<PAGE>
As filed with the Securities and Exchange Commission on April 10, 1997.
Registration No.
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
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 (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number) Identification Number)
incorporation or
organization)
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. |_|
------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Proposed Maximum Proposed Maximum Amount of
Title of Each Class of Amount to Offering Price Aggregate Registration
Securities to be Registered be Registered Per Share Offering Price Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
12 3/4% Cumulative Exchangeable Preferred
Stock, $.01 Par Value Per Share 153,241(1) $1,000 $153,241,000 $46,437
per $1,000
liquidation preference
- ------------------------------------------------------------------------------------------------------------------------------------
12 3/4% Exchange Debentures due 2009 -(2) - - -
====================================================================================================================================
</TABLE>
(1) The Registration Statement also covers such indeterminable number of
shares of the Company's 12 3/4% Cumulative Exchangeable Preferred Stock
(the "Preferred Stock") as may be issued and delivered to holders of
Preferred Stock as an in-kind dividend payment on the Preferred Stock.
(2) The Registration Statement covers the Company's 12 3/4% Debentures Due
2009 (the "Exchange Debentures") to be issued and delivered to holders of
Preferred Stock when and if the Company exchanges the Exchange Debentures
for the Preferred Stock and such indeterminable number of Exchange
Debentures paid in lieu of cash interest on the Exchange Debentures.
Pursuant to Rule 457(i), no registration fee is required with respect to
the Exchange Debentures.
------------------
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>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
SUBJECT TO COMPLETION DATED APRIL 10, 1997
Offer to Exchange
all outstanding
12 3/4% Cumulative Exchangeable Preferred Stock
($153,241,000 aggregate liquidation preference outstanding)
for
12 3/4% Cumulative Exchangeable Preferred Stock
which has been registered under the Securities Act of 1933
of
Granite Broadcasting
Corporation
------------------
THE EXCHANGE OFFER
WILL EXPIRE AT 5:00 p.m., NEW YORK CITY TIME,
ON ________, 1997, 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 liquidation preference of its 12 3/4% Cumulative Exchangeable
Preferred Stock, par value $.01 per share (the "New Preferred Stock"), 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 liquidation preference of its
outstanding 12 3/4% Cumulative Exchangeable Preferred Stock, par value $.01 per
share (the "Old Preferred Stock"), of the Company of which $153,241,000
aggregate liquidation preference is outstanding. The New Preferred Stock and the
Old Preferred Stock are together referred to herein as the "Preferred Stock."
Granite will accept for exchange any and all shares of Old Preferred Stock
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 ______________, 1997, unless the
Exchange Offer is extended (the "Expiration Date"). The exchange of shares of
Old Preferred Stock for shares of New Preferred Stock will be made (i) with
respect to all shares of Old Preferred Stock validly tendered and not withdrawn
on or prior to 5:00 p.m. New York City time, on _________________ (the "Early
Exchange Date"), within two business days following the Early Exchange Date, and
(ii) with respect to all shares of Old Preferred Stock 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 shares of Old
Preferred Stock 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 number of shares of Old
Preferred Stock being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Company. See "The
Exchange Offer." The Company has agreed to pay the expenses of the Exchange
Offer.
FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH AN INVESTMENT IN THE NEW
PREFERRED STOCK, SEE "RISK FACTORS," BEGINNING ON PAGE 15 OF THIS PROSPECTUS.
(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 ________, 1997
<PAGE>
The shares of New Preferred Stock will be obligations of the Company
governed by the Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of the Preferred
Stock (the "Certificate of Designations"). The form and terms of the shares of
New Preferred Stock are identical in all material respects to the form and terms
of the shares of Old Preferred Stock except (i) that the shares of New Preferred
Stock have been registered under the Securities Act, (ii) that the shares of New
Preferred Stock are not entitled to certain registration rights which are
applicable to the shares of Old Preferred Stock under a registration rights
agreement (the "Registration Rights Agreement") between the Company and Goldman,
Sachs & Co., BT Securities Corporation, Lazard Freres & Co. LLC, and Solomon
Brothers, Inc., the initial purchasers of the shares of Old Preferred Stock (the
"Initial Purchasers") and (iii) for certain contingent interest rate provisions.
See "The Exchange Offer."
Dividends on the New Preferred Stock will accumulate from April 1, 1997,
the most recent dividend payment date on the Old Preferred Stock, and will be
payable semi-annually commencing October 1, 1997, at a rate per annum of 12 3/4%
of the liquidation preference per share. Dividends may be paid, at the Company's
option, on any dividend payment date occurring on or prior to April 1, 2002,
either in cash or by the issuance of additional shares of New Preferred Stock
(and, at the Company's option, payment of cash in lieu of fractional shares)
having an aggregate liquidation preference equal to the amount of such
dividends. The liquidation preference of the New Preferred Stock will be $1,000
per share. Holders of shares of Old Preferred Stock whose shares of Old
Preferred Stock are accepted for exchange will be deemed to have waived the
right to receive any dividend payment in respect of Old Preferred Stock accrued
from April 1, 1997 to the date of the issuance of the New Preferred Stock.
Dividends on the New Preferred Stock are payable semi-annually on April 1 and
October 1 of each year, commencing October 1, 1997, accruing from April 1, 1997.
The New Preferred Stock will be redeemable at the Company's option, in
whole or in part, at any time on or after April 1, 2002, at the redemption
prices set forth herein plus, without duplication, accumulated and unpaid
dividends to the date of redemption. In addition, prior to April 1, 2000, the
Company may, as its option, redeem up to an aggregate of 35% of the shares of
New Preferred Stock with the net proceeds from one or more Major Asset
Dispositions (as defined herein) or sales of Capital Stock (as defined herein)
at the redemption price set forth herein plus, without duplication, accumulated
and unpaid dividends to the redemption date; provided that after any such
redemption there is at least $75 million aggregate liquidation preference of
Preferred Stock outstanding. The Company is required, subject to certain
conditions, to redeem all of the New Preferred Stock outstanding on April 1,
2009, at a redemption price equal to 100% of the liquidation preference thereof,
plus, without duplication, accumulated and unpaid dividends to the date of
redemption. Subject to certain conditions, upon the occurrence of a Change of
Control (as defined herein), the Company will offer to purchase all of the then
outstanding shares of New Preferred Stock at a price equal to 101% of the
liquidation preference thereof plus, without duplication, accumulated and unpaid
dividends to the date of purchase.
The New Preferred Stock will rank pari passu with the Company's
outstanding Convertible Preferred Stock (as defined herein) with respect to
dividend rights and rights on liquidation of the Company. As of March 31, 1997,
there was outstanding the Debt (as defined herein) referred to below ranking
senior to the New Preferred Stock and $45.5 million in liquidation preference of
the Convertible Preferred Stock ranking pari passu with the New Preferred Stock.
Subject to certain conditions, the New Preferred Stock is exchangeable, in
whole or in part, at the option of the Company, on any dividend payment date,
for the Company's 12 3/4% Exchange Debentures due 2009 (including any such
securities paid in lieu of cash interest, as described herein, the "Exchange
Debentures"); provided that immediately after giving effect to any partial
exchange, there shall be outstanding shares of Preferred Stock with an aggregate
liquidation preference of not less than $75 million and not less than $75
million in aggregate principal amount of Exchange Debentures. Interest on the
Exchange Debentures will be payable at a rate of 12 3/4% per annum and will
accrue from the date of issuance thereof. Interest on the Exchange Debentures
will be payable semi-annually in cash or, at the option of the Company, on or
prior to April 1, 2002, in additional Exchange
ii
<PAGE>
Debentures, in arrears on each April 1 and October 1, commencing on the first
such date after the exchange of Preferred Stock for Exchange Debentures. The
Exchange Debentures mature on April 1, 2009 and are redeemable, at the option of
the Company, in whole or in part, on or after April 1, 2002, at the redemption
prices set forth herein, plus accrued and unpaid interest to the date of
redemption. In addition, prior to April 1, 2000, the Company may, at its option,
redeem up to an aggregate of 35% of the aggregate principal amount of Exchange
Debentures (whether issued in exchange for Preferred Stock or in lieu of cash
interest payments) with the net proceeds from one or more Major Asset
Dispositions or sales of Capital Stock at the redemption price set forth herein
plus accrued and unpaid interest to the redemption date; provided that after any
such redemption the aggregate principal amount of the Exchange Debentures then
outstanding is at least $75 million. Subject to certain conditions, upon the
occurrence of a Change of Control, the Company will offer to purchase all of the
then outstanding Exchange Debentures at a price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest to the date of
purchase.
The Exchange Debentures will be subordinated to all existing and future
Senior Debt (as defined herein) of the Company and will rank pari passu with the
Company's outstanding 12.75% Debentures, 10 3/8% Notes and 9 3/8% Notes (each as
defined herein) (collectively, the "Existing Notes") and will rank pari passu
with or senior to all future Debt of the Company that expressly provides that it
ranks pari passu with or junior to the Exchange Debentures as the case may be.
As of March 31, 1997, there was $62.0 million of Senior Debt of the Company
outstanding and $310.1 million of Debt ranking pari passu with the Exchange
Debentures.
Shares of Old Preferred Stock initially sold to qualified institutional
buyers were initially represented by a global certificate in fully registered
form, without coupons, deposited with a custodian for the Depository Trust
Company (the "Depository") and registered in the name of the Depository or a
nominee of the Depository. Beneficial interests in the global certificate
representing the Old Preferred Stock were shown on, and transfers thereof were
effected only through, records maintained by the Depository and its
participants. Except as described herein, shares of New Preferred Stock
exchanged for shares of Old Preferred Stock represented by the global
certificate will be represented by one or more global certificates of New
Preferred Stock in fully registered form, without coupons, registered in the
name of the nominee of the Depository. New Preferred Stock in global form will
trade in the Depository's Same-Day Funds Settlement System, and secondary market
trading activity in such New Preferred Stock will therefore settle in
immediately available funds. See "Description of Exchange Debentures -- Form
Denomination and Book - Entry Procedures." New Preferred Stock issued to
non-qualified institutional buyers in exchange for Old Preferred Stock 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 unrelated
third parties, the Company believes that shares of New Preferred Stock issued
pursuant to the Exchange Offer in exchange for shares of Old Preferred Stock 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
shares of Old Preferred Stock 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
shares of New Preferred Stock in the ordinary course of its business and is not
participating, does not intend to participate and has no arrangement or
understanding with any person to participate, in a distribution of the New
Preferred Stock. Eligible holders wishing to accept the Exchange Offer must
represent to the Company that such conditions have been met. Each broker-dealer
that receives shares of New Preferred Stock 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 Preferred Stock. 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 shares of
New Preferred Stock received in exchange for shares of Old Preferred Stock only
where such shares of Old Preferred
iii
<PAGE>
Stock 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 shares of Old Preferred Stock acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities
have been exchanged for shares of New Preferred Stock 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 SHARES OF OLD PREFERRED STOCK 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 Preferred Stock. If a market
for the New Preferred Stock should develop, the shares of New Preferred Stock
could trade at a discount from their liquidation preference. The Company does
not intend to list the shares of New Preferred Stock on a national securities
exchange or to apply for quotation of the shares of New Preferred Stock through
the National Association of Securities Dealers Automated Quotation System. There
can be no assurance that an active public market for the New Preferred Stock
will develop.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS
AND UNCERTAINTIES, INCLUDING STATEMENTS REGARDING THE COMPANY'S EXPECTATIONS,
HOPES, BELIEFS, INTENTIONS OR STRATEGIES REGARDING THE FUTURE. THE COMPANY'S
ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN THE
FORWARD-LOOKING STATEMENTS. ALL STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL
FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, STATEMENTS
UNDER "PROSPECTUS SUMMARY," "RISK FACTORS," "SELECTED CONSOLIDATED FINANCIAL
DATA," "PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS," "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS" REGARDING PLANNED ACQUISITIONS, IMPLEMENTING STRATEGIES TO CAPITALIZE
ON SUCH ACQUISITIONS, ANTICIPATED BENEFITS OF SUCH ACQUISITIONS, ACQUISITION
OPPORTUNITIES AND THE COMPANY'S FINANCIAL POSITION, BUSINESS STRATEGY AND OTHER
PLANS AND OBJECTIVES FOR FUTURE OPERATIONS, ARE FORWARD-LOOKING STATEMENTS.
iv
<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 Commission maintains a web site that contains reports and
other information regarding the Company, the address of which is
http://www.sec.gov. 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. Requests
for such documents may also be directed to the Company, 767 Third Avenue, 34th
Floor, New York, New York 10017. The Company is required pursuant to its
Certificate of Incorporation to furnish registered holders of the New Preferred
Stock or registered holders of the Exchange Debentures with annual reports,
quarterly reports and all other reports specified in Section 13(d) or 15(d) of
the Exchange Act, so long as New Preferred Stock or Exchange Debentures remain
outstanding.
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 shares of New
Preferred Stock and Exchange Debentures 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
New Preferred Stock or Exchange Debentures constitute "restricted securities"
within the meaning of the Securities Act, it will furnish to holders and
beneficial owners of such securities 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 such securities.
v
<PAGE>
TABLE OF CONTENTS
Page
----
Available Information..................................................... v
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 15
Use of Proceeds........................................................... 20
The Exchange Offer........................................................ 21
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 .................................................. 38
Business.................................................................. 43
Management................................................................ 59
Ownership of Capital Stock................................................ 69
Certain Transactions...................................................... 72
Description of the New Preferred Stock.................................... 73
Registration Covenant; Exchange Offer..................................... 84
Description of the Exchange Debentures.................................... 85
Description of Certain Debt Instruments................................... 107
Description of Preferred Stock............................................ 112
Certain U.S. Federal Income Tax Consequences.............................. 115
Plan of Distribution...................................................... 125
Experts................................................................... 125
Legal Matters............................................................. 126
Index to Financial Statements............................................. F-1
vi
<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 Preferred Stock. 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 ten
network-affiliated television stations. The Company also operates an eleventh
station, WLAJ-TV ("WLAJ"), pursuant to a time brokerage agreement. The Company's
stations are diverse in geographic location and network affiliation and the
eleven station group reaches communities representing approximately 7.75% of the
total television households in the United States. For the year ended December
31, 1996, after giving pro forma effect to consummation of the acquisition of
WXON-TV ("WXON"), the WB affiliate serving Detroit, Michigan (the "WXON
Acquisition"), and the time brokerage agreement, the Company would have had net
revenue, broadcast cash flow and operating cash flow of $150,536,000,
$69,922,000 and $65,122,000, 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 year ended December 31, 1996, Granite's net revenue, broadcast cash flow and
operating cash flow increased by 29%, 28% and 26%, respectively, from 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, 1996(a)
--------------------
Year Network Market Station Net Revenue Percentage
Station Acquired Affiliation Rank(b) Rank(b) (in millions) of Total
------- -------- ----------- ------- ------- ------------- ---------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
Detroit, Michigan ............ WXON 1997 WB 9 6 $ 18.0 12.0%
Grand Rapids - Kalamazoo -
Battle Creek, Michigan....... WWMT 1995 CBS 37 2 19.3 12.8
Buffalo, New York............. WKBW 1995 ABC 39 1 25.9 17.2
San Jose, California (c) KNTV 1990 ABC 52 2 17.5 11.6
Fresno - Visalia,
California................... KSEE 1993 NBC 55 2 14.2 9.4
Austin, Texas................. KEYE 1995 CBS 63 2 14.5 9.6
Syracuse, New York............ WTVH 1993 CBS 68 3 10.1 6.7
Fort Wayne, Indiana........... WPTA 1989 ABC 103 1 10.6 7.1
Lansing, Michigan............. WLAJ Pending (d) ABC 106 4 4.8 3.2
Peoria - Bloomington,
Illinois..................... WEEK 1988 NBC 110 1 11.2 7.5
Duluth, Minnesota -
Superior, Wisconsin.......... KBJR 1988 NBC 134 2 4.4 2.9
------ -----
$150.5 100.0%
====== =====
</TABLE>
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1
<PAGE>
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(a) Pro forma net revenue information reflects actual 1996 net revenues of the
stations adjusted to reflect negotiated increases in network compensation
revenue at WLAJ, and reduced national advertising representative
commissions at WXON.
(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"),
except for San Jose. KNTV, whose DMA is the Salinas- Monterey television
market, primarily serves San Jose and Santa Clara County (which are part
of the San Francisco-Oakland-San Jose DMA). If Santa Clara County were a
separate DMA, it would rank as the 52nd largest DMA in the United States.
"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 derived from an average of the Nielsen
Station Index for February 1997, November 1996, May 1996, and February
1996, unless otherwise noted.
(c) All 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) WLAJ is currently being operated by the Company pursuant to a time
brokerage agreement. The Company intends to acquire WLAJ. Before the
Company acquires WLAJ, the station's licensed facilities will be modified
to eliminate certain signal coverage overlap with WWMT-TV so that the
Company can obtain an FCC waiver of the restriction on the number of
television stations that may be under common ownership within the same
geographic market. Although there can be no assurance that the waiver will
be obtained, the Company believes that it will be able to obtain such a
waiver.
The Company's Principal Executive Offices are located at 767 Third Avenue,
34th Floor, New York, New York 10017, telephone number (212) 826-2530.
Recent Developments
Acquisitions
On January 31, 1997, the Company acquired substantially all the assets
used in the operation of WXON, the WB affiliate serving Detroit, Michigan, for
approximately $175,000,000 in cash and the assumption of certain liabilities.
Detroit is the 9th largest television market in the United States. The Company
currently operates stations that reach approximately 80% of the television
households in Michigan, and 7.75% of total television households in the United
States. Management has identified areas for improvement at WXON, consistent with
the Company's aggressive sales and marketing strategy, which management believes
will result in increases in revenue and broadcast cash flow.
On January 8, 1997, the Company completed the acquisition of WIVR-FM in
Eureka, Illinois for $1,000,000 in cash. The Company also changed the station's
call letters to WEEK-FM. The radio station is run in combination with
Granite-owned WEEK-TV, the leading television station in the Peoria -
Bloomington, Illinois television market ("WEEK-TV"). The Company believes
WEEK-FM will become a stronger radio station once it is established as WEEK-FM
and is able to offer the high quality news and information programming produced
by WEEK-TV.
Time Brokerage Agreement and Acquisition Agreement
In October 1996, the Company entered into agreements (the "WLAJ
Agreements") with the owner of WLAJ, the ABC affiliate serving Lansing,
Michigan, including a time brokerage agreement pursuant to which the
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2
<PAGE>
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Company operates WLAJ. The Company has an agreement to acquire substantially all
the assets used in the operation of WLAJ for approximately $19.4 million in cash
(subject to certain adjustments) and the assumption of certain liabilities. The
Lansing television market is ranked as the 106th largest television market in
the United States and is adjacent to the Detroit market where the Company has
recently acquired WXON and the Grand Rapids -Kalamazoo -- Battle Creek market
where the Company owns and operates WWMT-TV ("WWMT"). Management expects these
stations to benefit from the combination of selected administrative, sales and
production functions. Also, the operating efficiency will make it possible for
WLAJ to provide local and regional news coverage for the first time to Lansing
television viewers.
Other Developments
The Company invests selectively in technology to enhance existing
operations and develop new revenue sources. In April 1996, the Company joined
DataCast LLC, a company formed to establish and operate a national data center
and network for the broadcast of digital data through television station
broadcast signals. The other equity investors in DataCast LLC include
Chris-Craft Industries, Inc., LIN Television Corporation and Schurz
Communications Inc. Once fully developed, the datacast system is expected to
deliver data to home computer users at a rate 36 times faster than standard
(14.4kbs) telephone modems. The Company has committed to invest up to $2,500,000
in DataCast LLC, of which $1,750,000 has been invested to date.
