dated as of
February 22, 1996 (the "Indenture"), between the Issuer, as obligor, and The
Bank of New York, as trustee (the "Trustee") . In connection with the exchange
offer, the Issuer has filed with the Securities and Exchange Commission a
registration statement on Form S-4, File No. 333-3376 (the "Registration
Statement"), under the Securities Act of 1933, as amended (the "Securities
Act"). Unless otherwise defined herein, capitalized terms used in this opinion
shall have the meanings set forth in the Indenture or the Accord identified in
the following paragraph.
This opinion letter is governed by, and shall be interpreted in accordance
with, the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this opinion letter should be
read in conjunction therewith. The law covered by the opinions expressed herein
is limited to the Federal laws of the United States and the laws of the State of
New York. This firm is
<PAGE>
Granite Broadcasting Corporation
June 3, 1996
Page 2
a registered limited liability partnership organized under the laws of the State
of Texas.
In preparing this opinion letter, we have examined the Indenture and the
form of the New Notes, which have been filed as exhibits to the Registration
Statement. In addition, we have examined originals or photostatic, certified or
conformed copies of all such agreements, documents, instruments, corporate
records, certificates of public officials, public records and certificates of
officers of the Issuer as we have deemed necessary or appropriate in the
circumstances. In addition to the assumptions set forth in Section 4 of the
Accord, we have relied upon factual representations made to us by the Issuer.
Based upon such examination and review, we are of the opinion that the New
Notes proposed to be exchanged for Old Notes by the Issuer have been duly
authorized for issuance and, subject to the Registration Statement becoming
effective under the Securities Act and to compliance with any applicable state
securities laws, the New Notes, when executed by the Issuer, authenticated by
the Trustee and delivered in exchange for Old Notes in accordance with the
provisions of the Indenture and the Registration Statement, and the Indenture,
will be valid and legally binding obligations of the Issuer enforceable in
accordance with their terms.
The foregoing opinion is subject to all of the qualifications, exceptions,
assumptions and limitations set forth herein, including the following:
A. The General Qualifications apply to the opinion set forth above. In
addition to the General Qualifications, we express no opinion as to the
enforceability of any provisions contained in the New Notes or the Indenture
purporting to: (i) allow the acceleration of the maturity of any indebtedness or
the exercise of any other rights without notice to the person or entity
signatory thereto or bound thereby; (ii) restrict access to legal or equitable
remedies (including, without limitation, proper jurisdiction and venue); (iii)
establish evidentiary standards; or (iv) waive the benefits of any statute of
limitation or any applicable bankruptcy, insolvency or usury law or stay or
extension law or waive any rights under any applicable statutes or rules
hereafter enacted or promulgated. In addition, the enforceability of the rights
to indemnification contained in the Indenture may be limited by Federal or New
York State laws or the policies underlying such laws. We note that the Trust
Indenture Act provides that certain provisions of the Trust Indenture Act are
automatically included in the Indenture unless expressly excluded. To the extent
that the Indenture does not expressly exclude or
<PAGE>
Granite Broadcasting Corporation
June 3, 1996
Page 3
waive such provisions of the Trust Indenture Act, such provisions may supersede
or override similar provisions in the Indenture.
We hereby consent to the filing of this opinion as Exhibit 5.1 to Amendment
No. 1 to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the prospectus forming a part of the Registration
Statement.
Very truly yours,
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
EXHIBIT 7.1
[LETTERHEAD OF AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.]
June 3, 1996
Granite Broadcasting Corporation
767 Third Avenue
34th Floor
New York, New York 10017
Ladies and Gentlemen:
You have requested our opinion, as counsel to Granite Broadcasting
Corporation, a Delaware corporation (the "Company"), concerning whether there
will be any restriction upon the surplus of the Company available for the
payment of dividends by reason of the fact that the liquidation preference of
the Company's Cumulative Convertible Exchangeable Preferred Stock, par value
$.01 per share (the "Preferred Stock"), exceeds the par value of such shares and
also as to any remedies available to security holders before or after payment of
any dividend which reduces surplus to an amount less than the amount of such
excess.
You have provided to us, and we have examined, the following documents:
(i) The certificate of incorporation of the Company (the "Certificate of
Incorporation"); and
(ii) The by-laws of the Company (the "By-Laws").
In rendering the opinion set forth below, we have assumed that the
Certificate of Incorporation and By-laws provided to us constitute the
certificate of incorporation and by-laws of the Company as currently in effect
and that the foregoing documents, in the forms submitted to us for our review,
have not been altered or amended in any respect material to our opinions as
stated herein. We have conducted no independent factual investigation of our own
but rather have relied solely upon the foregoing documents and the statements
and information set forth therein, which we have assumed to be true, complete
and accurate in all material respects.
<PAGE>
Granite Broadcasting Corporation
June 3, 1996
Page 2
Section 170 of the General Corporation Law of the State of Delaware
authorizes a Delaware corporation to pay dividends out of its surplus. Surplus
is defined by Section 154 of the General Corporation Law as the amount by which
the net assets of a corporation exceed its capital. Both net assets, as defined
in Section 154, and capital, as defined in and determined in accordance with
Sections 154 and 244 of the General Corporation Law, are determined without
reference to the amount of any liquidation preference of any class of the
corporation's stock. Accordingly, the authorization in Section 170 of the
General Corporation Law for payment of dividends out of surplus is not in any
way limited or restricted solely by reason of the fact that a class of stock of
a corporation has a liquidation preference in excess of the par value of such
stock.