In June 1996, the Company began an alliance with Yahoo! Inc. which is
intended to extend the news franchise of each Granite station by providing
additional information about local and national news stories on Granite station
web sites at www.granitetv.com. Both companies are working together to develop
local Yahoo! directories in all markets for which Granite stations will serve as
local advertising representative. The Company believes the alliance with Yahoo!
will enhance its efforts to develop the Internet into a complementary
advertising medium and additional revenue source.
In September 1996, the Company named Robert E. Selwyn to the newly-created
position of Chief Operating Officer. Mr. Selwyn has over 20 years of experience
in television broadcasting. Most recently, he was Chairman and Chief Executive
Officer of the New World Television Station Group, where he had oversight
responsibility for stations in a wide variety of markets including Dallas,
Detroit, Atlanta, Cleveland, San Diego and Milwaukee.
Risk Factors
The New Preferred Stock offered hereby involves a high degree of risk. See
"Risk Factors."
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3
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Summary of Terms of the Exchange Offer
The Exchange Offer relates to the exchange of up to $153,241,000 aggregate
liquidation preference of Old Preferred Stock for up to an equal aggregate
liquidation preference of New Preferred Stock. The shares of New Preferred Stock
will be obligations of the Company governed by the Certificate of Designations.
The form and terms of the shares of New Preferred Stock are identical in all
material respects to the form and terms of the shares of Old Preferred Stock
except (i) that the shares of New Preferred Stock have been registered under the
Securities Act, (ii) that the shares of New Preferred Stock are not entitled to
certain registration rights which are applicable to the shares of Old Preferred
Stock under the Registration Rights Agreement and (iii) for certain contingent
interest rate provisions. The shares of Old Preferred Stock and the shares of
New Preferred Stock are together referred to herein as the "Preferred Stock."
See "Description of the New Preferred Stock."
The Exchange Offer..... $1,000 liquidation preference of New Preferred Stock
will be issued in exchange for each $1,000 liquidation
preference of Old Preferred Stock validly tendered
pursuant to the Exchange Offer. As of the date hereof,
$153,241,000 in aggregate liquidation preference of Old
Preferred Stock is outstanding. The exchange of New
Preferred Stock for Old Preferred Stock will be made (i)
with respect to all Old Preferred Stock 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
Preferred Stock validly tendered and not withdrawn on or
prior to the Expiration Date, within two business days
following the Expiration Date. The Old Preferred Stock
was originally issued in a private placement. As a
condition to the purchase of the Old Preferred Stock,
the Initial Purchasers required that the Company make a
registered offer to exchange the Old Preferred Stock for
other securities substantially similar to the Old
Preferred Stock. 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
unrelated third parties, the Company believes that
shares of New Preferred Stock issued pursuant to the
Exchange Offer in exchange for shares of Old Preferred
Stock 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 shares of New
Preferred Stock 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 shares of New
Preferred Stock. See "K-III Communications Corporation,"
SEC No Action Letter (available May 14, 1993); "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 shares of New Preferred Stock for its own
account in exchange for shares of Old Preferred Stock,
where such shares of Old Preferred Stock were
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4
<PAGE>
- --------------------------------------------------------------------------------
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 shares of New
Preferred Stock. 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 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 shares of Old Preferred Stock
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 shares of Old Preferred Stock validly tendered and
not withdrawn on or prior to 5:00 p.m. New York City
time, on _________, 1997 (the "Early Exchange Date")
will be exchanged for shares of New Preferred Stock
within two business days following the Early Exchange
Date.
Expiration Date........ 5:00 p.m., New York City time, on _________, 1997 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 -- Terms of the Exchange Offer -- Expiration Date;
Extensions; Amendments."
Accrued Dividends on
the New Preferred
Stock and the Old
Preferred Stock........ The shares of New Preferred Stock will accrue dividends
from April 1, 1997, the most recent dividend payment
date on the Old Preferred Stock. Holders of shares of
Old Preferred Stock whose shares of Old Preferred Stock
are accepted for exchange will be deemed to have waived
the right to receive any payment in respect of interest
on such shares of Old Preferred Stock accrued from April
1, 1997 until the date of the issuance of the shares of
New Preferred Stock. See "The Exchange Offer -- Accrual
of Dividends on the New Preferred Stock."
Conditions to the
Exchange Offer......... The Company will not be obligated to consummate the
Exchange Offer if the shares of New Preferred Stock 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.
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5
<PAGE>
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Procedure for
Tendering Shares
of Old Preferred
Stock.................. Each holder of shares of Old Preferred Stock 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 shares
of Old Preferred Stock (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 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 shares of Old Preferred
Stock 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
shares of Old Preferred Stock, either make appropriate
arrangements to register ownership of the shares of Old
Preferred Stock 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 shares of Old Preferred Stock who wish to
tender their shares of Old Preferred Stock and whose
shares of Old Preferred Stock are not immediately
available or who cannot deliver their shares of Old
Preferred Stock (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 Exchange Date or the
Expiration Date, as the case may be, may tender their
shares of Old Preferred Stock according to the
guaranteed delivery procedures set forth in "The
Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights...... Tenders of shares of Old Preferred Stock 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."
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6
<PAGE>
Acceptance of
Old Preferred
Stock and Delivery
of New Preferred
Stock.................. 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 shares of
Old Preferred Stock 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 shares of New Preferred Stock 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. Federal Income Tax
Consequences."
Exchange Agent......... The Bank of New York, the Transfer Agent for the
Preferred Stock, 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: Reorganization Section. For information with
respect to the Exchange Offer, call (212) 815-5920.
Use of Proceeds........ The Company will not receive any proceeds from the
exchange of the New Preferred Stock for the Old
Preferred Stock pursuant to the Exchange Offer. The net
proceeds from the sale of Old Preferred Stock of
approximately $144,350,000 (after deducting Initial
Purchaser's discounts and expenses of the Offering) were
used, together with borrowings under the Credit
Agreement (as defined), to pay the purchase price for
the WXON Acquisition. See "Use of Proceeds."
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7
<PAGE>
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Summary Description of the Securities to be Registered
The Cumulative Exchangeable Preferred Stock
Securities Offered..... 153,241 shares (the "Shares") of 12 3/4% Cumulative
Exchangeable Preferred Stock, par value $0.01 per share
(the "New Preferred Stock").
Issue Price............ $1,000 per share plus accumulated and unpaid dividends,
if any, from April 1, 1997, the most recent dividend
payment date on the Old Preferred Stock.
Liquidation Preference. $1,000 per share, plus accumulated and unpaid dividends.
Dividends.............. At a rate equal to 12 3/4% per annum of the liquidation
preference per share, payable semi-annually beginning
October 1, 1997 and accumulating from April 1, 1997,
whether or not declared by the Board of Directors of the
Company. The Company, at its option, may pay declared
dividends on any dividend payment date occurring on or
before April 1, 2002 either in cash or by the issuance
of additional shares of New Preferred Stock (and, at the
Company's option, payment of cash in lieu of fractional
shares) having an aggregate liquidation preference equal
to the amount of such dividends.
Dividend Payment Dates. April 1 and October 1, commencing October 1, 1997.
Optional Redemption.... The New Preferred Stock will be redeemable, at the
option of the Company, in whole or in part, at any time
on or after April 1, 2002, at the redemption prices set
forth herein, plus, without duplication, accumulated and
unpaid dividends to the date of redemption. In addition,
prior to April 1, 2000, the Company may, at its option,
use the Net Available Proceeds (as defined herein) of
one or more Major Asset Dispositions or sales of Capital
Stock to redeem up to an aggregate of 35% of the shares
of New Preferred Stock at the redemption price set forth
herein, plus, without duplication, accumulated and
unpaid dividends to the date of redemption; provided
that after any such redemption, there is at least $75
million aggregate liquidation preference of the
Preferred Stock outstanding and that such redemption
occurs within 90 days following the closing of such
Major Asset Disposition or sale of Capital Stock.
Mandatory Redemption... The Company is required, subject to certain conditions,
to redeem all of the New Preferred Stock outstanding on
April 1, 2009, at a redemption price equal to 100% of
the liquidation preference thereof, plus, without
duplication, accumulated and unpaid dividends to the
date of redemption.
Voting................ The New Preferred Stock will be non-voting, except as
otherwise required by law and except in certain
circumstances described herein,
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8
<PAGE>
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including amending certain rights of the holders of the
New Preferred Stock. In addition, if the Company: (i)
after April 1, 2002, fails to pay cash dividends in
respect of three or more semi-annual dividend periods in
the aggregate; (ii) fails to make a mandatory redemption
or a Change of Control Offer (as defined herein); or
(iii) fails to comply with certain covenants or make
certain payments on its Debt or its Cumulative
Convertible Exchangeable Preferred Stock, par value
$0.01 per share (the "Convertible Preferred Stock"),
holders of a majority of the outstanding shares of
Preferred Stock, with the holders of shares of any
Parity Securities (as defined herein), issued after
January 31, 1997, the date of issuance of the Old
Preferred Stock (the "Issue Date"), upon which like
voting rights have been conferred and are then
exercisable, voting as a single class, will be entitled
to elect the lesser of two directors or that number of
directors constituting at least 25% of the Company's
Board of Directors.
Exchange Provisions.... Exchangeable into the Exchange Debentures, at the
Company's option, subject to certain conditions, in
whole or in part, on any scheduled dividend payment
date; provided that immediately after giving effect to
any such partial exchange, there shall be outstanding
shares of Preferred Stock with an aggregate liquidation
preference of not less than $75 million and not less
than $75 million of aggregate principal amount of
Exchange Debentures.
Ranking................ The New Preferred Stock will, with respect to dividend
rights and rights on liquidation, winding-up and
dissolution of the Company, rank senior to all classes
of common stock and pari passu with all other classes of
preferred stock of the Company outstanding at the time
of consummation of the offering of the Old Preferred
Stock (the "Offering").
Change of Control...... Provided there are no 12.75% Debentures outstanding, in
the event of a Change of Control, the Company will,
subject to certain conditions, offer to purchase all
then outstanding shares of New Preferred Stock at a
purchase price equal to 101% of the liquidation
preference thereof, plus, without duplication,
accumulated and unpaid dividends to the date of
purchase. There can be no assurance that the Company
will have sufficient funds to purchase all of the New
Preferred Stock in the event of a Change of Control or
that the Company would be able to obtain financing for
such purpose on favorable terms, if at all.
Certain Restrictive
Provisions............. The Certificate of Designations contains certain
restrictive provisions that, among other things, limit
the ability of the Company and its subsidiaries to incur
additional Debt, pay dividends or make certain other
restricted payments, or merge or consolidate with or
sell all or substantially all of their assets to any
other person.
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9
<PAGE>
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The Exchange Debentures
Issue.................. 12 3/4% Exchange Debentures due 2009 issuable, at the
Company's option, in exchange for the New Preferred
Stock in an aggregate principal amount equal to the
liquidation preference of the New Preferred Stock so
exchanged, plus, without duplication, accumulated and
unpaid dividends to the date fixed for the exchange
thereof (the "Exchange Date"), plus any additional
Exchange Debentures issued from time to time in lieu of
cash interest.
Maturity............... April 1, 2009.
Interest Rate and
Payment Dates.......... The Exchange Debentures will bear interest at a rate of
12 3/4% per annum. Interest will accrue from the date of
issuance or from the most recent interest payment date
to which interest has been paid or provided for or, if
no interest has been paid or provided for, from the
Exchange Date. Interest will be payable semi-annually in
cash (or, at the option of the Company, on or prior to
April 1, 2002, in additional Exchange Debentures) in
arrears on each April 1 and October 1, commencing with
the first such date after the Exchange Date.
Optional Redemption.... The Exchange Debentures will be redeemable, at the
option of the Company, in whole or in part, at any time
on or after April 1, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest to the
date of redemption. In addition, prior to April 1, 2000,
the Company may, at its option, use the net proceeds of
one or more Major Asset Dispositions or sales of Capital
Stock to redeem up to 35% of the aggregate principal
amount of the Exchange Debentures (whether issued in
exchange for New Preferred Stock or in lieu of cash
interest payments), at the redemption price set forth
herein, plus accrued and unpaid interest to the date of
redemption; provided that after any such redemption, the
aggregate principal amount of the Exchange Debentures
outstanding must equal at least $75 million and that
such redemption occurs within 90 days following the
closing of such Major Asset Disposition or sale of
Capital Stock.
Ranking................ The Exchange Debentures will be subordinated to all
existing and future Senior Debt of the Company. In
addition, the Exchange Debentures will be effectively
subordinated to all existing and future Debt of the
Company's subsidiaries. The Exchange Debentures will
rank pari passu with the Existing Notes and will rank
pari passu or senior to any class or series of Debt that
expressly provides that it ranks pari passu or
subordinate to the Exchange Debentures, as the case may
be.
Change of Control...... In the event of a Change of Control, the Company will,
subject to certain conditions, be required to offer to
purchase all outstanding Exchange Debentures at a
purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the date
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10
<PAGE>
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of purchase. There can be no assurance that the Company
will have sufficient funds to purchase all the Exchange
Debentures in the event of a Change of Control or that
the Company would be able to obtain financing for such
purpose on favorable terms, if at all.
Certain Covenants...... The indenture governing the Exchange Debentures (the
"Exchange Indenture") will contain certain covenants
that, among other things, limit the ability of the
Company and its subsidiaries to incur additional Debt,
pay dividends or make certain other restricted payments,
enter into certain transactions with affiliates, or
merge or consolidate with or sell all or substantially
all of their assets to any other person.
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11
<PAGE>
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Summary Consolidated Financial Data
(in thousands, except per share data)
The summary 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
data for the years ended December 31, 1993, 1994, 1995 and 1996 are derived from
audited financial statements. The summary pro forma data below should be read in
conjunction with the unaudited Pro Forma Condensed Consolidated Financial
Statements and notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------------
1996
1993 1994 1995 1996 Pro Forma(a)
---- ---- ---- ---- ------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue.......................................... $ 37,499 $ 62,856 $ 99,895 $ 129,164 $ 150,536
Station operating expenses........................... 22,790 37,764 55,399 72,089 80,614
Depreciation and amortization........................ 6,262 8,135 13,844 17,968 22,583
Corporate expense.................................... 1,375 2,162 3,132 4,800 4,800
Non-cash compensation................................ 123 282 363 496 496
Operating income..................................... 6,949 14,513 27,157 33,811 42,043
Equity in net loss (income) of investee.............. -- -- (439) 995 995
Interest expense, net................................ 10,977 10,707 27,026 36,915 39,831
Income (loss) before extraordinary item.............. (4,035) 3,047 (783) (5,894) $ (773)
===========
Extraordinary loss on extinguishment of debt (1,007) -- -- (2,891)
Net income (loss).................................... $ (5,042) $ 3,047 $ (783) $ (8,785)
========== ========= ========== ===========
Net loss attributable to common shareholders $ (5,278) $ (688) $ (4,333) $ (12,310)
========== ========== ========== ===========
Loss before extraordinary item per common share $ (0.98) $ (0.15) $ (0.73) $ (1.09) $ (2.72)
========== ========== ========== ============ ===========
Net loss per common share............................ $ (1.21) $ (0.15) $ (0.73) $ (1.43)
========== ========== ========== ============
Weighted average common shares outstanding .......... 4,365 4,498 5,920 8,612 8,612
Fully diluted common shares outstanding at year
end(b)............................................. 17,249 18,144 18,543 19,648 19,648
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, 1996
------------------------------------ -----------------------
1993 1994 1995 Actual Pro Forma(a)
---- ---- ---- ------ ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets................................... $ 191,517 $ 189,881 $ 452,221 $ 452,563 $ 627,574
Total debt..................................... 99,000 99,250 341,000 351,561 378,961
New Preferred Stock, net of Offering related
expenses..................................... -- -- -- -- 144,350
Other redeemable preferred stock(c)............ 49,139 49,171 45,488 45,488 45,488
Stockholders' equity (deficit)................. 12,075 11,729 8,868 (3,135) (3,135)
</TABLE>
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<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------
1996
1993 1994 1995 1996 Pro Forma(a)
---- ---- ---- ---- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C>
Other Data:
Broadcast cash flow(d) ........................... $14,709 $25,092 $44,495 $57,075 $69,922
Broadcast cash flow margin ....................... 39.2% 39.9% 44.5% 44.2% 46.4%
Operating cash flow(e) ........................... $13,334 $22,930 $41,364 $52,275 $65,122
Operating cash flow margin ....................... 35.6% 36.5% 41.4% 40.5% 43.3%
Cash flows provided by operating activities ...... $ 3,611 $ 5,808 $ 8,806 $13,291
Capital expenditures ............................. $ 1,089 $ 2,628 $ 7,682 $ 6,938 $ 6,938
Ratio of:
Operating cash flow to total interest expense .. 1.21x 2.14x 1.53x 1.41x 1.63x
Earnings to fixed charges(f) ................... -- 1.30x -- -- 1.00x
Earnings to combined fixed charges and preferred
stock dividends(g) ........................... -- 1.23x -- -- --
Long-term debt to operating cash flow .......... 7.33x 4.14x 8.24x 6.73x 5.82x
Long-term debt and New Preferred Stock to
operating cash flow .......................... 8.04x
</TABLE>
- ----------
(a) Gives effect to the WXON Acquisition and the operation of WLAJ pursuant to
a time brokerage agreement and the application of the net proceeds of the
Old Preferred Stock offered in the Offering and additional borrowings
under the Company's Credit Agreement as if such events had occurred on
January 1, 1996. See "Use of Proceeds" and "Pro Forma Condensed
Consolidated Statement of Operations."
(b) Fully diluted common shares outstanding assumes conversion of all
convertible preferred stock and the exercise of all outstanding stock
options.
(c) As of March 31, 1997, the conversion price of the Convertible Preferred
Stock (which trades under the symbol "GBTVP") was $5.00 per share of
Common Stock (Nonvoting), subject to adjustment from time to time as
provided in the Company's Certificate of Incorporation. As of March 31,
1997, the last reported sale price per share of the Common Stock
(Nonvoting), as reported by Nasdaq, was $9.63.
(d) "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.
(e) "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.
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13
<PAGE>
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(f) 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 the years ended December 31, 1993,
1995 and 1996 by $4,507, $228 and $5,133, respectively.
(g) For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, "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 combined
fixed charges and preferred stock dividends for the years ended December
31, 1993, 1995, 1996 and on a pro forma basis for the year ended
December 31, 1996 by $4,743, $3,778, $8,658 and $22,445, respectively.
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14
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before making an investment in the New Preferred Stock. This Prospectus
contains forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, including those set
forth in the following risk factors and elsewhere in this Prospectus.
Limitations on Financial Flexibility; Effect of Non-compliance with Restrictive
Covenants
The Company has incurred significant indebtedness in connection with the
acquisition of its ten television stations and anticipates incurring additional
indebtedness in connection with future acquisitions, including the acquisition
of WLAJ. At March 31, 1997, the Company's long-term indebtedness was
approximately $372,000,000 and its combined long-term indebtedness and
liquidation and redemption obligations on the Preferred Stock and the
Convertible Preferred Stock was approximately $571,000,000. The Indenture (the
"9 3/8% Note Indenture") governing the Company's 9 3/8% Senior Subordinated
Notes due December 2005 (the "9 3/8% Notes"), 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," and collectively with the 9 3/8% Note Indenture and the 10 3/8%
Note Indenture, the "Existing Indentures") 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 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.
A substantial portion of the Company's cash flow from operations is
required for debt service. The Company's ability to service its debt, including
the Existing Notes, borrowings under the Credit Agreement and the Exchange
Debentures and the 7.75% 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 Existing Notes.