We are aware of no controlling decision of any Delaware court that
addresses the question presented for our consideration, but we believe that a
Delaware court would adopt the reasoning set forth herein should the question be
litigated. We note in addition that our opinion as stated herein is supported by
the discussion of the court in Bailey v. Tubize Rayon Corp., 56 F. Supp. 418,
423 (D. Del. 1944) (applying Delaware law).
Based upon and subject to the foregoing, and based upon our consideration
of such matters of law as we have deemed appropriate, it is our opinion that (i)
prior to a dissolution, liquidation or winding-up (a "Liquidation") of the
Company, there will be no restriction upon the surplus of the Company available
for the payment of dividends on any class of stock of the Company solely by
reason of the fact that the liquidation preference of the Preferred Stock
exceeds the par value of such shares and (ii) no remedy will be available to
holders of the Preferred Stock either before or after payment of any dividend,
prior to a Liquidation of the Company, solely by reason of the fact that payment
of such dividend would reduce or reduces the surplus of the Company to an amount
less than the difference between the liquidation preference of the Preferred
Stock and the par value of such shares.
This firm is a registered limited liability partnership organized under the
laws of the State of Texas. The foregoing opinion is limited to matters
involving the General Corporation Law of the State of Delaware, and we have not
considered and express no opinion on the effect of the laws of any other
jurisdiction, including federal laws or the rules and regulations of stock
exchanges or of any other regulatory body. In addition, our opinion as stated
herein addresses only the questions whether, solely as a matter of law, there
exists any restriction upon the surplus available for payment of dividends and
whether, solely as
<PAGE>
Granite Broadcasting Corporation
June 3, 1996
Page 3
a matter of law, any remedy would be available to holders of Preferred Stock
before or after payment of dividends, solely by reason of the excess of the
liquidation preference over the par value of the Preferred Stock, and we render
no opinion on the effect of any charter restrictions on payment of dividends on
a junior stock prior to payment of all accumulated dividends on or the
redemption of a senior stock (such as the Preferred Stock) or the effect of any
other charter restrictions regarding payment of dividends or remedies relating
thereto.
We hereby consent to the use and filing of this opinion as Exhibit 7.1 to
Amendment No. 1 to the Registration Statement (No. 333-3376) filed by the
Company with the Securities and Exchange Commission.
Very truly yours,
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
EXHIBIT 8.1
[LETTERHEAD OF AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.]
June 3, 1996
Granite Broadcasting Corporation
767 Third Avenue
34th Floor
New York, New York 10017
Dear Sir or Madam:
You have requested our opinion regarding certain tax issues in connection
with the Offer to Exchange all outstanding 9 3/8% Series A Senior Subordinated
Notes due December 1, 2005 (the "Old Notes") of Granite Broadcasting Corporation
(the "Company"), which have not been registered under the Securities Act of 1933
(the "Act"), for 9 3/8% Senior Subordinated Notes of the Company due December 1,
2005 (the "New Notes"), which will be registered under the Act (the "New
Notes"), all as set forth in the Company's Amendment No. 1 to Form S-4
Registration Statement as filed with the Securities and Exchange Commission on
June 3, 1996 (the "Exchange Offer").
Our opinion is premised upon the accuracy of all factual statements made in
the Exchange Offer and the underlying documents cited therein, and upon the
completion of the transaction in the manner contemplated in the Exchange Offer.
In addition, our opinion is based upon the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury regulations (including proposed regulations)
promulgated thereunder, administrative rulings and pronouncements of the
Internal Revenue Service (the "IRS"), and judicial decisions, all as of the date
hereof and all of which are subject to change at any time, possibly with
retroactive effect. Any change in the facts or law upon which we rely could
change our conclusions and render our opinion inapplicable.
Based upon the facts and law described above, and subject to the
qualifications set forth in the "Certain U.S. Tax Considerations" section of the
Exchange Offer, it is our opinion that the "Certain U.S. Tax Considerations"
section of the Exchange Offer accurately sets forth the anticipated material
federal income tax consequences applicable to the exchange of Old
<PAGE>
Granite Broadcasting Corporation
June 3, 1996
Page 2
Notes for New Notes and the ownership and disposition of the New Notes by
persons who acquire the New Notes pursuant to the Exchange Offer. This opinion
represents our best legal judgment but has no binding effect on the IRS.
Accordingly, there can be no assurance that the IRS will not successfully
challenge our opinion.
We consent to your referring to this opinion letter in the Exchange Offer.
We do not consent to any reference to this opinion letter in any other document.
We express no opinion with respect to the merits of an investment in the Company
or participation in the Exchange Offer.
Very truly yours,
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
GRANITE BROADCASTING CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------
Primary
1991 1992 1993 1994 1995
----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Weighted Average Shares Outstanding 411,742 4,040,918 4,364,885 4,497,758 5,920,294
=========== ============ =========== =========== ===========
Income (loss) before extraordinary item $(8,294,764) $ (4,825,680) $(4,035,455) $ 3,047,404 $ (783,100)
Extraordinary loss on
extinguishment of debt -- (5,709,093) (1,007,435) -- --
----------- ------------ ----------- ----------- -----------
Net income (loss) $(8,294,764) $(10,534,773) $(5,042,890) $ 3,047,404 $ (783,100)
=========== ============ =========== =========== ===========
Net loss attributable to common
shareholders $(8,334,764) $(10,628,307) $(5,278,109) $ (687,730) $(4,333,381)
=========== ============ =========== =========== ===========
Per common share:
Loss before extraordinary item $ (20.24) $ (1.22) $ (0.98) $ (0.15) $ (0.73)
Extraordinary loss on
extinguishment of debt -- (1.41) (0.23) -- --
----------- ------------ ----------- ----------- -----------
Net loss $ (20.24) $ (2.63) $ (1.21) $ (0.15) $ (0.73)
=========== ============ =========== =========== ===========
Fully Diluted
Weighted Average Shares Outstanding 411,742 4,040,918 4,364,885 4,497,758 5,920,294
=========== ============ =========== =========== ===========
Income (loss) before extraordinary item $(8,294,764) $ (4,825,680) $(4,035,455) $ 3,047,404 $ (783,100)
Extraordinary loss on
extinguishment of debt -- (5,709,093) (1,007,435) -- --
----------- ------------ ----------- ----------- -----------
Net income (loss) $(8,294,764) $(10,534,773) $(5,042,890) $ 3,047,404 $ (783,100)
=========== ============ =========== =========== ===========
Net loss attributable to common
shareholders $(8,334,764) $(10,628,307) $(5,278,109) $ (687,730) $(4,333,381)
=========== ============ =========== =========== ===========
Per common share:
Loss before extraordinary item $ (20.24) $ (1.22) $ (0.98) $ (0.15) $ (0.73)
Extraordinary loss on
extinguishment of debt -- (1.41) (0.23) -- --
----------- ------------ ----------- ----------- -----------
Net loss $ (20.24) $ (2.63) $ (1.21) $ (0.15) $ (0.73)
=========== ============ =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-------------------------
Primary 1995 1996
(Unaudited)
-------------------------
<S> <C> <C>
Weighted Average Shares Outstanding 4,577,524 8,464,012
=========== ===========
Income (loss) before extraordinary item $ (831,466) $(3,453,953)
Extraordinary loss on
extinguishment of debt -- (3,510,152)
----------- -----------
Net income (loss) $ (831,466) $(6,964,105)
=========== ===========
Net loss attributable to common
shareholders $(1,769,941) $(7,845,425)
=========== ===========
Per common share:
Loss before extraordinary item $ (0.39) $ (0.51)
Extraordinary loss on
extinguishment of debt -- (0.42)
----------- -----------
Net loss $ (0.39) $ (0.93)
=========== ===========
Fully Diluted
Weighted Average Shares Outstanding 4,577,524 8,464,012
=========== ===========
Income (loss) before extraordinary item $ (831,466) $(3,453,953)
Extraordinary loss on
extinguishment of debt -- (3,510,152)
----------- -----------
Net income (loss) $ (831,466) $(6,964,105)
=========== ===========
Net loss attributable to common
shareholders $(1,769,941) $(7,845,425)
=========== ===========
Per common share:
Loss before extraordinary item $ (0.39) $ (0.51)
Extraordinary loss on
extinguishment of debt -- (0.42)
----------- -----------
Net loss $ (0.39) $ (0.93)
=========== ===========
</TABLE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF BROADCAST CASH FLOW MARGIN
(in thousands except percentage)
<TABLE>
<CAPTION>
Pro Forma
Years ended December 31, Latest Twelve
-------------------------------------------------------- Months Ended
1995 March 31,
1991 1992 1993 1994 1995 Pro Forma 1996
---- ---- ---- ---- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $33,426 $35,957 $37,499 $62,856 $99,895 $124,749 $125,353
======= ======= ======= ======= ======= ======== ========
Operating income $ 5,672 $ 6,865 $ 6,949 $14,513 $27,157 $ 37,381 $ 36,984
Add: Depreciation 2,446 2,279 2,398 3,420 4,514 5,237 5,450
Amortization 4,697 3,983 3,864 4,715 9,330 11,987 11,986
Corporate expense 658 1,192 1,375 2,162 3,132 3,132 3,310
Non-cash compensation expense 123 282 363 364 398
------- ------- ------- ------- ------- -------- --------
Broadcast cash flow $13,473 $14,319 $14,709 $25,092 $44,496 $ 58,101 $ 58,128
------- ------- ------- ------- ------- -------- --------
Broadcast cash flow margin 40.3% 39.8% 39.2% 39.9% 44.5% 46.6% 46.4%
======= ======= ======= ======= ======= ======== ========
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF OPERATING CASH FLOW MARGIN
(in thousands except percentage)
<TABLE>
<CAPTION>
Pro Forma
Years ended December 31, Latest Twelve
------------------------------------------------------------- Months Ended
1995 March 31,
1991 1992 1993 1994 1995 Pro Forma 1996
---- ---- ---- ---- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenue $33,426 $35,957 $37,499 $62,856 $99,895 $124,749 $125,353
Operating income $ 5,672 $ 6,865 $ 6,949 $14,513 $27,157 $ 37,381 $ 36,984
Add: Depreciation 2,446 2,279 2,398 3,420 4,514 5,237 5,450
Amortization 4,697 3,983 3,864 4,715 9,330 11,987 11,986
Non-cash compensation expense 123 282 363 363 398
Operating cash flow 12,815 13,127 13,334 22,930 41,364 54,968 54,818
Operating cash flow margin 38.3% 36.5% 35.6% 36.5% 41.4% 44.1% 43.7%
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF OPERATING CASH FLOW TO TOTAL INTEREST EXPENSE
(in thousands except ratios)
<TABLE>
<CAPTION>
Pro Forma
Years ended December 31, Latest Twelve
------------------------------------------------------------------ Months Ended
1995 March 31,
1991 1992 1993 1994 1995 Pro Forma 1996
---- ---- ---- ---- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income $ 5,672 $ 6,865 $ 6,949 $14,513 $27,157 $37,519 $36,984