Ranking of New Preferred Stock; Subordination; Pledge of Assets to Secure Senior
Indebtedness
The New Preferred Stock will rank junior in right of payment upon
liquidation to all existing and future indebtedness of the Company and will rank
pari passu with the Convertible Preferred Stock in right of payment upon
liquidation. The Exchange Debentures will be subordinated in right of payment to
all existing and future Senior Debt (as defined under "Description of the
Exchange Debentures -- Subordination," 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 March 31, 1997, there was $62,000,000 of Senior Debt
outstanding. The Credit Agreement permits up to
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$300,000,000 of revolving borrowings thereunder and the Certificate of
Designations and the Exchange Indenture do not limit the amount of Senior Debt
that the Company may incur provided that the incurrence of debt is then
permitted thereunder, and the Company expects from time to time to incur
additional indebtedness consisting of Senior Debt. By reason of the
subordination, 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 Preferred Stock or Exchange Debentures may be
paid. The Exchange Indenture also does not limit the amount of debt ranking pari
passu with the Exchange Debentures that the Company may incur provided that the
incurrence of debt is then permitted under the Exchange Indenture. The 7.75%
Exchange Debentures, if issued, will rank junior in right of payment to the
Exchange Debentures. If the Company incurs any additional pari passu debt, the
holders of such debt, along with the holders of the Existing Notes, would be
entitled to share ratably with the holders of the Exchange Debentures 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
Exchange Debentures. In addition, no payments may be made with respect to the
principal of (premium, if any) or interest on the Exchange Debentures if a
payment default exists with respect to Senior Debt and, under certain
circumstances, no payments may be made with respect to the Exchange Debentures
if a non-payment default exists with respect to Senior Debt. In addition, the
Exchange 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 Exchange Debentures. See "Description of the
Exchange Debentures."
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
Exchange Debentures will be materially adversely affected.
Dividend and Repayment Restrictions on New Preferred Stock
The Credit Agreement currently prohibits the payment of cash dividends on
the New Preferred Stock. For all dividend payment dates through and including
April 1, 2002, the Company may at its option, pay declared dividends by the
issuance of additional shares of New Preferred Stock (and, at the Company's
option, payment of cash in lieu of fractional shares) having an aggregate
liquidation preference equal to the amount of such dividends. After April 1,
2002, if the Company is in arrears in the payment of dividends for three or more
semi-annual dividend periods, the holders of the Preferred Stock with the
holders of shares of any Parity Securities issued after the Issue Date upon
which like voting rights have been conferred and are then exercisable will be
permitted, voting separately as a single class, to elect the lesser of two
directors or that number of directors constituting 25% of the Board of Directors
of the Company.
Dependence on Subsidiaries
Nine of the Company's ten owned and operated television stations are owned
by wholly-owned subsidiaries of the Company, and future acquisitions including
the acquisition of WLAJ, will likely be made through present or future
subsidiaries. The Company's cash flow and consequent ability to service its
debt, including the Exchange Debentures and its ability to redeem the Preferred
Stock for cash (whether upon a mandatory redemption, a Change of Control or
otherwise) 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 anticipates, with
respect to stations it acquires, implementing strategies to improve operating
results, including
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aggressively managing personnel and other operating expenses. Although these
strategies have been successfully implemented by the Company in the case of the
Company's existing stations, there can be no assurance that the Company will be
able to successfully implement such strategies in the future. In addition, there
also can be no assurance that the Company and its subsidiaries will experience
continued growth or continued improved operating results in the future. The
Company's subsidiaries have no obligation, contingent or otherwise, to make any
funds available to the Company. The Credit Agreement and the Existing Indentures
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 New
Preferred Stock or Exchange Debentures, if the New Preferred Stock is exchanged
therefor, 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; Limitation on Future Utilization of Net Operating Losses
for Tax Purposes
The Company reported net losses of $10,535,000, $5,042,000, $783,000 and
$8,785,000 for the years ended December 31, 1992, 1993, 1995 and 1996,
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 $5,709,000,
$1,007,000 and $2,891,000 incurred in 1992, 1993 and 1996, respectively, on the
early extinguishment of debt) and depreciation and amortization charges. 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.
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 television stations are affiliated with NBC, three
of the Company's television stations and WLAJ are affiliated with 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 --
Stations Overview."
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
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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 recently
commenced implementation of the provisions of the Telecommunications Act of
1996. The FCC has recently adopted rules relating to digital television, and 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," "-- The
Cable Television Consumer Protection and Competition Act" and "-- Proposed
Legislation and Regulations."
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 -- Competition."
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.
Provided there are no 12.75% Debentures outstanding, in the event of a
Change of Control, the Company will be required to offer to purchase all
outstanding New Preferred Stock at a purchase price equal to 101% of the
aggregate liquidation preference thereof plus, without duplication, accumulated
and unpaid dividends thereon to the date of purchase. Upon the occurrence of a
Change of Control and regardless of whether or not the 12.75% Debentures are
then outstanding, the Company will also be required to offer to purchase all of
the Existing Notes and any outstanding Exchange Debentures at 101% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
purchase, of which approximately $310.1 million principal amount, in the
aggregate, were outstanding as of March 31, 1997. 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 Preferred Stock, Existing Notes and Exchange Debentures
tendered by the holders thereof.
Lack of Trading Market for the New Preferred Stock; Transfer Restrictions
There is no existing trading market for the Old Preferred Stock, and there
can be no assurance regarding the future development of a market for the
Preferred Stock, or the ability of holders to sell, or the price at which such
holders may be able to sell, their New Preferred Stock. If such a market were to
develop, the New Preferred Stock could trade at prices that may be higher or
lower than the initial offering price, depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Initial Purchasers have advised the Company that they
are making a market in the Old Preferred Stock and that they intend to make a
market in the New Preferred Stock. The Initial Purchasers are not obligated to
do so, however, and any market making with respect to the Preferred Stock may be
discontinued at any time without notice. Therefore, there
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<PAGE>
can be no assurance as to the liquidity of any trading market for the New
Preferred Stock or that an active market for the New Preferred Stock will
develop. The foregoing considerations also apply to any Exchange Debentures. The
Company does not intend to list the New Preferred Stock on any securities
exchange or include the New Preferred Stock in any automated quotation system.
Consequences of the Exchange Offer on Non-Tendering Holders of the Old Preferred
Stock
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 Preferred Stock. Consequently,
following completion of the Exchange Offer, holders of shares of Old Preferred
Stock 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 shares of
Old Preferred Stock.
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USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
New Preferred Stock offered hereby. In consideration for issuing the New
Preferred Stock offered hereby, the Company will receive, in exchange, Old
Preferred Stock in like liquidation preference.
The net proceeds of the Offering, $144,350,000 (after deducting the
Initial Purchasers' discounts and estimated expenses of the Offering), were
used, together with borrowings under the Credit Agreement, to pay the purchase
price for the WXON Acquisition.
The following table sets forth the sources and application of funds
related to the WXON Acquisition:
In
Thousands
---------
Sources of funds:
Sale of the New Preferred Stock offered hereby ................... $150,000
Incremental bank borrowings ...................................... 27,400
--------
Total......................................................... $177,400
========
Application of funds, other expenses of the Offering:
Purchase price of WXON (less escrow deposit of $5,000) ........... $170,000
Estimated Offering and related expenses (including
Initial Purchasers' discount and expenses associated
with the Offering and the WXON Acquisition) ..................... 7,400
--------
Total......................................................... $177,400
========
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THE EXCHANGE OFFER
Terms of the Exchange Offer
General
The shares of Old Preferred Stock were sold by the Company on January 31,
1997, in a private placement in reliance on Regulation D under the Securities
Act and/or on Section 4(2) of the Securities Act. The shares of Old Preferred
Stock were sold to the Initial Purchasers who resold the shares of Old Preferred
Stock to "qualified institutional buyers" within the meaning of Rule 144A under
the Securities Act. The Initial Purchasers required as a condition to the
purchase of the shares of Old Preferred Stock that the Company grant the
purchasers of the shares of Old Preferred Stock 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 shares of Old Preferred Stock on January 31, 1997 (the
"Closing"), a registration statement relating to an exchange offer pursuant to
which shares which are substantially identical to the shares of Old Preferred
Stock would be offered in exchange for the then outstanding shares of Old
Preferred Stock tendered at the option of the holders thereof. The form and
terms of the shares of New Preferred Stock are identical in all material
respects to the form and terms of the shares of Old Preferred Stock except (i)
that the shares of New Preferred Stock have been registered under the Securities
Act, (ii) that the shares of New Preferred Stock are not entitled to certain
registration rights which are applicable to the shares of Old Preferred Stock
under the Registration Rights Agreement, and (iii) certain contingent interest
rate provisions applicable to the shares of Old Preferred Stock are generally
not applicable to the shares of New Preferred Stock. 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 shares of Old Preferred Stock 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 fails 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) has 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 relating to the
effectiveness of such registration statement or resale registration statement
occur, then the per annum dividend rate on the shares of Old Preferred Stock
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 dividend 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
dividend rate on the shares of Old Preferred Stock 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 shares of Old Preferred Stock not tendered in the
Exchange Offer will not be entitled to require the Company to file a resale
registration statement, and the dividend rate on such shares of Old Preferred
Stock will remain at its initial level. See "Description of the New Preferred
Stock -- 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 shares of New Preferred
Stock for all outstanding shares of Old Preferred Stock (other than shares of
Old Preferred Stock held by a Restricted Holder) pursuant to such exchange offer
and (ii) the Company having exchanged, pursuant to such exchange offer, shares
of New Preferred Stock for all shares of Old Preferred Stock that have been
validly tendered and not withdrawn on the Expiration Date. In such event,
holders of shares of Old Preferred Stock seeking liquidity in their investment
would have to rely on exemptions to registration requirements under applicable
securities laws, including the Securities Act.
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<PAGE>
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
shares of Old Preferred Stock validly tendered prior to 5:00 p.m., New York City
time, on the Expiration Date. The exchange of New Preferred Stock for shares of
Old Preferred Stock will be made (i) with respect to shares of all Old Preferred
Stock 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 shares of Old Preferred Stock 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 shares of New Preferred Stock
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 liquidation preference of New Preferred Stock in exchange for each $1,000
liquidation preference of outstanding Old Preferred Stock accepted in the
Exchange Offer.
Based on an interpretation by the staff of the Commission set forth in SEC
no-action letters issued to unrelated third parties, the Company believes that
shares of New Preferred Stock issued pursuant to the Exchange Offer in exchange
for shares of Old Preferred Stock 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 shares of New Preferred Stock 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 shares
of New Preferred Stock. See "KC-III Communications Corporation," SEC No-Action
Letter (available May 14, 1993); "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 shares of New Preferred Stock for its own account in exchange for
shares of Old Preferred Stock, where such shares of Old Preferred Stock 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 shares of New Preferred Stock. 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 shares of Old Preferred Stock, the
Company arranged for the inclusion of the Old Preferred Stock initially
purchased by qualified institutional buyers on the Private Offerings, Resales
and Trading through Automated Linkages (PORTAL) Market of the National
Association of Securities Dealers, Inc. The Company also arranged for the shares
of Old Preferred Stock initially purchased by qualified institutional buyers to
be issued and transferable in book-entry form through the facilities of the
Depository, acting as depository, and in the DTC's Same-Day Funds Settlement
System. The shares of New Preferred Stock will also be issuable and transferable
in book-entry form through the Depository in the Same-Day Funds Settlement
System.
As of the date of this Prospectus, $153,241,000 in aggregate liquidation
preference of the Old Preferred Stock is outstanding.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of shares of Old Preferred Stock as of ______________,
1997 (the "Record Date").
The Company shall be deemed to have accepted validly tendered shares of
Old Preferred Stock 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 shares of Old Preferred Stock for the purpose of receiving
shares of New Preferred Stock from the Company and delivering shares of New
Preferred Stock to such holders.
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If any tendered shares of Old Preferred Stock 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 shares of Old Preferred
Stock will be returned, without expense, to the tendering holder thereof as
promptly as practicable after the Expiration Date.
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 shares of
Old Preferred Stock pursuant to the Exchange Offer. See "-- Fees and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean ______, 1997, 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 shares of Old Preferred Stock 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 shares of
Old Preferred Stock, to extend the Exchange Offer or to terminate the Exchange
Offer and to refuse to accept shares of Old Preferred Stock 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 shares of Old Preferred Stock. 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 shares of Old Preferred Stock 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.
Accrual of Dividends on the New Preferred Stock
The New Preferred Stock will accrue dividends from April 1, 1997, the most
recent dividend payment date on the Old Preferred Stock, payable semi-annually
in arrears on April 1 and October 1 of each year commencing on October 1, 1997,
at the rate per annum equal to 12 3/4% of the liquidation preference per share
of the New Preferred Stock. Holders of shares of Old Preferred Stock whose
shares of Old Preferred Stock are accepted for exchange will be deemed to have
waived the right to receive any payment in respect of dividends on such shares
of Old Preferred Stock accrued from April 1, 1997 until the date of the issuance
of the New Preferred Stock.
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<PAGE>
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 Preferred Stock
(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., a commercial bank or
trust company having an office or correspondent in the United States or another
eligible institution (an "Eligible Institution") unless the shares of Old
Preferred Stock 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.
Any financial institution that is a participant in the Depository's
Book-Entry Transfer Facility system may make book-entry delivery of the shares
of Old Preferred Stock by causing the Depository to transfer such shares of Old
Preferred Stock into the Exchange Agent's account in accordance with the
Depository's procedure for such transfer. Although delivery of shares of Old
Preferred Stock may be effected through book-entry transfer into the Exchange
Agent's account at the Depository, 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 THE DEPOSITORY IN
ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE
AGENT.
The tender by a holder of shares of Old Preferred Stock 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 shares of Old Preferred Stock 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
shares of Old Preferred Stock should be sent to the Company.
Only a holder of shares of Old Preferred Stock may tender such shares of
Old Preferred Stock in the Exchange Offer. The term "holder" with respect to the
Exchange Offer means any person in whose name shares of Old Preferred Stock 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
shares of Old Preferred Stock are held of record by the Depository who desires
to deliver such shares of Old Preferred Stock at the Depository.
Any beneficial holder whose shares of Old Preferred Stock are registered
in the name of his broker, dealer, commercial bank, trust company or other
nominee and who wishes to tender his shares of Old Preferred Stock 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 shares of Old Preferred Stock, either
make appropriate arrangements to register ownership of the shares of Old
Preferred Stock 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.
24
<PAGE>
If the Letter of Transmittal is signed by a person other than the
registered holder of any shares of Old Preferred Stock listed therein, such
shares of Old Preferred Stock must be endorsed or accompanied by appropriate
bond powers which authorize such person to tender the shares of Old Preferred
Stock on behalf of the registered holder, in either case signed as the name of
the registered holder or holders appears on the shares of Old Preferred Stock.
If the Letter of Transmittal or any shares of Old Preferred Stock 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 shares of Old Preferred
Stock 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 shares of Old Preferred Stock not validly tendered or any
shares of Old Preferred Stock 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 shares of Old Preferred Stock. 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 shares of Old
Preferred Stock 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 shares of Old Preferred Stock nor shall any of them incur any liability for
failure to give such notification. Tenders of shares of Old Preferred Stock will
not be deemed to have been made until such irregularities have been cured or
waived. Any shares of Old Preferred Stock 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 shares of Old Preferred Stock 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 shares of New Preferred Stock 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 shares of New Preferred Stock, (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 shares of Old Preferred Stock
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 shares of Old Preferred Stock and (i)
whose shares of Old Preferred Stock are not immediately available or (ii) who
cannot deliver their shares of Old Preferred Stock, 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 telegram, telex, facsimile
transmission, mail, overnight courier or hand delivery) setting forth the name
and address of the holder of the shares of Old Preferred Stock, the certificate
number or numbers of such shares of Old Preferred Stock and the principal amount
of Old Preferred Stock 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 shares of Old
Preferred
25
<PAGE>
Stock 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
shares of Old Preferred Stock in proper form for transfer (or confirmation of a
book-entry transfer into the Exchange Agent's account at the Depository of
shares of Old Preferred Stock 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 Preferred Stock 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 shares of Old Preferred Stock 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 shares of Old Preferred Stock to be withdrawn
(the "Depositor"), (ii) identify the shares of Old Preferred Stock to be
withdrawn (including the certificate number or numbers and principal amount of
such shares of Old Preferred Stock), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which such
shares of Old Preferred Stock were tendered (including required signature
guarantees) or be accompanied by documents of transfer sufficient to permit the
transfer agent with respect to the Old Preferred Stock to register the transfer
of such shares of Old Preferred Stock into the name of the Depositor withdrawing
the tender and (iv) specify the name in which any such shares of Old Preferred
Stock 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 shares of Old
Preferred Stock so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no shares of New Preferred Stock will be
issued with respect thereto unless the shares of Old Preferred Stock so
withdrawn are validly retendered. Any shares of Old Preferred Stock 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 shares of Old Preferred Stock 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 shares of New Preferred
Stock 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
shares of New Preferred Stock 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 shares of Old Preferred Stock and, in the case of such
refusal, will return all tendered shares of Old Preferred Stock to exchanging
holders of the shares of Old Preferred Stock. See "Description of New Preferred
Stock -- Registration Covenant; Exchange Offer."
26
<PAGE>
Exchange Agent
The Bank of New York 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: Reorganization Section
By Registered or
Certified Mail: The Bank of New York
101 Barclay Street - 7E
New York, New York 10286
Attn: Reorganization Section
By Overnight
Courier: The Bank of New York
101 Barclay Street
Corporate Trust Services Window
New York, New York 10286
Attn: Reorganization Section
Facsimile
Transmission:
(Eligible
Institutions
and Withdrawal
Notices Only) (212) 571-3080
Confirm: (212) 815-5920
For Information Call: (212) 815-5920
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 the transfer agent
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 shares of Old Preferred Stock pursuant to the Exchange Offer. If,
however, certificates representing shares of New Preferred Stock or shares of
Old Preferred Stock 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 shares of Old Preferred Stock
tendered, or if tendered shares of Old Preferred Stock 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 shares of
Old Preferred Stock 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
27
<PAGE>
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 as a reduction of stockholders' equity over the term of the
New Preferred Stock under generally accepted accounting principles.
28
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1996 on an actual basis and on an as adjusted basis to reflect the
sale of the Old Preferred Stock and borrowings under the Credit Agreement and
the application of the net proceeds therefrom:
<TABLE>
<CAPTION>
December 31, 1996
--------------------------------
As
Actual Adjusted
-------- ---------
(unaudited)
(in thousands)
Long-term debt:
<S> <C> <C>
Credit Agreement................................................................. $ 22,500 $ 49,900
12.75% Senior Subordinated Debentures due September 1, 2002...................... 60,000 60,000
10 3/8% Senior Subordinated Notes due May 15, 2005............................... 173,000 173,000
9 3/8% Senior Subordinated Notes due December 1, 2005,
net of unamortized discount.................................................... 96,061 96,061
-------- --------
Total long-term debt........................................................... 351,561 378,961
Redeemable preferred stock, $.01 par value:
Cumulative Convertible Exchangeable Preferred Stock.............................. 45,488 45,488
Preferred Stock, net of Offering related expenses................................ -- 144,350
Stockholders' equity (deficit):
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 8,499,716
shares of Common Stock (Nonvoting) issued and outstanding...................... 87 87
Additional paid-in capital......................................................... 45,547 45,547
Accumulated deficit................................................................ (45,376) (45,376)
Less: unearned compensation....................................................... (2,506) (2,506)
Note receivable from officer................................................... (887) (887)
--------- ---------
Total stockholders' deficit.................................................... (3,135) (3,135)
-------- --------
Total capitalization............................................................... $393,914 $565,664
======== ========
</TABLE>
29
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction
with the consolidated financial statements and notes thereto included elsewhere
herein. The selected consolidated financial data for the years ended December
31, 1992, 1993, 1994, 1995 and 1996 are derived from the Company's audited
consolidated financial statements. The selected pro forma data below should be
read in conjunction with the unaudited Pro Forma Condensed Consolidated
Financial Statements and notes thereto contained elsewhere in this Prospectus.
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 Pro Forma(a)
---- ---- ---- ---- ---- ------------
(unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations Data:
Net revenue .............................................. $ 35,957 $ 37,499 $ 62,856 $ 99,895 $ 129,164 $ 150,536
Station operating expenses ............................... 21,638 22,790 37,764 55,399 72,089 80,614
Depreciation ............................................. 2,279 2,398 3,420 4,514 6,144 6,425
Amortization ............................................. 3,983 3,864 4,715 9,330 11,824 16,158
Corporate expense ........................................ 1,192 1,375 2,162 3,132 4,800 4,800
Non-cash compensation .................................... -- 123 282 363 496 496
-------- -------- -------- -------- --------- ---------
Operating income ......................................... 6,865 6,949 14,513 27,157 33,811 42,043
Other expense ............................................ 487 479 309 798 1,034 1,012
Equity in net loss (income) of investee .................. -- -- -- (439) 995 995
Interest expense, net .................................... 11,675 10,977 10,707 27,026 36,915 39,831
-------- -------- -------- -------- --------- ---------
Income (loss) before income tax and
extraordinary item ..................................... (5,297) (4,507) 3,497 (228) (5,133) 205
(Provision) benefit for income tax benefit ............... 471 472 (450) (555) (761) (978)
-------- -------- -------- -------- --------- ---------
Income (loss) before extraordinary item .................. (4,826) (4,035) 3,047 (783) (5,894) $ (773)
=========
Extraordinary loss on extinguishment of debt ............. (5,709) (1,007) -- -- (2,891)
-------- -------- -------- -------- ---------
Net income (loss) ........................................ $(10,535) $ (5,042) $ 3,047 $ (783) $ (8,785)
======== ======== ======== ======== =========
Net loss attributable to common shareholders ............. $(10,628) $ (5,278) $ (688) $ (4,333) $ (12,310)
======== ======== ======== ======== =========
Loss before extraordinary item per common
share .................................................. $ (1.22) $ (0.98) $ (0.15) $ (0.73) $ (1.09) $ (2.72)
======== ======== ======== ======== ========= =========
Net loss per common share ................................ $ (2.63) $ (1.21) $ (0.15) $ (0.73) $ (1.43)
======== ======== ======== ======== =========
Weighted average common shares outstanding ............... 4,041 4,365 4,498 5,920 8,612 8,612
Fully diluted common shares outstanding at
year-end(b) ............................................ 7,316 17,249 18,144 18,543 19,648 19,648
</TABLE>
<TABLE>
<CAPTION>
December 31, December 31, 1996
------------------------------------------- -----------------------
1992 1993 1994 1995 Actual Pro Forma(a)
---- ---- ---- ---- ------ ------------
(in thousands) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total assets ...................................... $140,948 $191,517 $189,881 $452,221 $ 452,563 $ 627,574
Total debt ........................................ 101,611 99,000 99,250 341,000 351,561 378,961
New Preferred Stock, net of Offering
related expenses ................................ -- -- -- -- -- 144,350
Other redeemable preferred stock(c) ............... 1,574 49,139 49,171 45,488 45,488 45,488
Stockholders' equity (deficit) .................... 17,211 12,075 11,729 8,868 (3,135) (3,135)
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 Pro Forma(a)
---- ---- ---- ---- ---- ------------
(unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other Data:
Broadcast cash flow(d) ........................ $ 14,319 $14,709 $25,092 $44,495 $57,075 $69,922
Broadcast cash flow margin .................... 39.8% 39.2% 39.9% 44.5% 44.2% 46.4%
Operating cash flow(e) ........................ $ 13,127 $13,334 $22,930 $41,364 $52,275 $65,122
Operating cash flow margin .................... 36.5% 35.6% 36.5% 41.4% 40.5% 43.3%
Cash flows provided by (used in)
operating activities ........................ $ (1,001) $ 3,611 $ 5,808 $ 8,806 $13,291
Capital expenditures .......................... $ 1,036 $ 1,089 $ 2,628 $ 7,682 $ 6,938 $ 6,938
Ratio of:
Operating cash flow to total
interest expense .......................... 1.12x 1.21x 2.14x 1.53x 1.41x 1.63x
Earnings to fixed charges(f) ................ -- -- 1.30x -- -- 1.00x
Earnings to combined fixed charges
and preferred stock
dividends(g) .............................. -- -- 1.23x -- -- --
Long-term debt to operating cash
flow ...................................... 7.57x 7.33x 4.14x 8.24x 6.73x 5.82x
Long-term debt and New Preferred
Stock to operating cash flow .............. 8.04x
</TABLE>
- ----------
(a) Gives effect to the WXON Acquisition and the operation of WLAJ pursuant to
a time brokerage agreement and the application of the net proceeds of the
Old Preferred Stock in the Offering and additional borrowings under the
Credit Agreement as if such events had occurred on January 1, 1996. See
"Use of Proceeds" and "Pro Forma Condensed Consolidated Financial
Statements."
(b) Fully diluted common shares outstanding assumes conversion of all
convertible preferred stock and the exercise of all outstanding stock
options.
(c) As of March 31, 1997, the conversion price of the Convertible Preferred
Stock (which trades under the symbol "GBTVP") was $5.00 per share of
Common Stock (Nonvoting), subject to adjustment from time to time as
provided in the Company's Certificate of Incorporation. As of March 31,
1997, the last reported sale price per share of the Common Stock
(Nonvoting), as reported by Nasdaq, was $9.63.
(d) "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.
(e) "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.
31
<PAGE>
(f) 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 the years ended December 31, 1992,
1993, 1995 and 1996 by $5,297, $4,507, $228 and $5,133, respectively.
(g) For purposes of computing the ratio of earnings to combined fixed charges
and preferred stock dividends, "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 combined
fixed charges and preferred stock dividends for the years ended December
31, 1992, 1993, 1995, 1996 and on a pro forma basis for the year ended
December 31, 1996 by $5,390, $4,743, $3,778, $8,658 and $22,445,
respectively.
32
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
The pro forma condensed consolidated financial statements presented below
are based on the historical financial statements of the Company, WXON and WLAJ.
The pro forma condensed consolidated statement of operations for the year ended
December 31, 1996 gives effect to: (i) the WXON Acquisition; (ii) the operation
of WLAJ pursuant to a time brokerage agreement dated as of October 17, 1996; and
(iii) the application of the net proceeds of the Offering and the application of
additional borrowings under the Credit Agreement to finance the WXON Acquisition
as if such transactions occurred on January 1, 1996. The pro forma condensed
consolidated balance sheet as of December 31, 1996 gives effect to: (i) the WXON
Acquisition; and (ii) the application of the net proceeds of the Offering and
the application of additional borrowings under the Credit Agreement as if such
transactions occurred on December 31, 1996.
The pro forma condensed consolidated financial statements give effect to
the acquisition described above under the purchase method of accounting and are
based upon the assumptions and adjustments described in the accompanying notes.
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, 1996
(Unaudited)
(in thousands, except per share data)
<TABLE>
<CAPTION>
Granite
Broadcasting WXON WLAJ
Corporation Twelve Months Nine Months
Year ended ended ended
December 31, December 31, September 30, Pro Forma
1996 1996 1996 adjustments Pro Forma
------------ ------------- ------------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Net revenue................ $129,164 $17,804 $3,057 $ 511 (a) $150,536
Station operating expenses. 72,089 7,177 2,624 (1,276)(b) 80,614
Depreciation expense....... 6,144 81 557 (357)(c) 6,425
Amortization expense....... 11,824 7 27 4,300 (d) 16,158
Corporate expense.......... 4,800 151 (151)(e) 4,800
Non-cash compensation...... 496 496
-------- -------- ------- --------
Operating income (loss).... 33,811 10,539 (302) 42,043
Equity in net loss of
investee................. 995 995
Interest expense (income),
net...................... 36,915 (417) 665 2,668 (f) 39,831
Other expense (income)..... 1,034 (69) 47 1,012
-------- -------- ------- --------
Income (loss) before income
taxes and extraordinary
item..................... (5,133) 11,025 (1,014) 205
Provision for income taxes. (761) (217) (978)
-------- -------- -------- --------
Income (loss) before
extraordinary
item..................... $ (5,894) $10,808 $(1,014) $(773)
========= ======== ======== ========
Dividend on preferred
stock.................... 3,525 19,125 (g) 22,650
--------- ---------
Loss before extraordinary
item attributable to common
shareholders............. $ (9,419) $(23,423)
========= ========
Loss before extraordinary
item per common share.... $ (1.09) $ (2.72)
========= ========
Weighted average common
shares outstanding(h).... 8,612 8,612
</TABLE>
34
<PAGE>
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
December 31, 1996
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Granite
Broadcasting
Corporation WXON
December 31, December 31, Pro Forma Pro
1996 1996 Adjustments Forma
ASSETS ------------ ------------ ----------- --------
------
CURRENT ASSETS
<S> <C> <C> <C> <C>
Cash................................ $ 556 $ 556
Accounts receivable, net............ 27,057 27,057
Film contract rights and other assets 16,062 $2,905 $(5,000)(i) 13,967
-------- ------ --------
TOTAL CURRENT ASSETS...... 43,675 2,905 41,580
PROPERTY AND EQUIPMENT, NET......... 33,562 203 1,797 (i) 35,562
OTHER NONCURRENT ASSETS............. 18,466 18,466
INTANGIBLE ASSETS................... 356,860 173,356 (i) 531,966
1,750 (j)
TOTAL ASSETS.............. $452,563 $3,108 $627,574
======== ====== ========
LIABILITIES AND
---------------
STOCKHOLDERS' EQUITY (DEFICIT)
------------------------------
CURRENT LIABILITIES
Accounts payable.................. $ 4,017 $ 4,017
Accrued liabilities............... 10,025 10,025
Film contract rights payable...... 9,578 3,261 12,839
-------- ------ --------
TOTAL CURRENT LIABILITIES....... 23,620 3,261 26,881
LONG-TERM DEBT...................... 351,561 27,400 (k) 378,961
FILM CONTRACT RIGHTS PAYABLE........ 3,383 3,383
DEFERRED INCOME TAXES AND
OTHER NONCURRENT LIABILITIES...... 31,646 31,646
REDEEMABLE PREFERRED STOCK.......... 45,488 144,350 (k) 189,838
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock...................... 87 87
Additional paid in capital........ 45,547 45,547
Accumulated deficit............... (45,376) (45,376)
Less: Unearned compensation....... (2,506) (2,506)
Note receivable from officer.... (887) (887)
-------- --------
Total stockholders' deficit..... (3,135) (3,135)
Net assets to be acquired......... (153) 153 (l) 0
------ --------
Total liabilities and
stockholders' equity (deficit) $452,563 $3,108 $627,574
======== ====== ========
</TABLE>
35
<PAGE>
NOTES TO PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Adjustments reflected in the pro forma condensed consolidated financial
statements are explained as follows:
(a) To adjust net revenue to reflect negotiated increases in network
compensation revenue at WLAJ and reduced national representative
commissions at WXON.
(b) To adjust station operating expenses as follows:
To eliminate the cost of news programming no longer
aired and production expenses for a program that is
also no longer aired at WLAJ........................ $ 85,000
To reduce amortization of film contract rights at WXON
to reflect the net assets to be acquired based on the
preliminary allocation of the purchase price......... 416,000
To reduce salary and wages and related benefit costs
associated with permanent staff reductions at WLAJ
made during 1996..................................... 381,000
To eliminate sales commissions paid on barter
transactions at WLAJ................................ 16,000
To eliminate the cost of a studio lease at WLAJ which
was terminated during 1996.......................... 53,000
To eliminate a management fee paid to a related party
of WXON............................................. 273,000
To adjust station operating expenses for certain other
general and administrative expenses at WLAJ......... 52,000
----------
$1,276,000
==========
(c) To eliminate depreciation expense of WLAJ and to record additional
depreciation expense at WXON based on the preliminary allocation of
the purchase price.
(d) To reflect increased amortization expense as follows:
(i) Amortization of excess costs of the purchase
price over net assets acquired................ $4,334,000
(ii) Elimination of historical amortization expense
in the financial statements of WXON and WLAJ.. (34,000)
----------
$4,300,000
==========
(e) To eliminate historical corporate expense charged to WLAJ.
(f) To record interest expense on additional borrowings under the Credit
Agreement, the monthly fee paid to the current owner of WLAJ pursuant
to the time brokerage agreement and to eliminate historical interest
expense (income) in the financial statements of WXON and WLAJ.
(g) To reflect a dividend rate on the Preferred Stock of 12 3/4%.
36
<PAGE>
(h) Pro forma weighted average common shares outstanding does not include
the conversion of the Convertible Preferred Stock and the exercise of
any outstanding stock options as the effect would be anti-dilutive.
(i) To record the preliminary allocation of the purchase price of WXON as
follows:
<TABLE>
<CAPTION>
Historical Carrying Estimated
Value as Reported Market Value
WXON of Assets Pro Forma
December 31, 1996 Purchased Adjustment
----------------- --------- ----------
<S> <C> <C> <C>
Film contract rights and other
assets..................... $ 2,905,000 $ 2,905,000 $ --
Property and equipment....... 203,000 2,000,000 1,797,000
Intangible assets............ -- 173,356,000 173,356,000
Film contract rights payable and
other liabilities.......... (3,261,000) (3,261,000) --
----------- ------------ ------------
Net assets (liabilities)..... $ (153,000) $175,000,000 $175,153,000
=========== ============= ============
</TABLE>
The Company made a $5,000,000 deposit in connection with the WXON
Acquisition.
(j) To reflect the incurrence of other costs associated with the WXON
Acquisition.
(k) To reflect the issuance of the Preferred Stock, net of Offering
related expenses, and the application of additional borrowings under
the Credit Agreement.
(l) To eliminate the seller's historical carrying value of the net assets
of WXON.
37
<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, 1994, 1995 and 1996 in
substantially all line items. The principal reasons for such increases are the
acquisition of KEYE-TV ("KEYE") on February 1, 1995, the acquisition of WWMT-TV
("WWMT") on June 1, 1995 and the acquisition of WKBW-TV ("WKBW") on June 29,
1995 and the improvements in the Company's operations.
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. The primary operating expenses involved in owning and operating
television stations are employee salaries, depreciation and amortization,
programming and advertising and promotion expenses. 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, 1994, 1995 and 1996:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating income......................... $14,513,000 $27,157,000 $33,811,000
Add:
Depreciation and amortization.......... 8,135,000 13,843,000 17,968,000
Corporate expense...................... 2,162,000 3,132,000 4,800,000
Non-cash compensation.................. 282,000 363,000 496,000
----------- ----------- -----------
Broadcast cash flow...................... $25,092,000 $44,495,000 $57,075,000
=========== =========== ===========
</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 from operations 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.
The Company has elected as provided under Statement of Financial
Accounting Standards No. 123 (Accounting for Stock-Based Compensation) to
continue to account for stock-based employee compensation under Accounting
Principles Board Opinion No. 25.
Years ended December 31, 1996 and 1995
Net revenue for the year ended December 31, 1996 totaled $129,164,000, an
increase of $29,269,000, or 29.3% compared to net revenue of $99,895,000 for the
year ended December 31, 1995. Of this increase, $21,262,000 resulted from the
inclusion of one additional month of operations of KEYE, five additional months
of operations of WWMT and six additional months of operations of WKBW in 1996.
The remaining increase was primarily a result of increased local and national
advertising, political spending and increased network compensation.
38
<PAGE>
Station operating expenses for the year ended December 31, 1996 totaled
$72,089,000, an increase of $16,690,000, or 30.1% compared to station operating
expenses of $55,399,000 in the prior year. Of this increase, $10,648,000 was due
to the inclusion of one additional month of operating expenses of KEYE, five
additional months of operating expenses of WWMT and six additional months of
operating expenses of WKBW. The remaining increase was primarily due to higher
programming expenses and increased news expenses associated with the launch of a
news operation at KEYE.
Broadcast cash flow totaled $57,075,000 during the year ended December 31,
1996 compared to $44,495,000 during 1995, an increase of $12,580,000, or 28.3%.
Of the increase, $10,614,000 was due to the inclusion of one additional month of
operations of KEYE, five additional months of operations of WWMT and six
additional months of operations of WKBW.
Depreciation and amortization increased by $4,125,000, or 29.8% during the
year ended December 31, 1996 compared to 1995 primarily due to the inclusion of
one additional month of operations of KEYE, five additional months of operations
of WWMT and six additional months of operations of WKBW. Corporate expense
increased $1,668,000, or 53.3% during the year ended December 31, 1996 compared
to 1995, 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 $133,000 during the year ended
December 31, 1996 compared to 1995 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
$6,654,000 or 24.5% during the year ended December 31, 1996 compared to 1995.
The equity in net loss of investee of $995,000 for the year ended December
31, 1996 resulted from the Company recognizing its pro rata share of the losses
of Datacast LLC accounted for under the equity method of accounting. 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, the ultimate parent of WKBW, under the
equity method of accounting. On June 29, 1995, the Company acquired the
remaining interest in Queen City III Limited Partnership.
Net interest expense totaled $36,915,000 during the year ended December
31, 1996, an increase of $9,889,000, or 36.6% compared to net interest expense
of $27,026,000 during the year ended December 31, 1995, primarily due to higher
levels of outstanding indebtedness as a result of the acquisitions of WWMT and
WKBW in June of 1995.
During 1996, the Company incurred an extraordinary loss of $2,891,000 on
the early extinguishment of debt. See "--Liquidity and Capital Resources."
Net loss totaled $8,785,000 during the year ended December 31, 1996
compared to net loss of $783,000 during 1995, an increase of $8,002,000. This
change was primarily due to the changes in the line items discussed above.
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 initial nine
stations (including
39
<PAGE>
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 initial 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.
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. Broadcast cash flow
at the Company's initial 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.
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.
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, 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.
Liquidity and Capital Resources
On February 22, 1996, the Company completed an offering of $110,000,000
principal amount of the 9 3/8% Notes. 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 then 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 $3,510,000 related to the write-off of
deferred financing fees. During the second quarter, the Company purchased
$2,000,000 face amount of the 10 3/8% Notes and
40
<PAGE>
$13,500,000 face amount of the 9 3/8% Notes at a discount. As a result of these
transactions, the Company recognized a net extraordinary loss for the year ended
December 31, 1996 of $2,891,000.
In September 1996, the Company amended and restated its existing credit
agreement (as amended and restated, the "Credit Agreement") to increase the
total amount of committed revolving credit borrowings available thereunder from
$60,000,000 to $200,000,000 and to permit borrowings of up to $300,000,000 in
the aggregate. The revolving credit facility can be used to fund future
acquisitions of broadcast stations and for general corporate purposes. As of
March 31, 1997, subject to compliance with financial covenants, the Company had
$138,000,000 of the revolving credit facility borrowings available under the
Credit Agreement available for acquisitions and working capital purposes.
In October 1996, the Company entered into agreements with the owner of
WLAJ, the ABC affiliate serving Lansing, Michigan, including a time brokerage
agreement pursuant to which the Company operates WLAJ and an agreement to
acquire substantially all the assets used in the operation of WLAJ for
approximately $19.4 million in cash and the assumption of certain liabilities.
The Company anticipates financing the acquisition of WLAJ with borrowings under
the Credit Agreement. In connection with these agreements, the Company agreed to
provide a loan guarantee of up to $12,000,000 in favor of the owner of WLAJ.