Add: Depreciation 2,446 2,279 2,398 3,420 4,514 5,237 5,450
Amortization 4,697 3,983 3,864 4,715 9,330 11,850 11,986
Non-cash compensation expense 123 282 363 363 398
------- ------- ------- ------- ------- ------- -------
Operating cash flow 12,815 13,127 13,334 22,930 41,364 54,969 54,818
Total interest expense 13,709 11,675 10,977 10,707 27,029 36,119 35,920
------- ------- ------- ------- ------- ------- -------
Ratio of operating cash flow to
total interest expense 0.93x 1.12x 1.21x 2.14x 1.53x 1.52x 1.53x
======= ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(in thousands except ratios)
<TABLE>
<CAPTION>
Pro Forma
Latest Twelve
Years ended December 31, Months Ended
----------------------------------------------------- 1995 March 31,
1991 1992 1993 1994 1995 Pro Forma 1996
-------- -------- -------- ------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense $ 13,709 $ 11,676 $ 10,977 $10,707 $ 27,026 $36,119 $36,327
Amortization of deferred financing
costs 185 305 505 842 1,738 1,639 1,639
Interest component of rental expense 36 40 38 35 35 35 45
-------- -------- -------- ------- -------- ------- -------
Total fixed charges $ 13,930 $ 12,021 $ 11,520 $11,584 $ 28,799 $37,793 $38,011
======== ======== ======== ======= ======== ======= =======
Earnings:
Income (loss) before income taxes (8,767) (5,297) (4,507) 3,497 (228) 662 1
and extraordinary item
Fixed charges 13,930 12,021 11,520 11,584 28,799 37,793 38,011
-------- -------- -------- ------- -------- ------- -------
Adjusted earnings $ 5,163 $ 6,724 $ 7,013 $15,081 $ 28,571 $38,455 $38,012
======== ======== ======== ======= ======== ======= =======
Ratio of earnings to fixed
charges (a) -- -- -- 1.30x -- 1.02x 1.00x
</TABLE>
(a) Earnings were insufficient to cover fixed charges for each of the three
years in the period ended December 31, 1993 by $8,767, $5,297 and $4,507,
respectively. Earnings were insufficient to cover fixed charges for the
year ended December 31, 1995 and the three months ended March 31,1996 by
$228 and $3,393, respectively.
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF LONG-TERM DEBT TO OPERATING CASH FLOW
(in thousands except ratios)
<TABLE>
<CAPTION>
Pro Forma
Latest Twelve
Years ended December 31, Months Ended
------------------------------------------------ 1995 March 31,
1991 1992 1993 1994 1995 Pro Forma 1996
---- ---- ---- ---- ---- --------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Operating income $ 5,672 $ 6,865 $ 6,949 $14,513 $ 27,157 $ 37,519 $ 36,984
Add: Depreciation 2,446 2,279 2,398 3,420 4,514 5,237 5,450
Amortization 4,697 3,983 3,864 4,715 9,330 11,850 11,986
Non-cash compensation expense 123 282 363 363 398
------- ------- ------- ------- -------- -------- --------
Operating cash flow 12,815 13,127 13,334 22,930 41,364 54,969 54,818
Total long-term debt 95,281 99,315 97,750 95,000 341,000 345,000 344,455
------- ------- ------- ------- -------- -------- --------
Ratio of long-term debt to operating
cash flow 7.44x 7.57x 7.33x 4.14x 8.24x 6.28x 6.28x
======= ======= ======= ======= ======== ======== ========
</TABLE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Amendment No. 1 (Form S-4 No. 333-3376) pertaining to the
exchange offering of $110,000,000 principal amount of 9 3/8% Senior Subordinated
Notes of Granite Broadcasting Corporation and to the inclusion of 1) our report
dated February 22, 1996, with respect to the consolidated financial statements
and schedule of Granite Broadcasting Corporation for each of the three years in
the period ended December 31, 1995; 2) our report dated August 31, 1993, with
respect to the combined financial statements of San Joaquin Communications
Corporation and WTVH for each of the two years in the period ended June 30,
1993; 3) our report dated February 3, 1995, with respect to the financial
statements of Austin Television, a Texas General Partnership, for each of the
three years in the period ended December 31, 1994; and 4) our report dated
February 24, 1995, except for Note 1 as to which the date is May 3, 1995, with
respect to the financial statements of WWMT-TV (A division of Busse Broadcasting
Corporation) for each of the three years in the period ended January 1, 1995.
Ernst & Young LLP
New York, New York
June 3, 1996
EXHIBIT 23.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 18, 1995, except for Notes 1 and 12, as to
which date is July 23, 1995, in the Registration Statement on Form S-4 and the
related Prospectus of Granite Broadcasting Corporation for the registration of
$110,000,000 9 3/8% Senior Subordinated Notes due December 1, 2005.
Leslie Sufrin and Company, P.C.
New York, New York
May 28, 1996
EXHIBIT 99.1
GRANITE BROADCASTING CORPORATION
LETTER OF TRANSMITTAL
================================================================================
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON JULY 3, 1996,
UNLESS EXTENDED (THE "EXPIRATION DATE").
================================================================================
To Tender For Exchange In Respect of
9 3/8% Series A Senior Subordinated Notes due December 1, 2005
----------
Pursuant to the Prospectus dated June 3, 1996
To: The Bank of New York, The Exchange Agent
By Registered or Certified Mail: By Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street - 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attn: Enrique Lopez, New York, New York 10286
Reorganization Section Attn: Enrique Lopez,
Reorganization Section
By Hand: By Facsimile:
(Eligible Institutions and
Withdrawal Notices Only)
The Bank of New York (212) 571-3080
101 Barclay Street Confirm: (212)815-2742
Corporate Trust Services Window For Information Call: (212)815-6333
New York, New York 10286
Attn: Enrique Lopez,
Reorganization Section
Delivery of this instrument to an address other than as set forth above or
transmission of instructions via a facsimile number other than the one listed
above will not constitute a valid delivery. The instructions accompanying this
Letter of Transmittal should be read carefully before this Letter of Transmittal
is completed.