On January 31, 1997, the Company acquired substantially all of the assets
of WXON, the WB affiliate serving Detroit, Michigan, for $175,000,000 and the
assumption of certain liabilities. The Company financed the WXON Acquisition
using the proceeds from the sale of the Old Preferred Stock and borrowings of
approximately $27,500,000 under the Credit Agreement. See "Use of Proceeds."
Cash flows provided by operating activities were $13,291,000 during the
year ended December 31, 1996 compared to $8,806,000 during the year ended
December 31, 1995 and $5,808,000 during the year ended December 31, 1994. The
increases from year to year resulted primarily from higher broadcast cash flow
offset, in part, by higher cash interest expense.
Cash flows used in investing activities were $14,435,000 during the year
ended December 31, 1996, compared to $236,343,000 during the year ended December
31, 1995 and $2,628,000 during the year ended December 31, 1994. Cash flows used
in investing activities during the year ended December 31, 1996 related to
capital expenditures, the deposit relating to the WXON Acquisition and other
capitalized acquisition costs and an investment in Datacast LLC. Cash flows used
in investing activities during the year ended December 31, 1995 related
primarily to the acquisitions of KEYE, WWMT and WKBW while cash flows used in
investing activities during the year ended December 31, 1994 were related
entirely to capital expenditures.
Cash flows provided by financing activities were $1,565,000 during the
year ended December 31, 1996 compared to cash flows provided by financing
activities of $225,685,000 during the year ended December 31, 1995 and cash
flows used in financing activities of $2,780,000 in 1994. The decrease from 1995
to 1996 resulted primarily from a decrease in net borrowings offset in part by a
decrease in payments for deferred financing fees. The increase from 1994 to 1995
resulted primarily from a net increase in bank borrowings and the proceeds from
the sale of the 10 3/8% Notes, partially offset by higher deferred financing
fees and the redemption of the Company's adjustable rate preferred stock.
The Company may recognize significant taxable income as a result of the
acquisition in 1995 of WKBW. Such taxable income would reduce the Company's net
operating losses for federal income tax purposes. For financial reporting
purposes, in accordance with Statement of Financial Accounting Standards No.
109, any taxable income arising from the consummation of the acquisition of WKBW
is considered additional purchase price, which will be amortized in future
periods. See Note 10 to the Company's Consolidated Financial Statements.
The Company believes that internally generated funds from operations and
borrowings under the Credit Agreement's revolving credit facility will be
sufficient to satisfy the Company's cash requirements for its operations
41
<PAGE>
for the next twelve months and for the foreseeable future thereafter. The
Company expects that any additional acquisitions of television stations would be
financed through funds generated from operations, borrowings under the Credit
Agreement's revolving credit facility and additional debt and equity financings.
42
<PAGE>
BUSINESS
Granite is a group broadcasting company which owns and operates ten
network-affiliated television stations. The Company also operates an eleventh
station, WLAJ, pursuant to a time brokerage agreement. The Company's stations
are diverse in geographic location and network affiliation and the eleven
station group reaches communities representing approximately 7.75% of the total
television households in the United States. For the year ended December 31,
1996, after giving pro forma effect to consummation of the WXON Acquisition and
the time brokerage agreement, the Company would have had net revenue, broadcast
cash flow and operating cash flow of $150,536,000, $69,922,000 and $65,122,000,
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 affiliates in
increasingly larger markets and also as a result of the implementation of the
Company's operating strategy. 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 year ended December
31, 1996, Granite's net revenue, broadcast cash flow and operating cash flow
increased by 29%, 28% and 26%, respectively, from 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
A key element of the Company's strategy to improve station operating
results is innovative sales and marketing techniques using exclusive in-depth
audience research, mass-market community events, special local programming and
targeted promotional campaigns. The Company also focuses on expanding each
station's local news franchise. A majority of Granite's owned and operated
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. In
addition, eight of Granite's owned and operated stations are ranked either first
or second in their respective markets in share of viewing audience during the
total day. 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 the year ended
December 31, 1996, Granite's broadcast cash flow margin exceeded 44%.
43
<PAGE>
Company and Industry Overview
Station Summary
The following table sets forth general information for each of the
Company's television stations:
<TABLE>
<CAPTION>
Other
Commercial Station
Market Date of Channel/ Network Market Stations Audience Station
Station Area Acquisition Frequency Affiliation Rank(a) in DMA Share (a) Rank(a)
- ------- ------ ----------- --------- ----------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
WXON-TV Detroit, MI 01/31/97 20/UHF WB 9 5 6 6
WWMT-TV Grand Rapids -
Kalamazoo -
Battle Creek, MI 06/01/95 3/VHF CBS 37 6 18 2
WKBW-TV Buffalo, NY 06/29/95 7/VHF ABC 39 4 21 1
KNTV(TV) San Jose, CA(b) 02/05/90 11/VHF ABC 52 5(c) 10 2
KSEE-TV Fresno-
Visalia, CA 12/23/93 24/UHF(d) NBC 55 9(e) 16 2
KEYE-TV Austin, TX 02/01/95 42/UHF CBS 63 6 16 2
WTVH-TV Syracuse, NY 12/23/93 5/VHF CBS 68 4 17 3
WPTA-TV Fort Wayne, IN 12/11/89 21/UHF(d) ABC 103 4 22 1
WLAJ-TV Lansing, MI Pending(f) 53/UHF ABC 106 3 7 4
WEEK-TV Peoria -
Bloomington,
IL 10/31/88 25/UHF(d) NBC 110 3 23 1
KBJR-TV Duluth, MN -
Superior, WI 10/31/88 6/VHF NBC 134 2 20 2
</TABLE>
- ----------
(a) "Market rank" refers to the size of the television market or Designated
Market Area ("DMA") as defined by the A.C. Nielsen Company ("Nielsen"),
except for San Jose. KNTV, whose DMA is the Salinas-Monterey television
market, primarily serves San Jose and Santa Clara County (which are part of
the San Francisco-Oakland-San Jose DMA). If Santa Clara County were a
separate DMA, it would rank as the 52nd largest DMA in the United States.
"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 data
is derived from an average of the Nielsen Station Index for February 1997,
November 1996, May 1996 and February 1996, unless otherwise noted.
(b) All 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.
(c) Includes KSMS, Salinas-Monterey and KCU, Salinas, both of which broadcast
entirely in Spanish.
(d) All television stations in the Fort Wayne, Indiana, Peoria-Bloomington,
Illinois and Fresno-Visalia, California television markets are UHF
stations.
44
<PAGE>
(e) Includes KFTV Hanford-Fresno and KMSG, Sanger-Fresno, both of which
broadcast entirely in Spanish.
(f) WLAJ is currently being operated by the Company pursuant to a time
brokerage agreement. The Company intends to acquire WLAJ. Before the
Company acquires WLAJ, the station's licensed facilities will be modified
to eliminate certain signal coverage overlap with WWMT so that the Company
can obtain an FCC waiver of the restriction on the number of television
stations that may be under common ownership within the same geographic
market. Although there can be no assurance that the waiver will be
obtained, the Company believes that it will be able to obtain such a
waiver.
Industry Overview
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
which 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 television 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. Because
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.
Revenue Breakdown
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>
Years Ended December 31,
-----------------------------------------------------------------------------------------
1992 1993 1994 1995 1996
--------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
------ ---- ------ ---- ------ ---- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Local/Regional(a)........ $23,088 53.5% $25,416 56.3% $38,802 50.9% $60,969 51.0% $ 73,491 47.5%
National(b).............. 15,367 35.6 16,290 36.1 28,548 37.5 48,995 41.0 61,945 40.0
Network Compensation(c).. 1,427 3.3 1,286 2.8 2,244 2.9 4,154 3.5 7,289 4.7
Political(d)............. 1,246 2.9 133 0.3 4,060 5.3 1,498 1.3 7,265 4.7
Other Revenue(e)......... 2,023 4.7 2,041 4.5 2,559 3.4 3,849 3.2 4,851 3.1
------- ----- ------- ----- ------- ----- -------- ----- --------------
Total.................... $43,151 100.0% $45,166 100.0% $76,213 100.0% $119,465 100.0% $154,841 100.0%
======= ===== ======= ===== ======= ===== ======== ====== ======== =====
</TABLE>
- ----------
(a) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers and other local sources.
45
<PAGE>
(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 20% of the Company's total gross
revenues in 1996. Gross revenues from restaurants and entertainment-related
businesses accounted for approximately 12% of the Company's total gross revenues
in 1996. Each other category of advertising revenue represents less than 5% of
the Company's total gross revenues.
Stations Overview
WXON: Detroit, Michigan
WXON began operating on Channel 20 in 1962 as an independent station and
began operating as a WB affiliate in 1995. The station historically ranks 6th
based on sign-on to sign-off audience share but ranks 5th in many key dayparts,
beating the CBS affiliate in overall audience share and key younger demographic
ratings. Based upon average ratings through February 1997, WXON ranked 6th in
the Detroit DMA with a 6% sign-on to sign-off share and the station generated an
audience share as high as 10% during prime time on Wednesday nights.
The station airs WB network programming during prime time on Sunday,
Monday and Wednesday. During other time periods the station airs movies and
syndicated programs such as "Dr. Quinn, Medicine Woman," "In the Heat of the
Night," "Family Matters," "Cops" and "L.A.P.D." Management believes the station
will benefit from the launch of WB network programming on new nights and that
there is significant potential to improve ratings over time with the addition of
better syndicated programming.
Management believes WXON is underperforming in terms of revenue share and
believes opportunities exist to significantly increase revenue by improving the
station's overall sales effort. Specifically, Granite has recently changed
station management, subscribed to Nielsen to obtain the demographic information
necessary to effectively sell advertising, and retained a leading firm to
represent WXON in the sale of national advertising.
Detroit is the 9th largest DMA in the United States with a total of
1,770,000 television households and a population of 4,730,000 according to
Nielsen. Detroit's economy is based on manufacturing, retail and health
services. The largest employers are General Motors, Ford Motor Company,
Chrysler, Detroit Medical Center, Henry Ford Health System and Blue Cross Blue
Shield of Michigan. The median household income in the DMA is $51,392 according
to estimates provided in the BIA Investing in Television 1996 Report (the "BIA
Report"). Management considers Detroit to be a very attractive television market
due to the limited number of television stations broadcasting in the market.
There are only six viable commercial television stations, of which only three
are VHF stations. All other top ten television markets have at least four VHF
stations. In Detroit, ABC, NBC and Fox affiliates broadcast on the VHF band. The
CBS affiliate is a UHF station broadcasting on Channel 62.
WWMT: Grand Rapids -- Kalamazoo -- Battle Creek, Michigan
WWMT began operations in 1950 and is affiliated with CBS. WWMT estimates
it receives approximately 25% of the total television advertising revenue
available to stations in the Grand Rapids -- Kalamazoo -- Battle Creek market,
based on the most recent available data (1995) from the National Association of
Broadcasters.
Based upon average ratings through February 1997, WWMT ranked second in
its DMA with an 18% 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.
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WWMT is distinguished by the fact that it operates four news bureaus
located in the major population centers of the market. During 1996, the station
expanded its news operation with the launch of News 3 at 5:30 p.m. and an
additional hour of news from 7:00 a.m. to 8:00 a.m. WWMT also provides local
newscasts on weekend mornings and middays. WWMT's inventory of syndicated
programming includes "The Oprah Winfrey Show," "Wheel of Fortune," "Jeopardy,"
and "Sally Jesse Raphael."
The Grand Rapids -- Kalamazoo -- Battle Creek economy is centered around
manufacturing, health services, education and financial services. The median
household income in the DMA was $44,818 according to estimates provided in the
BIA Report. Leading employers in the area include Pharmacia-Upjohn, 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 28% of the total television advertising revenues available to
stations in the Buffalo market, based on the most recent available data (1996).
Based on average ratings through February 1997, WKBW ranked first in its
DMA with a 21% 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 "Geraldo," "The Rosie O'Donnell Show," "Wheel of
Fortune," "Jeopardy," "Montel Williams" and "Coach."
The Buffalo economy is centered around manufacturing, government, health
services and financial services. The median household income in the DMA was
$39,726 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.
KNTV: San Jose, California
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 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." 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. 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 1997
Nielsen Monterey/Salinas Viewers In Profile Report, more than 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.
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
November 1996 ratings data, as many 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 as any other Network affiliate serving the San
Francisco-Oakland-San Jose market. In April 1995, all of the station's local
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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 and 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," "The
Montel Williams Show," "Star Trek: The Next Generation," "Inside Edition," and
"Cheers."
Santa Clara County has a diverse and affluent economy. The average
effective buying income by household was $57,029 according to the 1996
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.
KSEE: Fresno-Visalia, California
KSEE-TV ("KSEE") began operations in 1953 and is affiliated with NBC. KSEE
estimates it receives approximately 27% of the total television advertising
revenue available to stations in the Fresno-Visalia market as determined by an
independent accounting firm based upon the most recent available data (December
1996) submitted to it by local stations. According to average ratings through
February 1997, KSEE had a 16% sign-on to sign-off audience share. 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,
"Regis and Kathie Lee," "American Journal," "Jenny Jones," "Ricki Lake,"
"Seinfeld," "Access Hollywood" and "Mad About You."
Fresno and the San Joaquin Valley are two 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 median income by household
in the DMA was $38,732, 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.
KEYE: Austin, Texas
KEYE began operations in 1983. The station, formerly a Fox affiliate,
became a CBS affiliate on July 2, 1995. KEYE estimates it receives approximately
21% of the total television advertising revenue available to stations in the
Austin market, as determined by an independent accounting firm based upon the
most recent available data (December 1996) submitted to it by local stations.
Based on average ratings through February 1997, KEYE ranked second in its
DMA with a 16% 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 p.m., 5:00 p.m., 6:00 p.m.
and 10:00 p.m. KEYE's inventory of syndicated programming includes "Dr. Quinn,
Medicine Woman," "Roseanne," "Home Improvement," "Ricki Lake" and "Jenny Jones."
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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, has resulted in
the Austin area being nicknamed "Silicon Hills." Since Austin, the nation's 27th
largest city, is the state capital as well as home to the University of Texas,
it also provides a substantial amount of public sector employment opportunities.
The median income per household in the DMA was $45,741, according to estimates
provided in the BIA Report. 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.
WTVH: Syracuse, New York
WTVH-TV ("WTVH") began operations in 1948 and is affiliated with CBS. WTVH
estimates it receives approximately 26% 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 (December
1996) 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, "Dr. Quinn, Medicine Woman,"
"The Dating Game," "The Newlywed Game," "Real TV," "Access Hollywood" and "Mad
About You."
The Syracuse economy is centered on manufacturing, education and
government. The median income by household in the DMA was $43,036, according to
estimates provided in 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.
WPTA: Fort Wayne, Indiana
WPTA-TV ("WPTA") began operations in 1957 and is affiliated with ABC.
Through the February 1997 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 for the past seven years. WPTA estimates it receives
approximately 38% of the total television advertising revenue available to
stations in the Fort Wayne market, based on the most recent available data
(December 1986). Based on average ratings through February 1997, WPTA ranked
first in its DMA with a 22% overall sign-on to sign-off audience share. 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 median income by household in
the DMA was $42,368, 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.
WLAJ-TV: Lansing, Michigan
WLAJ began operations in 1990 and is an ABC affiliate. WLAJ estimates it
receives approximately 13% of the total television advertising revenue available
to television stations in the Lansing market, based on data from local business
area reports. Based on average ratings through February 1997, WLAJ ranked fourth
in its market
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with a 7% sign-on to sign-off share. WLAJ's inventory of syndicated programming
includes "Oprah," "Sally Jesse Raphael," "Geraldo" and "Cops."
Lansing is the 106th largest DMA in the United States with a total of
229,000 television households and a population of 639,000. Lansing is the state
capital and its economy is centered around government employment, education and
manufacturing. The largest employers are General Motors, the State of Michigan,
Michigan State University, Meijer Inc., Michigan Capital Healthcare, Sparrow
Hospital and Lansing Community College. The median household income in the DMA
is $46,143 according to estimates provided in the BIA Report.
Management considers Lansing to be a very attractive television market for
Granite due to its proximity to the Detroit and Grand Rapids -- Kalamazoo --
Battle Creek television markets where Granite owns and operates WXON and WWMT,
respectively. Management believes the proximity of these markets will enable
Granite to operate WLAJ and introduce news to the Lansing viewers on a cost
efficient basis.
WEEK: Peoria-Bloomington, Illinois
WEEK-TV 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 16 years. WEEK-TV estimates it receives
approximately 40% 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 (December 1996)
submitted to it by local stations. The Company recently completed the
acquisition of WIVR-FM in Eureka, Illinois and subsequently changed the
station's call letters to WEEK-FM. The radio station will be run in combination
with Granite-owned WEEK-TV. The Company believes WEEK-FM will become a stronger
radio station once it is established as WEEK-FM and is able to offer the high
quality news and information programming produced by WEEK-TV.
According to average ratings through February 1997, WEEK-TV commands a 23%
sign-on to sign-off audience share. WEEK-TV has been the number one news station
in the Peoria-Bloomington market for the past 15 years 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-TV 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
categories, including news, weather programming and special events. Recipients
are selected from among all stations in Illinois outside Chicago. WEEK-TV's
inventory of syndicated programming includes, among others, "The Oprah Winfrey
Show," "Sally Jesse 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
median income by household in the DMA was $44,705, 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.
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KBJR: Duluth, Minnesota and Superior, Wisconsin
KBJR began operations in 1954 and is affiliated with NBC. According to
average ratings through February 1997, KBJR delivered a 20% sign-on to sign-off
audience share. KBJR was awarded "Best Newscast" by The Associated Press in 1994
and 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 36% of the total television advertising
revenue available to stations in the Duluth-Superior market. KBJR's inventory of
syndicated programming includes, among others, "The Oprah Winfrey Show,"
"Jeopardy," "Wheel of Fortune," "Roseanne," "Coach," "The Newlywed Game," "The
Dating Game," "Mad About You," and the complete "Star Trek" franchise.
The area's primary industries include mining, fishing, food products,
paper, medical, shipping, tourism and timber. The median income by household in
the DMA was $34,860, 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 completed construction of airplane maintenance facilities in the Duluth area
that management estimates added 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.
Network Affiliation
Whether or not a station is affiliated with one of the four major
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 the 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 which 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.
Each of the Company's stations other than WXON is affiliated with a
Network pursuant to an affiliation agreement. KSEE, WEEK and KBJR are affiliated
with NBC; KNTV, WPTA, WKBW and WLAJ are affiliated with ABC; and KEYE, WTVH and
WWMT are affiliated with CBS. The Network affiliation agreements provide for
contract terms of ten years (other than the NBC agreements for which the terms
are seven years). WXON has an affiliation arrangement with the WB Network, which
is terminable by either party at will.
Under each of the Company's Network 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.
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In substance, each Network 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
8-11 p.m. and Sunday 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 and radio 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 television stations
are located in highly competitive markets.
In addition to management experience, factors that are material to a
television station's competitive position include signal coverage, local program
acceptance, Network affiliation, audience characteristics, assigned frequency
and strength of local competition. The broadcasting industry is continuously
faced with technological change and innovation, the possible rise in popularity
of competing entertainment and communications media, changes in labor conditions
and governmental restrictions or actions of federal regulatory bodies, including
the FCC and the Federal Trade Commission, any of which could possibly have a
material adverse effect on the Company's operations and results.
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 by 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 recorders and playback systems, video discs and television game
devices), multi-point distribution systems, multichannel multi-point
distribution systems, video programming services available through the Internet
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. Satellites may be used not only to
distribute non-broadcast programming and distant broadcasting signals but also
to deliver certain local broadcast programming which otherwise may be available
to a station's audience.