The undersigned acknowledges that he or she has received the Prospectus
dated June 3, 1996 (the "Prospectus") of Granite Broadcasting Corporation (the
"Company") and this Letter of Transmittal (the "Letter of Transmittal"), which
constitutes the Company's offer (the "Exchange Offer") to exchange $1,000
principal amount of its 9 3/8% Senior Subordinated Notes due December 1, 2005
(the "New Notes") which have been registered under the Securities Act of 1933,
as amended (the "Securities Act"), pursuant to a Registration Statement of which
the Prospectus is a part, for each $1,000 principal amount of their outstanding
9 3/8% Series A Senior Subordinated Notes due December 1, 2005 (the "Old
Notes"). Other capitalized terms used but not defined herein have the meaning
given to them in the Prospectus.
-1-
<PAGE>
The Letter of Transmittal is to be used by Holders of Old Notes if (i)
certificates representing the Old Notes are to be physically delivered herewith
or if the guaranteed delivery procedures described in the Prospectus are to be
utilized or (ii) delivery of the Old Notes is to be made by book-entry transfer
to the Exchange Agent's account at the Depository Trust Company pursuant to the
procedures set forth in "The Exchange Offer--Procedure for Tendering" in the
Prospectus.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Old Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their Old Notes must complete
this letter in its entirety.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE CHECKING ANY BOX BELOW
<TABLE>
<CAPTION>
=======================================================================================================================
DESCRIPTION OF 9 3/8% SERIES A SENIOR SUBORDINATED NOTES DUE DECEMBER 1, 2005
- -----------------------------------------------------------------------------------------------------------------------
Principal Amount
Aggregate Tendered (must be in
Principal denominations of
Amount $250,000 and
Name(s) and Address(es) of Registered Holder(s) Certificate Represented by integral multiples of
(Please fill in, if blank) Number(s) Certificate(s) $1,000*)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
_______________________________________________________________________________________________________________________
* Unless indicated in the column labeled "Principal Amount Tendered," any tendering Holder of Old Notes will be
deemed to have tendered the entire aggregate principal amount represented by the column labeled "Aggregate
Principal Amount Represented by Certificate(s)."
If less than all Old Notes are tendered, the aggregate principal amount of Old Notes not tendered must be $1,000
and integral multiples of $1,000 in excess thereof.
If the space provided above is inadequate, list the certificate numbers and principal amounts on a separate signed
schedule and affix the list to this Letter of Transmittal.
========================================================================================================================
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE EXCHANGE AGENT'S ACCOUNT AT THE
BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:____________________________________________________________
Book-Entry Account Number:________________________________________________________________
Transaction Code Number:__________________________________________________________________
</TABLE>
-2-
<PAGE>
|_| CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Securityholder(s):
Date of Execution of Notice of Guaranteed Delivery:
Name of Institution which Guaranteed Delivery:
If delivery is by book-entry transfer:
Name of Tendering Institution:
Book-Entry Account Number:
|_| CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 5 ADDITIONAL
COPIES OF THE PROSPECTUS AND 5 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
Address:
-3-
<PAGE>
================================================================================
SPECIAL ISSUANCE INSTRUCTIONS
(See Instructions 4, 5 and 6)
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered, or New Notes issued in exchange for Old Notes accepted for exchange,
are to be issued in the name of someone other than the undersigned.
Issue certificate(s) to:
Name____________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
Credit untendered Old Notes delivered by book-entry to The Depository Trust
Company account set forth below:
________________________________________________________________________________
(Account Number)
================================================================================
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 4, 5 and 6)
To be completed ONLY if certificates for Old Notes in a principal amount not
tendered, or New Notes issued in exchange for Old Notes accepted for exchange,
are to be sent to someone other than the undersigned, or to the undersigned at
an address other than that shown above.
Mail to:
Name____________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
================================================================================
Under the federal income tax laws, the Exchange Agent may be required to
withhold 31% of the amount of any payments made to certain Holders pursuant to
the Exchange Offer. In order to avoid such backup withholding, each tendering
Holder must provide the Exchange Agent with such Holder's correct taxpayer
identification number by completing the Substitute Form W-9 set forth on the
following page. In general, if a Holder is an individual, the taxpayer
identification number is the Social Security number of such individual. If the
Exchange Agent is not provided with the correct taxpayer identification number,
the Holder may be subject to a $50 penalty imposed by the Internal Revenue
Service. Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such Holder must submit a statement, signed
under penalties of perjury, attesting to that individual's exempt status. A form
for such statements can be obtained from the Exchange Agent. For further
information concerning backup withholding and instructions for completing the
Substitute Form W-9 (including how to obtain a taxpayer identification number if
you do not have one and how to complete the Substitute Form W-9 if Old Notes are
held in more than one name), consult the Guidelines of the Internal Revenue
Service for Certification of Taxpayer Identification Number on Substitute Form
W-9.
-4-
<PAGE>
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
Notes to be deemed invalidly tendered, but may require the Exchange Agent to
withhold 31% of the amount of any payments made pursuant to the Exchange Offer.