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 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
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companies in their own telephone areas subject to regulatory safeguards and
permits telephone companies to own cable systems under certain circumstances. It
is not possible to predict the impact on the Company's television stations of
any future relaxation or elimination of the existing limitations on the
ownership of cable systems by telephone companies. 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.
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 eight 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. At the time application is made 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 (1)
has served the public interest, convenience, and necessity; (2) has committed no
serious violations of the Communications Act or the FCC's rules; and (3) 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 applications. All of the Company's
existing licenses that have come up for renewal have been renewed 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
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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 has initiated 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 eight commercial
radio stations, not more than five 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 seven
commercial radio stations, not more than four of which are in the same service.
In markets with 15 to 29 commercial radio stations, an individual or entity may
own up to six commercial radio stations, not more than four of which are in the
same service. In markets with 14 or fewer commercial radio stations, an
individual or entity may own up to five commercial radio stations, not more than
three 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 has initiated a proceeding to solicit comments on retaining,
modifying, or eliminating this regulatory restriction. The Telecommunications
Act of 1996 authorizes the FCC to permit the common ownership of multiple
television networks under certain circumstances. Furthermore, in accordance with
the statute, the FCC has initiated a review of 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, 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 or the cross-interest policy.
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Irrespective of the FCC rules, the Justice Department and the Federal
Trade Commission (together the "Antitrust Agencies") have the authority to
determine that a particular transaction presents antitrust concerns. The
Antitrust Agencies have recently increased their scrutiny of the television and
radio industries, and have indicated their intention to review matters related
to the concentration of ownership within markets (including local marketing
agreements ("LMAs")) even when the ownership or LMA in question is permitted
under the regulations of the FCC. There can be no assurance that future policy
and rulemaking activities of the Antitrust Agencies will not impact the
Company's operations.
The Telecommunications Act of 1996 authorizes the FCC to issue additional
licenses for digital television ("DTV") services only to Existing Broadcasters
(as defined herein). DTV is a technology that will improve the technical quality
of television service. The Telecommunications Act of 1996 directs the FCC to
adopt rules to permit Existing Broadcasters to use their DTV 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 DTV channels to provide services for which payment is
received.
The Cable Television Consumer Protection and Competition Act
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. Under the FCC's rules, television stations were
required to make their election between must-carry and retransmission consent
status by October 1, 1996, for the period from January 1, 1997 through December
31, 1999. Television stations that failed to make an election by the specified
deadline were deemed to have elected must-carry status for the relevant three
year period. 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. 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.
In April 1993 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. In March 1997, the
Supreme Court affirmed the District Court's decision and upheld the
constitutionality of the must-carry provisions. Accordingly, cable systems
continue to be required to comply with the FCC's must-carry rules.
Proposed Legislation and Regulations
The FCC currently has under consideration and the Congress and the FCC may
in the future consider and adopt new or modify existing laws, regulations and
policies regarding a wide variety of matters that could, directly or indirectly,
affect the operation, ownership, and profitability of the Company's broadcast
properties, 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
55
<PAGE>
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. The Company
cannot predict whether such changes will be adopted or, if adopted, the effect
that such changes would have on the business of the Company.
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. More particularly, the FCC has
initiated proceedings requesting comment on: (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 or exceptions for) certain UHF or UHF/VHF station
combinations; (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; (iii) treating
television 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; (iv) establishing a
grandfathering policy for certain television LMAs in the event the FCC decides
to treat interests in such LMAs as attributable; and (v) treating a company's
interest in a joint sales agreement for a television station as an attributable
interest for purposes of the FCC's ownership rules. The FCC also has a
rulemaking proceeding pending where it seeks comment on whether it should relax
attribution and other rules to facilitate greater minority and female ownership.
This proceeding currently is being held in abeyance due to uncertainty created
by a 1995 Supreme Court decision which narrowed the legal basis for affirmative
action programs. 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.
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.
Last fall, certain television broadcasters lifted a self-imposed ban on
the advertisement of distilled spirits. However, President Clinton has asked the
FCC to study whether it should formally prohibit such advertising. Certain
members of Congress also are considering sponsoring legislation to ban the
advertising of distilled spirits on television and radio stations.
The FCC has begun adopting rules and proposing others to implement digital
television service ("DTV") which includes high definition television systems.
DTV is a technology that will improve television audio and video quality. The
FCC has "set aside" channels within the existing television system for DTV and
has established eligibility criteria which provide a channel for DTV
operation to each existing television station and each party holding a
construction permit for a new television station ("Existing Broadcasters"). The
FCC has determined that DTV will be a digital system which is incompatible with
current television transmitters and receivers. The rules for phasing in DTV
service permit each television station to provide conventional television
service on its regular channel until some point after DTV service has commenced.
In April 1997, the FCC adopted a table of channels as well as service
and licensing rules for DTV. The new DTV table, which provides a channel for
digital operation for each Existing Broadcaster, is intended to enable
Existing Broadcasters to replicate their current service areas. The new rules
require the affiliates of CBS, NBC, ABC and Fox in the 10 largest television
markets to initiate commercial DTV service with a digital signal by May 1,
1999. Affiliates of these networks in television markets 11-30 must begin DTV
operation by November 1, 1999. All other commercial television stations are
required to begin DTV broadcasts within five years. By 2006, broadcasters
will have to convert to DTV service, terminate their existing analog
television service, and surrender
56
<PAGE>
their analog channels back to the FCC. The FCC's action allows
Existing Broadcasters to use DTV channels according to their best business
judgment provided they continue to offer free digital video programming that
is at least comparable in resolution to existing television service and is
broadcast during the same time periods as existing analog services. While
extending public interest obligations to DTV, the FCC intends to initiate a
rulemaking proceeding to consider all views on the extent of public interest
obligations to be imposed on DTV broadcasters. Two possibilities being
considered would require each DTV broadcaster to set aside five percent of
its capacity for public interest programming, and a specific amount of free
commercial air time for political candidates to speak directly to voters. On
December 26, 1996, the FCC adopted a standard for the transmission of digital
television in the United States, which is consistent with a consensus
agreement voluntarily developed by a broad cross-section of parties,
including the broadcasting, equipment manufacturing and computer industries.
Implementation of DTV 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 DTV service. The Company cannot predict the effect the
authorization of DTV service will have on the Company's business or the level
of capital expenditures required to comply with the DTV rules.
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 1,170
persons, of whom approximately 277 are represented by two unions (including 11
bargaining units) pursuant to contracts expiring in 1997, 1998, 1999 and 2000 at
the Company's stations. The Company believes its relations with its employees
are good.
Legal Proceedings
Not applicable
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
in New York, 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.
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<PAGE>
The following table contains certain information describing the general
character of the Company's properties:
<TABLE>
<CAPTION>
Metropolitan Owned or Expiration
Station Area and Use Leased Approximate Size of 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 12/31/97
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 5/1/98
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 --
WXON Southfield, Michigan
Office Leased 8,850 sq. feet 5/31/99
Southfield, Michigan
Studio and Tower Site Leased(b) 30,000 sq. feet 9/30/06
</TABLE>
- ----------
(a) Assuming exercise of all of the Company's renewal options under such lease.
(b) The Company owns a 3,400 square foot building on the property.
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<PAGE>
MANAGEMENT
The following table sets forth information concerning the executive
officers and directors of the Company as of February 1, 1997:
Name Age Position
---- --- --------
W. Don Cornwell(a)................... 49 Chairman of the Board, Chief
Executive Officer and Director
Stuart J. Beck(a).................... 50 President, Treasurer, Secretary and
Director
Robert E. Selwyn, Jr................. 54 Chief Operating Officer
Lawrence I. Wills.................... 36 Vice President-Finance and
Controller
Ellen McClain........................ 32 Vice President-Corporate Development
and Treasurer
James L. Greenwald(b)................ 69 Director
Vickee Jordan Adams.................. 37 Director
Martin F. Beck(b).................... 79 Director
Edward Dugger, III(b)................ 47 Director
Thomas R. Settle(a)(c)............... 55 Director
Charles J. Hamilton, Jr.(c).......... 49 Director
Mikael Salovaara..................... 43 Director
- ----------
(a) Member of the Stock Option Committee.
(b) Member of the Audit Committee.
(c) 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, Pfizer, Inc., CVS Corporation 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 is a member of the Board of American Women in Radio and
Television Society. 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. Selwyn has been Chief Operating Officer of the Company since September
19, 1996. Prior to joining the Company, Mr. Selwyn was employed by New World
Communications, Inc. from May 1993 to June 1996 serving as Chairman and Chief
Executive Officer of the New World Television Station Group. Mr. Selwyn received
a bachelor of science degree from the University of Tennessee in 1968. From 1990
until 1993, Mr.
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<PAGE>
Selwyn was the President of Broadcasting for SCI Television, Inc. Mr. Selwyn was
an officer of SCI Television, Inc. at the time that company filed a petition
under Federal bankruptcy laws.
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 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 is a director of the National Association of
Black Owned Broadcasters. 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 and Envirotest
Systems Corporation. 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 Securities and Exchange
Commission.
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<PAGE>
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 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 was a Limited Partner of the Blackstone
Group from 1994 until 1996. Mr. Salovaara worked at Goldman, Sachs & Co. from
1980 to 1991 where he was a General Partner from 1988 to 1991. Mr. Salovaara is
a trustee of Playwrights Horizons in New York City and Wooster College and a
visitor and governor of St. John's College. Mr. Salovaara is 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 were entitled to receive a fee of $2,500
for each Board of Directors meeting attended in person that was held prior to
February 25, 1997. 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 last Triennial Option Period, February 25, 1997, however, all directors
automatically received (and will receive on each third year anniversary
thereafter), 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 a 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 elected to receive
Options, in lieu of cash compensation, for the recently completed, Triennial
Option Period: James L. Greenwald, Vickee Jordan Adams, Martin F. Beck, Thomas
R. Settle, Charles J. Hamilton, Jr. and Mikael Salovaara. See "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
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<PAGE>
(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 separately reimbursed by the Company for their travel
expenses incurred in attending Board or committee meetings.
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 $100,000 during the fiscal year
ended December 31, 1996, for each of the three years in the period ended
December 31, 1996:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
----------------------------- ------------------------
Restricted All Other
Name and Stock Options/ Compensation
Principal Position Year Salary ($) Bonus ($) Awards SARs (#) ($)(a)
- ------------------ ---- ---------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
W. Don Cornwell 1996 $483,000 $ - $ - 484,000 $ 4,750
Chief Executive 1995 460,000 46,000 - 165,000 4,620
Officer 1994 270,000 - - - 3,000
Stuart J. Beck 1996 483,000 - - 395,000 4,750
President 1995 460,000 46,000 - 135,000 4,620
1994 267,000 - - - 2,000
Robert E. Selwyn, Jr. 1996 102,083(b) - 373,140(c) 150,000 -
Chief Operating 1995 - - - - -
Officer 1994 - - - - -
Lawrence I. Wills 1996 125,000 - 150,438(d) - 3,125
Vice President - 1995 115,000 28,000 - - 2,875
Finance and 1994 105,000 25,000 70,000(e) - 2,100
Controller
Ellen McClain 1996 125,000 - 155,625(f) - 3,125
Vice President - Corporate 1995 85,000 45,000 41,438(g) - 2,125
Development and Treasurer 1994 68,000 17,000 30,000(h) - -
</TABLE>
- ----------
(a) Represents matching Company contributions under the Company's Employees'
Profit Sharing and Savings (401(k)) Plan.
(b) Represents salary received from September 19, 1996, Mr. Selwyn's date of
hire. Mr Selwyn's annual salary under his employment contract with the
Company is $350,000.
(c) Represents the market value on the date of award of 30,000 Bonus Shares (as
defined) awarded under the Company's Management Stock Plan on October 22,
1996. 10,000 shares vest on December 31, 1997 and each anniversary thereof
through December 31, 1999. Shares of Common Stock (Nonvoting) subject to
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<PAGE>
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 the Bonus
Shares vest.
(d) Represents the market value on the date of award of 14,500 Bonus Shares
awarded under the Company's Management Stock Plan on July 25, 1996. On
December 31, 1996, 1,500 Bonus Shares vested. An additional 1,500 Bonus
Shares will vest on December 31, 1997 and 1998 and 5,000 Bonus Shares will
vest on each of December 31, 1999 and 2000. 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.
(e) 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, 1995 and 1996, 3,500 Bonus Shares vested. An
additional 3,500 Bonus Shares will vest on December 31, 1997 and 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.
(f) Represents the market value on the date of award of 15,000 Bonus Shares
awarded under the Company's Management Stock Plan on July 25, 1996. On
December 31, 1996, 2,500 Bonus Shares vested. An additional 2,500 Bonus
Shares will vest on December 31, 1997 and each anniversary thereof through
December 31, 1999 and 5,000 Bonus Shares will vest on December 31, 2000.
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.
(g) Represents the market value on the date of award of 6,500 Bonus Shares
awarded under the Company's Management Stock Plan on July 1, 1995. On each
of December 31, 1995 and 1996, 1,500 Bonus Shares vested. An additional
1,500 Bonus Shares will vest on December 31, 1997 and 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.
(h) Represents the market value on the date of award of 7,500 Bonus Shares
awarded under the Company's 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 the 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 $460,000 for 1995 and
$483,000 for 1996. 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
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<PAGE>
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 "--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.
Mr. Selwyn has an employment agreement with the Company. The current
employment term expires January 31, 2000, which term may be extended by mutual
written agreement of the parties. The annual base salary determined by the
Compensation Committee of the Board of Directors is $350,000 for 1996 and 1997.
The agreement stipulates that Mr. Selwyn will devote his full time and effort to
the Company and will not engage in any business activities outside of the scope
of his employment with the Company other than permitted thereunder. In addition
to his base salary, Mr. Selwyn is eligible to receive shares of the Company's
Common Stock (Nonvoting) under the Management Stock Plan, has been granted
options to purchase shares of Common Stock (Nonvoting) under the Stock Option
Plan and is eligible to participate in the Company's Employee Stock Purchase
Plan. See"--Employee Stock Purchase Plan," "--Stock Option Plan" and
"--Management Stock Plan."
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 1996 base salary was fixed at $125,000.
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 1996 base salary was fixed at $125,000.
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. 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 $642,000 was charged to expense for 1996.
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
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<PAGE>
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 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. 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, 318,000 Options were granted to Mr. Cornwell and
260,000 Options were granted to Mr. Stuart Beck. On September 19, 1996, 150,000
Options were granted to Mr. Selwyn. As of December 31, 1996, Options granted
under the Plan were outstanding for the purchase of 1,775,500 shares of Common
Stock (Nonvoting).
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 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.
Options granted to each of Mr. Cornwell and Mr. Stuart Beck in 1996 vest
as follows: (i) approximately 6% of the Options granted on April 23, 1996 became
exercisable on December 1, 1996 and the remainder become exercisable in varying
percentages on various dates from April 23, 1997 through April 23, 2001; (ii)
50% of the
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<PAGE>
Options granted on April 25, 1996 become exercisable on October 23, 1997 and the
remaining 50% of such Options become exercisable on April 23, 1998.
Approximately 5% of the Options granted to Mr. Selwyn in 1996 became exercisable
on December 30, 1996, and the remaining options become exercisable in varying
percentages from December 31, 1997 through January 1, 2000.
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 ISO's 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.
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 750,000 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, 1996, the Company has allocated a total of 610,870
Bonus Shares pursuant to the Management Stock Plan, 310,175 of which had vested
through December 31, 1996. 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
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<PAGE>
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, 1996, Options granted under the Director Option Plan were outstanding for
the purchase of 97,200 shares of Common Stock (Nonvoting).
The Director Option Plan provides for the grant of NQSOs 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. On February 25,
1997, the end of the last Triennial Option Period however, all directors
automatically received (and each third year anniversary thereafter will 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
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 granted on or after
February 25, 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.
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<PAGE>
The following table sets forth information with respect to Options granted
to the executive officers of the Company during 1996.
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 122,000 57.3% $11.250 4/25/2005 $2,129,198 $3,236,283
44,000 50.0% 12.375 4/23/2001 694,935 876,923
318,000 55.0% 16.000 10/23/1998 5,748,048 6,456,971
Stuart J. Beck 91,000 42.7% 11.250 4/25/2005 1,588,172 2,413,949
44,000 50.0% 12.375 4/23/2001 694,935 876,923
260,000 45.0% 16.000 10/23/1998 4,699,661 5,279,284
Robert E. Selwyn, Jr. 150,000 100.0% 12.438 9/19/2001 2,381,159 3,004,729
</TABLE>
The following table sets forth, as of December 31, 1996, 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 1996.
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, 1996 at December 31, 1996
Shares Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
W. Don Cornwell 200,000 $1,363,125 156,300/612,700 $860,688/$652,438
Stuart J. Beck - - 293,800/498,700 1,720,875/533,813
Robert E. Selwyn, Jr. - - 8,000/142,000 -/-
Lawrence I. Wills - - 3,750/- 20,156/-
Ellen McClain - - -/- -/-
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1996, Thomas R. Settle and Charles J. Hamilton, Jr. served as
members of the Compensation Committee of the Board of Directors of the Company.
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<PAGE>
OWNERSHIP OF CAPITAL STOCK
The following table sets forth certain information, as of February 1,
1997, 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.
The Company also has 153,241 shares of Old Preferred Stock outstanding, none of
which are owned by any officers or directors of the Company. 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(a) Fully Diluted(b) Number Percent
------ ------- ------------------ --------- --------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Don Cornwell............ 98,250 55.0% 589,950 (c) 6.7% 3.2% 9,750 *
Stuart J. Beck............. 80,250 45.0% 495,962 (d) 5.6% 2.7% 10,000 *
Robert E. Selwyn, Jr....... 19,047 (e) * * -- *
Lawrence I. Wills.......... 11,035 (f) * * -- *
Ellen McClain.............. 6,087 * * -- *
Martin F. Beck............. 87,314 (g) 1.0% * 3,950 *
James L. Greenwald......... 92,927 (h) 1.1% * 1,000 *
Vickee Jordan Adams........ 6,537 (i) * * -- *
Edward Dugger III.......... - * * -- *
Thomas R. Settle........... 64,312 (j) * * 3,000 *
Charles J.
Hamilton, Jr............. 9,950 (k) * * -- *
Mikael Salovaara........... 107,150 (l) 1.2% * 13,950 *
All directors and
officers as a
group(12)................. 178,500 100.0% 1,489,571 16.0% 8.1% 41,650 2.3
</TABLE>
- ----------
* Less than 1%.
(a) 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.
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<PAGE>
(b) 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.
(c) Includes 156,300 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.
(d) Includes 293,800 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.
(e) Includes 8,000 shares issuable upon exercise of options to Mr. Selwyn under
the Stock Option Plan which are exercisable at the option of the holder
within sixty (60) days.
(f) 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.
(g) 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 9,700 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.
(h) 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 12,400 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.
(i) Includes 4,200 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.
(j) 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 10,800 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.
(k) Includes 9,700 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.
(l) 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
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<PAGE>
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) 59,750 shares issuable upon the
conversion of 11,950 shares of Cumulative Convertible Exchangeable
Preferred Stock, which are convertible at the option of the holder within
sixty (60) days; (iv) 9,900 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; 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, 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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<PAGE>
CERTAIN TRANSACTIONS
On June 1, 1995, the Company acquired substantially all of the assets of
WWMT from Busse Broadcasting Corporation ("Busse") for $98,941,565 in cash
(including $3,941,565 in working capital and other adjustments) and the
assumption of certain liabilities of WWMT. Certain investment limited
partnerships, as to which Mikael 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
now own approximately 98% of the common stock of Busse and Messrs. Cornwell and
Stuart Beck constitute two of the four members of Busse's board of directors.
Katz Communications ("Katz") serves as the exclusive representative and
sales agent for all of KBJR's, WEEK-TV's and (subsequent to June 1994) 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
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 for services
rendered to KBJR, WEEK-TV 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.