Backup withholding is not an additional federal income tax. Rather, the federal
income tax liability of a person subject to backup withholding will be reduced
by the amount of tax withheld. If withholding results in an overpayment of
taxes, a refund may be obtained.
<TABLE>
<CAPTION>
PAYER'S NAME: THE BANK OF NEW YORK
====================================================================================================================
<S> <C> <C>
SUBSTITUTE
Form W-9 Part 1 -- Please provide your TIN in the Social Security Number
box at the right and certify by signing and OR
Department of the Treasury dating below. Employer identification number
Internal Revenue Service
_____________________________________________________________________________________
Payer's Request for Part 2 -- Please check the box at the right if you have applied for, and are awaiting
Taxpayer receipt of, your TIN. |_|
Identification No.
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Certification -- under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number
(or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the Internal Revenue Service ("IRS") that I am subject to
backup withholding as a result of a failure to report all interest or
dividends, or the IRS has notified me that I am no longer subject to backup
withholding.
Certification instructions. -- You must cross out item (2) above if you
have been notified by the IRS that you are subject to backup withholding
because of underreporting interest or dividends on your tax return.
However, if after being notified by the IRS that you were subject to backup
withholding you receive another notification from IRS that you are no
longer subject to backup withholding, do not cross out item (2). (Also see
Certification under Specific Instructions in the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9.)
_________________________________________________ ____________________________
SIGNATURE DATE
================================================================================
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST SIGN AND
DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
================================================================================
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
IRS Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide
a number.
_________________________________________________ ____________________________
SIGNATURE DATE
================================================================================
-5-
<PAGE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO THE HOLDER OF NEW NOTES. PLEASE REVIEW THE
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
-6-
<PAGE>
Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company the principal amount of Old Notes indicated above.
Subject to and effective upon the acceptance for exchange of the principal
amount of Old Notes tendered in accordance with this Letter of Transmittal, the
undersigned sells, assigns and transfers to, or upon the order of, the Company
all right, title and interest in and to the Old Notes tendered hereby. The
undersigned hereby irrevocably constitutes and appoints the Exchange Agent its
agent and attorney-in-fact (with full knowledge that the Exchange Agent also
acts as the agent of the Company and Trustee under the Indenture for the Old
Notes and the New Notes) with respect to the tendered Old Notes with full power
of substitution to (i) deliver certificates for such Old Notes to the Company,
or transfer ownership of such Old Notes on the account books maintained by the
Book-Entry Transfer Facilities, together in either such case, with all
accompanying evidences of transfer and authenticity to, or upon the order of,
the Company and (ii) present such Old Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such Old Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old Notes tendered
hereby and that the Company will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges and encumbrances and not
subject to any adverse claim, when the same are acquired by the Company. The
undersigned hereby further represents that any New Notes acquired in exchange
for Old Notes tendered hereby will have been acquired in the ordinary course of
business of the Holder receiving such New Notes, whether or not the undersigned,
that such Holder is not participating, does not intend to participate and has no
arrangement or understanding with any person to participate, in the distribution
of such New Notes, that such Holder is not an "affiliate" (as defined under Rule
405 of the Securities Act) of the Company, and that such Holder is not a
broker-dealer who purchased the Old Notes directly from the Company to resell
pursuant to Rule 144A or any other available exemption under the Securities Act.
If the undersigned is a broker-dealer holding Old Notes acquired for its own
account as a result of market-making activities or other trading activities, the
undersigned acknowledges that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of the New
Notes; provided, however, that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The undersigned will
upon request, execute and deliver any additional documents deemed by the
Exchange Agent or the Company to be necessary or desirable to complete the
assignment and transfer of the Old Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Old Notes when, as and if the Company has given oral
or written notice thereof to the Exchange Agent.
If any tendered Old Notes are not accepted for exchange pursuant to the
Exchange Offer for any reason, certificates for any such unaccepted Old Notes
will be returned (except as noted below with respect to tenders through the
Book-Entry Transfer Facility), without expense, to the undersigned at the
address shown below or at a different address as may be indicated herein under
"Special Issuance Instructions" as promptly as practicable after the Expiration
Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old Notes pursuant to the
procedures described under the caption "The Exchange Offer--Procedure for
Tendering" in the Prospectus and in the instructions hereto will constitute a
binding agreement between the undersigned and the Company upon the terms and
subject to the conditions of the Exchange Offer.
-7-
<PAGE>
Unless otherwise indicated under "Special Issuance Instructions," please
issue the certificates representing the New Notes issued in exchange for the Old
Notes accepted for exchange and return any Old Notes not tendered or not
exchanged, in the name(s) of the undersigned (or in either such event in the
case of Old Notes tendered by Book-Entry Transfer Facility designated above, by
credit to the account at the Book Entry Transfer Facility). Similarly, unless
otherwise indicated under "Special Delivery Instructions," please send the
certificates representing the New Notes issued in exchange for the Old Notes
accepted for exchange and any certificates for Old Notes not tendered or not
exchanged (and accompanying documents, as appropriate) to the undersigned at the
address shown below the undersigned's signatures, unless, in either event,
tender is being made through the Book-Entry Transfer Facility. In the event that
both "Special Issuance Instructions" and "Special Delivery Instructions" are
completed, please issue the certificates representing the New Notes issued in
exchange for the Old Notes accepted for exchange and return any Old Notes not
tendered or not exchanged in the name(s) of, and send said certificates to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the "Special Issuance Instructions" and "Special Delivery
Instructions" to transfer any Old Notes from the name of the registered
holder(s) thereof if the Company does not accept for exchange any of the Old
Notes so tendered.