The Company was 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, was a limited partner. Pursuant to this
agreement, The Blackstone Group provided 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 was paid a fee for successful acquisitions based upon a formula set
forth in such agreement. The Blackstone Group was also reimbursed by the Company
for reasonable out-of-pocket expenses it incurs under such agreement. The
Blackstone Group received $421,000 for financial advisory services it rendered
to the Company in connection with the acquisition of WKBW in 1995.
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 December 31, 1996, the amount outstanding on such
loans, including accrued interest, to Messrs. Cornwell and Beck was $380,213 and
$241,218, respectively, which amounts represented the largest amount outstanding
thereunder up to that date.
In April 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. In December 1996, the Company made a loan to Mr. Cornwell in the amount
of $409,000 to pay certain personal taxes in connection with the exercise of
such options. Each loan is a term loan which provides for an annual interest
rate of 8%, payable annually, with all principal and remaining interest due in
2001. As of December 31, 1996 (i) the amount outstanding under the April 1996
loan, including accrued interest, was $934,157, which amount represented the
largest amount outstanding thereunder up
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<PAGE>
to that date; and (ii) the amount outstanding under the December 1996 loan was
$409,000, which amount represented the largest amount outstanding thereunder up
to that date.
DESCRIPTION OF THE NEW PREFERRED STOCK
The New Preferred Stock
The summary contained herein of certain provisions of the New Preferred
Stock to be issued by the Company in exchange for the Old Preferred Stock in the
Exchange Offer does not purport to be complete and is qualified in its entirety
by reference to the provisions of the Certificate of Designations relating
thereto, which is filed as an Exhibit to the Registration Statement of which
this Prospectus is a part and a copy of which may be obtained upon request from
the Company. The definitions of certain capitalized terms used in the following
summary are set forth under "Description of the Exchange Debentures -- Certain
Definitions" below. Other capitalized terms used herein and not otherwise
defined under "Description of the Exchange Debentures -- Certain Definitions"
below are defined in the Certificate of Designations. See "Description of the
Exchange Debentures -- Form, Denomination and Book-Entry Procedures" for further
information regarding the New Preferred Stock.
General
The Old Preferred Stock was issued, and the New Preferred Stock will be
issued, pursuant to the terms of the Certificate of Designations. The shares of
New Preferred Stock will be issued solely in exchange for an equal liquidation
preference of the outstanding shares of Old Preferred Stock pursuant to the
Exchange Offer. The terms of the New Preferred Stock will be identical in all
material respects to the form and terms of the Old Preferred Stock except that:
(i) the shares of New Preferred Stock 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 shares of Old Preferred Stock are
generally not applicable to the New Preferred Stock.
The Company is authorized to issue 3,000,000 shares of Convertible
Preferred Stock. As of the date of this Prospectus, 1,819,500 shares of
Convertible Preferred Stock are outstanding. The Certificate of Incorporation of
the Company authorizes the Board of Directors, without stockholder approval, to
issue up to 2,376,000 shares of preferred stock in addition to the Convertible
Preferred Stock from time to time in one or more series, with such designations,
preferences and relative, participating, optional or other special rights,
qualifications, limitations or restrictions as determined by the Board of
Directors. The Board of Directors of the Company adopted resolutions creating a
maximum of 400,000 shares of Preferred Stock and the Company has filed the
Certificate of Designations with respect thereto with the Secretary of State of
the State of Delaware as required by Delaware law. Of the 400,000 authorized
shares of Preferred Stock, 153,241 shares will be issued in the Exchange Offer.
Subject to certain conditions, the New Preferred Stock is exchangeable for
Exchange Debentures, in whole or in part, at the option of the Company on any
Dividend Payment Date. The New Preferred Stock, when issued in accordance with
the terms and conditions of the Exchange Offer, will be fully paid and
nonassessable, and the holders thereof will not have any subscription or
preemptive rights.
Ranking
The New Preferred Stock will, with respect to dividend distributions and
distributions upon the liquidation, winding-up or dissolution of the Company,
rank (i) senior to all classes of common stock of the Company, and to each other
class of capital stock or series of preferred stock established after the Offer
Date by the Board of Directors of the Company the terms of which do not
expressly provide that it ranks senior to or on a parity with the New Preferred
Stock as to dividend distributions and distributions upon the liquidation,
winding-up or dissolution of the Company (collectively referred to with the
common stock of the Company as "Junior Securities"); (ii) on a parity with the
Convertible Preferred Stock, the Old Preferred Stock, if any is not exchanged in
the Exchange Offer,
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and, subject to certain conditions, on a parity with any class of capital stock
or series of preferred stock issued by the Company established after the Offer
Date by the Board of Directors of the Company the terms of which expressly
provide that such class will rank on a parity with the New Preferred Stock as to
dividend distributions and distributions upon the liquidation, winding-up or
dissolution of the Company (collectively referred to as "Parity Securities");
and (iii) junior to each other class of capital stock or series of preferred
stock issued by the Company established after the Offer Date by the Board of
Directors of the Company the terms of which expressly provide that such class or
series will rank senior to the New Preferred Stock as to dividend distributions
and distributions upon the liquidation, winding-up or dissolution of the Company
(collectively referred to as "Senior Securities"). The New Preferred Stock will
be subject to the issuance of series of Junior Securities, Parity Securities and
Senior Securities; provided that the Company may not issue any new class of
Senior Securities (or amend the provisions of any existing class of capital
stock to make such class of capital stock Senior Securities) without the
approval of the holders of at least a majority of the shares of Preferred Stock
then outstanding, voting or consenting, as the case may be, together as one
class.
Dividends
Holders of the New Preferred Stock will be entitled to receive, when, as
and if declared by the Board of Directors of the Company, out of funds legally
available therefor, dividends on the New Preferred Stock at a rate per annum
equal to 12 3/4% of the liquidation preference per share of the New Preferred
Stock, payable semi-annually. All dividends will be cumulative, whether or not
declared, on a daily basis from April 1, 1997, the most recent dividend payment
date on the Old Preferred Stock, and will be payable semi-annually in arrears on
April 1 and October 1 of each year, commencing on October 1, 1997, to holders of
record on the March 15 and September 15 immediately preceding the relevant
Dividend Payment Date. Holders of shares of Old Preferred Stock whose shares of
Old Preferred Stock are accepted for exchange will be deemed to have waived the
right to receive any dividend payment in respect of Old Preferred Stock accrued
from April 1, 1997 to the date of the issuance of the New Preferred Stock.
Dividends may be paid, at the Company's option, on any Dividend Payment Date
occurring on or prior to April 1, 2002 either in cash or by the issuance of
additional shares of New Preferred Stock (and, at the Company's option, payment
of a whole share (after rounding up) or cash in lieu of a fractional share)
having an aggregate liquidation preference equal to the amount of such
dividends. The liquidation preference of the New Preferred Stock is $1,000 per
share. In the event that, on or prior to April 1, 2002, dividends are declared
and paid through the issuance of additional shares of New Preferred Stock, as
provided in the previous sentence, such dividends shall be deemed paid in full
and will not accumulate. The Credit Agreement, the 9 3/8% Note Indenture, the
10 3/8% Note Indenture, the 12.75% Debenture Indenture and the Convertible
Preferred Stock restrict the Company's ability to pay cash dividends on its
Capital Stock and will prohibit such payments in certain instances, and other
future agreements may provide the same. See "Description of Certain Debt
Instruments" and "Description of Preferred Stock -- Convertible Preferred
Stock."
Unpaid dividends accumulating after April 1, 2002 on the New Preferred
Stock for any past dividend period and dividends in connection with any optional
redemption may be declared and paid at any time, without reference to any
regular Dividend Payment Date, to holders of record on such date, not more than
forty-five (45) days prior to the payment thereof, as may be fixed by the Board
of Directors of the Company.
Optional Redemption
The New Preferred Stock may be redeemed (subject to contractual and other
restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after April 1, 2002, in whole or in part, at the
option of the Company, at the redemption prices (expressed as a percentage of
liquidation preference) set forth below, plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the redemption date) if redeemed during the 12-month period
beginning April 1 of each of the years set forth below:
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Year Percentage
---- ----------
2002..................................... 106.375%
2003..................................... 104.250%
2004..................................... 102.125%
2005 and thereafter...................... 100.000%
In addition, on or prior to April 1, 2000, the Company may, at its option,
use the Net Available Proceeds of either or both of one or more Major Asset
Dispositions or sales of Capital Stock to redeem for cash up to an aggregate of
35% of the shares of New Preferred Stock at a redemption price equal to 112.75%
of the liquidation preference thereof, plus, without duplication, an amount in
cash equal to all accumulated and unpaid dividends (including an amount in cash
equal to a prorated dividend for the period from the Dividend Payment Date
immediately prior to the redemption date); provided, however, that after such
redemption, there is at least $75 million in aggregate liquidation preference of
the Preferred Stock outstanding. Any such redemption will be required to occur
on or prior to 90 days after the receipt by the Company of the proceeds of each
Major Asset Disposition or sale of Capital Stock.
In the event of partial redemptions of New Preferred Stock, the shares to
be redeemed will be determined pro rata, except that the Company may redeem all
shares held by any holders of fewer than ten shares (or shares held by holders
who would hold less than ten shares as a result of such redemption), as may be
determined by the Company. No optional redemption may be authorized or made
unless prior thereto all accumulated and unpaid dividends shall have been paid
in cash or a sum set apart for such payment on the Preferred Stock.
The Credit Agreement, the 9 3/8% Note Indenture, the 10 3/8% Note
Indenture and the 12.75% Debenture Indenture and the terms of the Convertible
Preferred Stock restrict the ability of the Company to redeem the Preferred
Stock. See "Description of Certain Debt Instruments" and "Description of
Preferred Stock -- Convertible Preferred Stock."
Mandatory Redemption
The New Preferred Stock will also be subject to mandatory redemption
(subject to contractual and other restrictions with respect thereto and to the
legal availability of funds therefor) in whole on April 1, 2009 at a price equal
to the liquidation preference thereof, plus, without duplication, all
accumulated and unpaid dividends to the date of redemption. The 9 3/8% Note
Indenture, the 10 3/8% Note Indenture, the 12.75% Debenture Indenture and the
Credit Agreement restrict the ability of the Company to redeem the Preferred
Stock and will prohibit any such redemption in certain instances, and other
future agreements or certificates of designations with respect to Senior
Securities or Parity Securities may contain similar restrictions and/or
prohibitions. See "Description of Certain Debt Instruments" and "Description of
Preferred Stock -- Convertible Preferred Stock."
Procedure for Redemption
On and after a redemption date, unless the Company defaults in the payment
of the applicable redemption price, dividends will cease to accumulate on shares
of New Preferred Stock called for redemption and all rights of holders of such
shares will terminate except for the right to receive the redemption price,
without interest. If a notice of redemption shall have been given as provided in
the succeeding sentence and the funds necessary for redemption (including an
amount in respect of all dividends that will accumulate to the redemption date)
shall have been segregated and irrevocably set apart by the Company, in trust
for the benefit of the holders of the shares called for redemption, then
dividends shall cease to accumulate on the redemption date on the shares to be
redeemed and, at the close of business on the day when such funds are segregated
and set apart, the holders of the shares to be redeemed shall cease to be
stockholders of the Company and shall be entitled only to receive the redemption
price for such shares. The Company will send a written notice of redemption by
first class mail to each holder of record
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of shares of New Preferred Stock, not less than 30 days nor more than 60 days
prior to the date fixed for such redemption. Shares of New Preferred Stock
issued and reacquired will, upon compliance with the applicable requirements of
Delaware law, have the status of authorized but unissued shares of preferred
stock of the Company undesignated as to series and may with any and all other
authorized but unissued shares of preferred stock of the Company be designated
or redesignated and issued or reissued, as the case may be, as part of any
series of preferred stock of the Company.
Exchange
The Company may at its option from time to time on any Dividend Payment
Date exchange, in whole or in part, the then outstanding shares of New Preferred
Stock for Exchange Debentures; provided that (i) on the date of such exchange
there are no accumulated and unpaid dividends on the Preferred Stock (including
the dividend payable on such date) or other contractual impediments to such
exchange; (ii) there shall be legally available funds sufficient therefor; (iii)
such exchange would be permitted under the terms of the Convertible Preferred
Stock, to the extent then outstanding, and immediately after giving effect to
such exchange, no Default or Event of Default (each as defined in the Exchange
Indenture) would exist under the Exchange Indenture, no default or event of
default would exist under the Credit Agreement or the 9 3/8% Note Indenture, the
10 3/8% Note Indenture, the 12.75% Debenture Indenture and no default or event
of default under any other material instrument governing Debt outstanding at the
time would be caused thereby; (iv) the Exchange Indenture has been qualified
under the TIA (as defined herein), if such qualification is required at the time
of exchange; (v) immediately after giving effect to any partial exchange, there
shall be outstanding shares of Preferred Stock with an aggregate liquidation
preference of not less than $75 million and not less than $75 million in
aggregate principal amount of Exchange Debentures; and (vi) the Company shall
have delivered a written opinion to the effect that all conditions to be
satisfied prior to such exchange have been satisfied. The provisions of the
Certificate of Incorporation governing the Convertible Preferred Stock may
restrict the Company's ability to exchange the New Preferred Stock for the
Exchange Debentures. See "Description of Certain Debt Instruments" and
"Description of Preferred Stock -- Convertible Preferred Stock."
The holders of outstanding shares of New Preferred Stock will be entitled
to receive, subject to the second succeeding sentence, $1.00 principal amount of
Exchange Debentures for each $1.00 of the liquidation preference of New
Preferred Stock held by them. The Exchange Debentures will be issued in
registered form, without coupons. Exchange Debentures issued in exchange for New
Preferred Stock will be issued in principal amounts of $1.00 and integral
multiples thereof to the extent possible, and will also be issued in principal
amounts less than $1.00 so that each holder of New Preferred Stock will receive
certificates representing the entire amount of Exchange Debentures to which such
holder's shares of New Preferred Stock entitle such holder; provided that the
Company may pay cash in lieu of issuing an Exchange Debenture in a principal
amount less than $1,000 and/or in a principal amount of less than $1.00. The
Company will send a written notice of exchange by mail to each holder of record
of shares of New Preferred Stock not less than 30 nor more than 60 days before
the date fixed for such exchange. On and after the exchange date, dividends will
cease to accrue on the outstanding shares of New Preferred Stock that are to be
exchanged, and all rights of the holders of New Preferred Stock that is to be
exchanged (except the right to receive the Exchange Debentures, an amount in
cash equal to the accrued and unpaid dividends to the exchange date and, if the
Company so elects, cash in lieu of any Exchange Debenture which is in an amount
that is not an integral multiple of $1,000 and/or $1.00) will terminate. The
Person entitled to receive the Exchange Debentures issuable upon such exchange
will be treated for all purposes as the registered holder of such Exchange
Debentures. See "Description of the Exchange Debentures."
Liquidation Preference
Upon any voluntary or involuntary liquidation, dissolution or winding-up
of the Company, holders of the New Preferred Stock will be entitled to be paid,
out of the assets of the Company available for distribution, the liquidation
preference per share of New Preferred Stock ($1,000 per share), plus any amount
in cash equal to accumulated and unpaid dividends thereon to the date fixed for
liquidation, dissolution or winding-up (including an
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amount equal to a prorated dividend for the period from the last Dividend
Payment Date to the date fixed for liquidation, dissolution or winding-up),
before any distribution is made on any Junior Securities, including, without
limitation, common stock of the Company. If upon any voluntary or involuntary
liquidation, dissolution or winding-up of the Company, the amounts payable with
respect to the New Preferred Stock and all other Parity Securities are not paid
in full, the holders of the New Preferred Stock and the Parity Securities will
share equally and ratably in any distribution of assets of the Company first in
proportion to the full liquidation preference to which each is entitled until
such preferences are paid in full, and then in proportion to their respective
amounts of accumulated but unpaid dividends. After payment of the full amount of
the liquidation preferences and accumulated and unpaid dividends to which they
are entitled, the holders of shares of New Preferred Stock will not be entitled
to any further participation in any distribution of assets of the Company.
However, neither the sale, conveyance, exchange or transfer (for cash, shares of
stock, securities or other consideration) of all or substantially all of the
property or assets of the Company nor the consolidation or merger of the Company
with one or more entities shall be deemed to be a liquidation, dissolution or
winding-up of the Company.
The Certificate of Designations does not contain any provision requiring
funds to be set aside to protect the liquidation preference of the New Preferred
Stock, although such liquidation preference will be substantially in excess of
the par value of such shares of New Preferred Stock. In addition, the Company is
not aware of any provision of Delaware law or any controlling decision of the
courts of the State of Delaware (the state of incorporation of the Company) that
requires a restriction upon the surplus of the Company solely because the
liquidation preference of the New Preferred Stock will exceed its par value.
Consequently, there will be no restriction upon the surplus of the Company
solely because the liquidation preference of the New Preferred Stock will exceed
the par value and there will be no remedies available to holders of the New
Preferred Stock before or after the payment of any dividend, other than in
connection with the liquidation of the Company, solely by reason of the fact
that such dividend would reduce the surplus of the Company to an amount less
than the difference between the liquidation preference of the New Preferred
Stock and its par value.
Voting Rights
Holders of the Preferred Stock will have no voting rights with respect to
general corporate matters except as provided by Delaware law or as set forth in
the Certificate of Designations. The Certificate of Designations provides that
if (i) after April 1, 2002, dividends on the Preferred Stock required to be paid
in cash are in arrears and unpaid for three or more semi-annual dividend periods
(whether or not consecutive) or (ii) the Company fails to redeem the Preferred
Stock on or before April 1, 2009 or (iii) the Company fails to make a Change of
Control Offer if such an offer is required by the provisions set forth under "--
Change of Control" below or fails to purchase shares of Preferred Stock from
holders who elect to have such shares purchased pursuant to the Change of
Control Offer or (iv) a breach or violation of any of the provisions described
under the captions "-- Certain Covenants -- Limitation on Debt," "-- Limitation
on Restricted Payments" and "-- Limitations Concerning Distributions By and
Transfers to Subsidiaries" below occurs and the breach or violation continues
for a period of 60 days or more after the Company receives notice thereof
specifying the default from the holders of at least 25% of the shares of
Preferred Stock then outstanding or (v) the Company fails to pay at the final
stated maturity (giving effect to any extensions thereof) the principal amount
of any Debt of the Company or any Subsidiary of the Company, or the final stated
maturity of any such Debt is accelerated, if the aggregate principal amount of
such Debt, together with the aggregate principal amount of any other such Debt
in default for failure to pay principal at the final stated maturity (giving
effect to any extensions thereof) or which has been accelerated, aggregates
$10,000,000 or more at any time, in each case, after a 20-day period during
which such default shall not have been cured or such acceleration rescinded,
then the number of directors constituting the Board of Directors will be
adjusted to permit the holders of the then outstanding Preferred Stock, voting
separately and as a class with the holders of shares of any Parity Securities
issued after the Issue Date upon which like voting rights have been conferred
and are then exercisable, to elect the lesser of two directors and that number
of directors constituting 25% of the members of the Board of Directors of the
Company. Such voting rights with respect to the Preferred Stock will continue
until such time as, in the case of a dividend default, all accumulated and
unpaid dividends on the Preferred Stock required to be paid in cash are paid in
full in cash and, in all other cases, any failure, breach or
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default giving rise to such voting rights is remedied, cured or waived by the
holders of at least a majority of the shares of Preferred Stock then
outstanding, at which time the term of any directors elected pursuant to the
provisions of this paragraph shall terminate. Each such event described in
clauses (i) through (v) above is referred to herein as a "Voting Rights
Triggering Event." The voting rights provided herein shall be the holder's
exclusive remedy at law or in equity.