-8-
<PAGE>
Holders of Old Notes who wish to tender their Old Notes and (i) whose Old
Notes are not immediately available, or (ii) who cannot deliver their Old Notes,
this Letter of Transmittal or any other documents required hereby to the
Exchange Agent prior to the Expiration Date, may tender their Old Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Guaranteed Delivery Procedures." See
Instruction 1 regarding the completion of this Letter of Transmittal printed
below.
PLEASE SIGN HERE WHETHER OR NOT
OLD NOTES ARE BEING PHYSICALLY TENDERED HEREBY
|X| ____________________________________________ _____________________________
Date
|X| ____________________________________________ _____________________________
Signature(s) of Registered Holder(s) Date
or Authorized Signatory
Area Code and Telephone Number
The above lines must be signed by the registered Holder(s) of Old Notes as
their name(s) appear(s) on the Old Notes or by person(s) authorized to become
registered Holder(s). If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, such person must set forth his or her full
title below. See Instruction 3 regarding the completion of this Letter of
Transmittal printed below.
Name(s):________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution:
(If required by Instruction 3)
________________________________________________________________________________
(Authorized Signature)
________________________________________________________________________________
(Title)
________________________________________________________________________________
(Name of Firm)
Dated: _______________, 1996
-9-
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old Notes. The certificates
for the tendered Old Notes (or a confirmation of a book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility of all Old Notes
delivered electronically), as well as a properly completed and duly executed
copy of this Letter of Transmittal or facsimile hereof and any other documents
required by this Letter of Transmittal must be received by the Exchange Agent at
its address set forth herein prior to 5:00 P.M., New York City time, on the
Expiration Date. The exchange of New Notes for Old Notes will be made (i) with
respect to all Old Notes properly tendered and not withdrawn on or prior to 5:00
p.m., New York City time, on June 17, 1996 (the "Early Exchange Date"), within
two business days following the Early Exchange Date, and (ii) with respect to
all Old Notes properly tendered and not withdrawn after the Early Exchange Date
but on or prior to the Expiration Date, within two business days following the
Expiration Date. The method of delivery of the tendered Old Notes, this Letter
of Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. No Letter of Transmittal or Old Notes should be sent to
the Company.
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, this Letter
of Transmittal or any other documents required hereby to the Exchange Agent
prior to the Expiration Date must tender their Old Notes and follow the
guaranteed delivery procedures set forth in the Prospectus. Pursuant to such
procedures: (i) such tender must be made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent must have received from
the Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery) setting
forth the name and address of the Holder of the Old Notes, the certificate
number or numbers of such Old Notes and the principal amount of Old Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within three business days after the Expiration Date, this Letter of Transmittal
(or facsimile hereof) together with the certificate(s) representing the Old
Notes (or a confirmation of electronic delivery of book-entry delivery into the
Exchange Agent's account at the Book-Entry Transfer Facility) and any other
required documents will be deposited by the Eligible Institution with the
Exchange Agent; and (iii) such properly completed and executed Letter of
Transmittal (or facsimile hereof), as well as all other documents required by
this Letter of Transmittal and the certificate(s) representing all tendered Old
Notes in proper form for transfer (or a confirmation of electronic delivery of
book-entry delivery into the Exchange Agent's account at the Book-Entry Transfer
Facility), must be received by the Exchange Agent within three business days
after the Expiration Date, all as provided in the Prospectus under the caption
"The Exchange Offer-Guaranteed Delivery Procedures." Any Holder of Old Notes who
wishes to tender his Old Notes pursuant to the guaranteed delivery procedures
described above must ensure that the Exchange Agent receives the Notice of
Guaranteed Delivery prior to 5:00 P.M., New York City time, on the Expiration
Date.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old Notes will be determined by
the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not validly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Old Notes must be cured within such
time as the Company shall determine. Neither the Company, the Exchange Agent nor
any other person shall be under any duty to give notification of defects or
irregularities with respect to tenders of Old Notes, nor shall any of them incur
any liability for failure to give such notification.
-10-
<PAGE>
Tenders of Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not validly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering Holders of Old Notes, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
2. Partial Tenders. Tenders of Old Notes will be accepted in denominations
of $250,000 and integral multiples of $1,000 in excess thereof. If less than the
entire principal amount of any Old Notes is tendered, the tendering Holder
should fill in the principal amount tendered in the fourth column of the chart
entitled "Description of 9 3/8% Series A Senior Subordinated Notes due December
1, 2005" on page 2 hereof. If less than all Old Notes are tendered, the
aggregate principal amount of Old Notes not tendered must be $1,000 or integral
multiples of $1,000 in excess thereof. The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of all Old Notes is not
tendered, Old Notes for the principal amount of Old Notes not tendered and a
certificate or certificates representing New Notes issued in exchange of any Old
Notes accepted will be sent to the Holder at his or her registered address,
unless a different address is provided in the appropriate box on this Letter of
Transmittal or unless tender is made through the Book-Entry Transfer Facility,
promptly after the Old Notes are accepted for exchange.
3. Signatures on the Letter of Transmittal; Bond Powers and Endorsements;
Guarantee of Signatures. If this Letter of Transmittal (or facsimile hereof) is
signed by the registered Holder(s) of the Old Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the Old
Notes without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of Old Notes tendered and the certificate(s) for New Notes
issued in exchange therefor is to be issued (or any untendered principal amount
of Old Notes is to be reissued) to the registered Holder, such Holder need not
and should not endorse any tendered Old Notes, nor provide a separate bond
power. In any other case, such holder must either properly endorse the Old Notes
tendered or transmit a properly completed separate bond power with this Letter
of Transmittal, with the signatures on the endorsement or bond power guaranteed
by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder(s) of any Old Notes listed, such Old Notes must
be endorsed or accompanied by appropriate bond powers signed as the name of the
registered Holder(s) appears on the Old Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old Notes or
bond powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, or officers of corporations or others acting in a fiduciary
or representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Old Notes or signatures on bond powers required by this
Instruction 3 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal (or facsimile hereof) must be
guaranteed by an Eligible Institution unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered Holder (including any participant in
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Old Notes) who has not completed the box set forth
herein entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" or (ii) for the account of an Eligible Institution.
4. Special Issuance and Delivery Instructions. Tendering Holders should
indicate, in the applicable spaces, the name and address to which New Notes or
substitute Old Notes for principal amounts not tendered or not accepted for
exchange are to be issued or sent, if different from the name and address of the
person signing this
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<PAGE>
Letter of Transmittal (or in the case of tender of the Old Debentures through
the Book-Entry Transfer Facility, if different from such facility). In the case
of issuance in a different name, the taxpayer identification or social security
number of the person named must also be indicated.
5. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old Notes pursuant to the Exchange Offer. If,
however, certificates representing New Notes or Old Notes for principal amounts
not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the Old Notes tendered hereby, or if tendered Old Notes are registered in the
name of any person other than the person signing this Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Old Notes
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
Except as provided in this Instruction 5, it will not be necessary for
transfer tax stamps to be affixed to the Old Notes listed in this Letter of
Transmittal.
6. Waiver of Conditions. The Company reserves the absolute right to amend,
waive or modify specified conditions in the Exchange Offer in the case of any
Old Notes tendered.
7. Mutilated, Lost, Stolen or Destroyed Old Notes. Any tendering Holder
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated herein for further instruction.
8. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Holders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
================================================================================
Certificate Surrendered Old Notes Tendered Old Notes Accepted
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Delivery Prepared by Checked by Date
================================================================================
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EXHIBIT 99.2
GRANITE BROADCASTING CORPORATION
NOTICE OF GUARANTEED DELIVERY
This form or one substantially equivalent hereto must be used to accept the
Exchange Offer (as defined below) if Notes are not lost but are not immediately
available or time will not permit all required documents to reach the Exchange
Agent by, as the case may be, the Early Exchange Date or the Expiration Date (as
such terms are defined in the Prospectus). Such form may be delivered by hand or
sent by telegram, telex, facsimile transmission or mail to the Exchange Agent.
See "The Exchange Offer--Guaranteed Delivery Procedures" in the Prospectus.
To: The Bank of New York, Exchange Agent
By Hand: By Facsimile:
(Eligible Institutions and
Withdrawal Notices Only)
The Bank of New York (212) 571-3080
101 Barclay Street Confirm: (212)815-2742
Corporate Trust Services Window For Information Call: (212)815-6333
New York, New York 10286
Attn: Enrique Lopez,
Reorganization Section
By Registered or Certified Mail: By: Overnight Courier:
The Bank of New York The Bank of New York
101 Barclay Street - 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attn: Enrique Lopez, New York, New York 10286
Reorganization Section Attn: Enrique Lopez,
Reorganization Section
Delivery of this instrument to an address or transmission of instructions
to a facsimile number other than as set forth above does not constitute a valid
delivery.
Gentlemen:
The undersigned hereby represents that it "owns" the Notes tendered hereby
within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as
amended, and hereby tenders to Granite Broadcasting Corporation, a Delaware
corporation, upon the terms and subject to the conditions set forth in the
Prospectus dated June 3, 1996 and the Letter of Transmittal (which together
constitute the Exchange Offer), receipt of which is hereby acknowledged, the
principal amount of the Notes specified below, pursuant to the guaranteed
delivery procedure set forth in "The Exchange Offer--Guaranteed Delivery
Procedures" in the Prospectus.
Security Numbers Principal Amount
Securities Tendered (if available) Tendered
9 3/8% Series A
Senior Subordinated
Notes due December 1, 2005
- -------------------------- ---------------- ---------------
If Securities will be tendered by book-entry transfer at
The Depository Trust Company:
Account No. _____________
<PAGE>
SIGN HERE
____________________________________________
Signature(s) of registered holder(s)
____________________________________________
Name(s) (Please Print)
____________________________________________
Address
____________________________________________
Zip Code
____________________________________________
Area Code and Telephone Number
Dated:______________________________________
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or the National Association of Securities Dealers, Inc., or
a commercial bank or trust company having an office in the United States,
guarantees (a) that the above named person(s) "own(s)" the Notes tendered hereby
within the meaning of Rule 14e-4 under the Securities Exchange Act of 1934, as
amended, (b) that such tender of Notes complies with Rule 14e-4 (or any
successor rule thereto) and (c) to deliver to the Exchange Agent the Notes
tendered hereby in proper form for transfer, together with a properly completed
and duly executed Letter of Transmittal (or facsimile thereof) and any other
required documents, all by 5:00 P.M., New York City time, on the third business
day following the date of execution of this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter of Transmittal
and Notes tendered hereby to the Exchange Agent within the time period set forth
above and that failure to do so could result in a financial loss to the
undersigned.
SIGN HERE
____________________________________________
Name of Firm
____________________________________________
Authorized Signature
____________________________________________
Name (Please Print)
____________________________________________
Address
____________________________________________
Area Code and Telephone Number
Dated:______________________________________
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF NOTES MUST BE
MADE PURSUANT TO, AND BE ACCOMPANIED BY, THE LETTER OF TRANSMITTAL.
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