In addition, the Certificate of Designations provides that except as
stated above under "-- Ranking," the Company will not authorize any additional
shares of any class of Senior Securities without the affirmative vote or consent
of holders of at least a majority of the shares of Preferred Stock then
outstanding which are entitled to vote thereon, voting or consenting, as the
case may be, as one class. The Certificate of Designations also provides that
the Company may not amend its Certificate of Incorporation so as to affect
materially and adversely the specified rights, preferences, privileges or voting
rights of the holders of shares of Preferred Stock without the affirmative vote
or consent of the holders of at least a majority of the then outstanding shares
of Preferred Stock which are entitled to vote thereon, voting or consenting, as
the case may be, as one class. The Certificate of Designations also provides
that, notwithstanding the foregoing, (a) the creation, authorization or issuance
of any shares of Junior Securities or Parity Securities or (b) the increase or
decrease in the amount of authorized Junior Securities or Parity Securities,
shall not require the consent of the holders of Preferred Stock and shall not be
deemed to affect adversely the rights, preferences, privileges or voting rights
of holders of shares of Preferred Stock.
Under Delaware law, holders of preferred stock are entitled to vote as a
class upon a proposed amendment to the Certificate of Incorporation of the
Company, whether or not entitled to vote thereon by the Certificate of
Incorporation, if the amendment would increase or decrease the par value of the
shares of such class, or alter or change the powers, preferences, or special
rights of the shares of such class so as to affect them adversely; provided,
however, that any increase in the amount of authorized preferred stock or the
creation and issuance of any other class of preferred stock, or any increase in
the amount of authorized shares of such class or of any other class of preferred
stock, in each case ranking on a parity with or junior to the Preferred Stock
with respect to the payment of dividends and the distribution of assets upon
liquidation, dissolution or winding-up, will not be deemed to affect adversely
such rights, preferences or voting powers.
Certain Covenants
The Certificate of Designations 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 Credit
Agreement not to exceed $300 million 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 Credit Agreement, does not exceed $300 million; (ii) Debt evidenced by the
12.75% Debentures, the 10 3/8% Notes, the 9 3/8% Notes and the Exchange
Debentures; (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
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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% Exchange Debentures if the 7.75% Exchange Debentures are issued in
exchange for the Convertible Preferred Stock; (ix) renewals, refundings,
replacements, or extensions (collectively, "refinancings") of the Credit
Agreement, the 12.75% Debentures, the 10 3/8% Notes, the 9 3/8% Notes, the 7.75%
Exchange Debentures, the Exchange Debentures or any other outstanding Debt that
is Incurred in compliance with the provisions of the Certificate of Designations
(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 Exchange Debentures such refinancing Debt is
subordinated in right of payment to the Exchange Debentures at least to the
extent that the Debt to be refinanced is subordinated to the Exchange
Debentures; 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.
Other than the limitations on incurrence of indebtedness contained in this
covenant, there are no provisions in the Certificate of Designations that would
protect the holders of the New Preferred Stock 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 Exchange Debentures, if issued, 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 Exchange Debentures
unless such Debt constitutes Subordinated Debt.
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 Convertible Preferred Stock or the
Preferred Stock), (ii) may
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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 Preferred Stock (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) a Voting Rights
Triggering Event shall have occurred and is continuing, or (2) upon giving
effect to such Restricted Payment, the aggregate of all Restricted Payments from
December 31, 1996 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 December 31, 1996 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 December 31, 1996 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), since December 31, 1996 from the issuance (other than to a
Subsidiary) of Capital Stock (other than Disqualified Stock) 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 December 31, 1996; plus
(c) an amount equal to the net reduction in Investments made by the Company and
its Subsidiaries subsequent to the Issue Date pursuant to Clauses (iii) and (v)
above in any Affiliate, 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 Voting Rights Triggering
Event, or event that with the passing of time or the giving of notice, or both,
would constitute a Voting Rights Triggering Event, 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 the
Convertible Preferred Stock or the New Preferred Stock, in accordance with their
respective terms, for the 7.75% Exchange Debentures or the Exchange Debentures,
as the case may be, and make payments of principal (premium, if any), and
interest thereon in accordance with the 7.75% Exchange Debenture Indenture or
the Exchange Indenture, as the case may be; (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
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a Subsidiary) of shares of Capital Stock (other than Disqualified Stock) of the
Company; (vii) purchase or redeem any Debt from Net Available Proceeds; and
(viii) make Permitted Television Investments in an aggregate amount at any one
time outstanding not to exceed $25,000,000. 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."
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 Credit
Agreement; (C) imposed by virtue of applicable corporate law or regulation and
relating solely to the payment of dividends or distributions to stockholders;
(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
with past practices that contains provisions restricting the assignment of such
contract; (F) pursuant to an agreement effecting a refinancing of Debt Incurred
pursuant to an agreement referred to in Clause (A), (B) or (D) above; provided,
however, that the provisions contained in such refinancing 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; 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 Certificate of
Designations 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 Transaction 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.
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 Issue Date 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 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.
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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) and (ii) may not permit any 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 Voting Rights Triggering Event or event
that, with the passing of time or the giving of notice, or both, would
constitute a Voting Rights Triggering Event, 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 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); (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.
Provision of Financial Information
So long as any of the New Preferred Stock is 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 copies of
such reports and documents.
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 before and 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 Voting Rights Triggering Event or event that, with
the passing of time or the giving of notice, or both, would become a Voting
Rights Triggering Event, 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 the Preferred Stock shall
be converted into or exchanged for and shall become shares of such successor,
transferee or resulting Person, having in respect of such successor, transferee
or resulting Person, the same powers, preferences and relative, participating,
optional or other special rights and qualifications, limitations and
restrictions thereon that the Preferred Stock had immediately prior to such
transaction; and (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
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quarters, of less than 6.5 to 1. 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
become the obligor in respect of the Preferred Stock and the Company will be
relieved of all further obligations and covenants under the Certificate of
Designations.
Change of Control
Provided no 12.75% Debentures are outstanding, 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
Preferred Stock, subject to the consummation of the Change of Control, at a
purchase price equal to 101% of the aggregate liquidation preference thereof
plus, without duplication, accumulated and unpaid dividends thereon to the date
of purchase. 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 a sufficient number of its nominees
elected to the Board of Directors of the Company such that such nominees, when
added to any existing directors remaining on the Board of Directors of the
Company after such election who are Affiliates 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.
Upon the occurrence of a Change of Control and regardless of whether or
not the 12.75% Debentures are then outstanding, the Company will also be
required to offer to purchase all of the Existing Notes and any outstanding
Exchange Debentures at 101% of the principal amount thereof plus accrued and
unpaid interest thereon to the date of purchase, of which $310.1 million
principal amount were outstanding as of March 31, 1997. Also 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 the Preferred Stock, Existing Notes and Exchange
Debentures tendered by the holders thereof. The New Preferred Stock will be
subordinated in right of payment to the prior payment in full of all Debt,
including the Debt outstanding under the Credit Agreement.
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REGISTRATION COVENANT; EXCHANGE OFFER
The Company has entered into the Registration Rights Agreement pursuant to
which the Company has agreed, for the benefit of the Holders of the Old
Preferred Stock, (i) to use its reasonable best efforts 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 pursuant to which shares which are substantially identical to the
Old Preferred Stock would be offered in exchange for the then outstanding Old
Preferred Stock 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 form and terms of the
shares of New Preferred Stock are identical in all material respects to the form
and terms of the shares of Old Preferred Stock except (i) that the shares of New
Preferred Stock have been registered under the Securities Act, (ii) that the
shares of New Preferred Stock are not entitled to certain registration rights
which are applicable to the shares of Old Preferred Stock under the Registration
Rights Agreement, and (iii) certain contingent interest rate provisions
applicable to the shares of Old Preferred Stock are generally not applicable to
the shares of New Preferred Stock. The Company further agreed to commence the
Exchange Offer promptly after the Exchange Offer Registration Statement has
become effective, hold the offer open for at least 30 days, and exchange shares
of New Preferred Stock for all shares of Old Preferred Stock validly tendered
and not withdrawn before the expiration of the Exchange Offer. The Exchange
Offer is being made to satisfy the contractual obligations of the Company under
the Registration Rights Agreement.
Based upon existing interpretations set forth in SEC staff no-action
letters issued to unrelated third parties, the Company believes that the New
Preferred Stock would 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 Preferred Stock in
the Exchange Offer will be subject to a prospectus delivery requirement with
respect to resales of New Preferred Stock. Broker-dealers may not rely upon such
interpretations to resell New Preferred Stock received in exchange for Old
Preferred Stock that represented an unsold allotment from the original sale of
Old Preferred Stock by the Company, nor may affiliates of the Company rely on
such interpretations. The SEC staff has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the New Preferred Stock (other than a resale of an unsold allotment from the
original sale of the Old Preferred Stock) 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 Preferred Stock. 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 New
Preferred Stock acquired by broker-dealers in after-market transactions. Each
Holder of New Preferred Stock (other than certain specified Holders) who wishes
to exchange such shares of Old Preferred Stock for shares of New Preferred Stock
in the Exchange Offer will be required to represent that any shares of New
Preferred Stock 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 shares of New Preferred Stock 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 New Preferred
Stock would not in general be freely transferable in such manner on such date,
the Company will, in lieu of effecting registration of New Preferred Stock, use
its reasonable best efforts to cause a registration statement under the
Securities Act relating to a shelf registration of the Old Preferred Stock 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 Preferred Stock 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 Preferred Stock has become effective and take certain other actions as
are required to permit
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unrestricted resales of the Old Preferred Stock. A Holder of Old Preferred Stock
that sells such Old Preferred Stock pursuant to the Resale Registration
generally would be required to be named as a selling security holder 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).
Although the Company intends to file the registration statement previously
described, there can be no assurance that the registration statement will be
filed, or if filed, that it will become effective. In the event that (i) the
Company has not filed 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) has 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 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 dividend rate on the Old
Preferred Stock 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 dividend 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 dividend rate on the Old Preferred Stock 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 will be available upon request to the Company.
DESCRIPTION OF THE EXCHANGE DEBENTURES
The Exchange Debentures, if issued, will be issued under an Exchange
Indenture (the "Exchange Indenture"), between the Company and The Bank of New
York, as trustee (together with any successor trustee, the "Trustee"). A copy of
the Exchange Indenture is an exhibit to the Registration Statement of which this
Prospectus is a part and may be obtained upon request from the Company. The
following summary of certain provisions of the Exchange Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Trust Indenture Act of 1939, as amended, as in effect on the
date of the Exchange Indenture (the "TIA"), and to all of the provisions of the
Exchange Indenture, including the definitions of certain terms therein and those
terms made a part of the Exchange Indenture by reference to the TIA as in effect
on the date of the Exchange Indenture. The definitions of certain capitalized
terms used in the following summary are set forth under "-- Certain Definitions"
below. The Credit Agreement, the 9 3/8% Note Indenture, the 10 3/8% Note
Indenture, the 12.75% Debenture Indenture and the Company's Certificate of
Incorporation restrict the Company's ability to issue the Exchange Debentures.
See "Description of Certain Debt Instruments" and "Description of Preferred
Stock -- Convertible Preferred Stock."
The Exchange Debentures will be general unsecured senior subordinated
obligations of the Company and will be limited in aggregate principal amount to
the liquidation preference of the Preferred Stock, plus, without duplication,
accumulated and unpaid dividends, on the date or dates on which it is exchanged
for Exchange Debentures (plus any additional Exchange Debentures issued in lieu
of cash interest as described herein). The Exchange Debentures will be
subordinated to all existing and future Senior Debt of the Company and will rank
pari passu with the Company's 12.75% Debentures, 10 3/8% Notes and 9 3/8% Notes.
The Exchange Debentures will be issued in fully registered form only,
without coupons, in denominations of $1,000 and integral multiples thereof
(other than as described in "Description of the New Preferred Stock --
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Exchange" or with respect to additional Exchange Debentures issued in lieu of
cash interest as described herein). No service charge will be made for any
registration of transfer or exchange of Exchange Debentures, but the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith. The Exchange Debentures will not have
the benefit of any sinking fund.
Principal of, premium, if any, and interest on the Exchange Debentures
will be payable, and the Exchange Debentures may be presented for registration
of transfer or exchange, at the office of the Paying Agent and Registrar. At the
Company's option, interest, to the extent paid in cash, may be paid by check
mailed to the registered address of holders of the Exchange Debentures as shown
on the register for the Exchange Debentures. The Trustee will initially act as
Paying Agent and Registrar. The Company may change any Paying Agent and
Registrar without prior notice to holders of the Exchange Debentures. Holders of
the Exchange Debentures must surrender Exchange Debentures to the Paying Agent
to collect principal payments.
The Exchange Debentures will mature on April 1, 2009. Each Exchange
Debenture will bear interest at the rate of 12 3/4% per annum from the Exchange
Date or from the most recent interest payment date to which interest has been
paid or provided for or, if no interest has been paid or provided for, from the
Exchange Date. Interest will be payable semi-annually in cash (or, on or prior
to April 1, 2002, in additional Exchange Debentures, at the option of the
Company) in arrears on each April 1 and October 1 commencing with the first such
date after the Exchange Date to the person in whose name the Exchange Debenture
is registered at the close of business on the March 15 or September 15 next
preceding such interest payment date. Interest on the Exchange Debentures will
be computed on the basis of a 360-day year comprised of twelve 30-day months and
the actual number of days elapsed.
Payments by the Company in respect of the Exchange Debentures (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
Exchange Debentures are expected to trade in Depository's Same-Day Funds
Settlement System, and any permitted secondary trading activity in the Exchange
Debentures will therefore be required by the Depository to be settled in
immediately available funds. No assurance can be given as to the effect, if any,
of such settlement arrangements on the trading activity in the Exchange
Debentures.
Optional Redemption
The Exchange Debentures will be redeemable, at the Company's option, in
whole or in part, at any time on or after April 1, 2002, upon not less than 30
nor more than 60 days' notice mailed to each holder of Exchange Debentures to be
redeemed at such holder's address appearing in the Company's Security Register,
in principal amounts of $1,000 or an integral multiple of $1,000, at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on April 1 of each of the
years set forth below, plus, in each case, accrued interest thereon to, but
excluding, the date of redemption:
Year Percentage
---- ----------
2002............................................ 106.375%
2003............................................ 104.250%
2004............................................ 102.125%
2005 and thereafter............................. 100.000%
In addition, on or prior to April 1, 2000, the Company may, at its option,
use the Net Available Proceeds of either or both of one or more Major Asset
Dispositions or sales of Capital Stock to redeem for cash up to an aggregate of
35% of the aggregate principal amount of the Exchange Debentures, whether
initially issued or issued in payment of interest obligations thereon, at a
redemption price equal to 112.75% of the aggregate principal amount
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so redeemed, plus accrued interest to the redemption date; provided, however,
that after any such redemption, the aggregate principal amount of Exchange
Debentures outstanding must equal at least $75 million. Any such redemption will
be required to occur on or prior to 90 days after the receipt by the Company of
the Net Available Proceeds of each Major Asset Disposition or sale of Capital
Stock and upon not less than 30 nor more than 60 days' notice mailed to each
holder of Exchange Debentures to be redeemed at such holder's address appearing
in the Company's Security Register, in principal amounts of $1,000 or an
integral multiple of $1,000.
If less than all of the Exchange Debentures are to be redeemed, the
Trustee shall select, in such manner as it shall deem fair and appropriate, the
particular Exchange Debentures to be redeemed or any portion thereof that is an
integral multiple of $1,000.
The Credit Agreement restricts the Company's ability to optionally redeem
the Exchange Debentures. See "Description of Certain Debt Instruments."
Subordination
The Exchange Debentures will, to the extent set forth in the Exchange
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
Exchange Debentures are entitled to receive any payment of principal of
(premium, if any) or interest on, or any obligation to purchase, the Exchange
Debentures. In the event that notwithstanding the foregoing, the Trustee or the
holder of any Exchange Debenture 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
Exchange Debentures), 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 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
Exchange Debentures 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 Exchange Debentures are so subordinated
("subordinated consideration").
The Company may not make any payments on account of the Exchange
Debentures or on account of the purchase or redemption or other acquisition of
Exchange Debentures (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 Credit 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 Exchange Debentures
or on account of the purchase or redemption or other acquisition of Exchange
Debentures (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
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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 Exchange
Debentures 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.
By reason of such subordination, in the event of insolvency, creditors of
the Company who are not holders of Senior Debt or of the Exchange Debentures may
recover less, ratably, than holders of Senior Debt and may recover more,
ratably, than the holders of the Exchange Debentures.
"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 Credit 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 Credit 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 of the Company, (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
Exchange Debentures, (C) such Debt is Incurred in violation of the Exchange
Indenture, or (D) such Debt is subordinate in right of payment in respect to any
other Debt of the Company.
The subordination provisions described above will cease to be applicable
to the Exchange Debentures upon any defeasance or covenant defeasance of the
Exchange Debentures as described under "-- Defeasance."
If the Company fails to make any payment on the Exchange Debentures, when
due or within any applicable grace period, whether or not on account of payment
blockage provisions, such failure would constitute an Event of Default under the
Exchange Indenture and would enable the holders of the Exchange Debentures to
accelerate the maturity thereof. See "-- Events of Default."
A holder of Exchange Debentures by his acceptance of Exchange Debentures
agrees to be bound by such provisions and authorizes and expressly directs the
Trustee, on his behalf, to take such action as may be necessary or appropriate
to effectuate the subordination provided for in the Exchange Indenture and
appoints the Trustee his attorney-in-fact for such purpose.
Certain Covenants
The Exchange 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.
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Notwithstanding the foregoing paragraph, the Company or any Subsidiary may
Incur the following without regard to the foregoing limitation: (i) Debt under
the Credit Agreement not to exceed $300 million 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 Credit Agreement, does not exceed $300 million; (ii) Debt
evidenced by the 12.75% Debentures, the 10 3/8% Notes, the 9 3/8% Notes and the
Exchange Debentures; (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% Exchange Debentures if the 7.75% Exchange Debentures are issued in
exchange for the Convertible Preferred Stock; (ix) renewals, refundings,
refinancings or extensions (collectively, "refinancings") of the Credit
Agreement, the 12.75% Debentures, the 10 3/8% Notes, the 9 3/8% Notes, the 7.75%
Exchange Debentures, the Exchange Debentures or any other outstanding Debt that
is Incurred in compliance with the provisions of the Exchange 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 Exchange Debentures such refinancing Debt is
subordinated in right of payment to the Exchange Debentures at least to the
extent that the Debt to be refinanced is subordinated to the Exchange
Debentures; 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.
Other than the limitations on incurrence of indebtedness contained in this
covenant, there are no provisions in the Exchange Indenture that would protect
the holders of the Exchange Debentures 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 Exchange Debentures, if issued, 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 Exchange Debentures
unless such Debt constitutes Subordinated Debt.
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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 Convertible Preferred Stock or the
New 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 Exchange Debentures (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" below 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
December 31, 1996 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 December 31, 1996 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 December 31, 1996 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 value of
property other than cash (as determined in good faith by the Board of Directors
and evidenced by a resolution filed with the Trustee), since December 31, 1996
from the issuance (other than to a Subsidiary) of Capital Stock (other than
Disqualified Stock) of the Company and options, warrants or other rights to
purchase or acquire Capital Stock of the Company (other than Disqualified Stock
and other than by a Subsidiary) 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 December 31, 1996; 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 Exchange
Debentures 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 at any one time
outstanding; (iii) make Investments, not to exceed
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$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 the Convertible Preferred Stock or the
New Preferred Stock, in accordance with their respective terms, for the 7.75%
Exchange Debentures or the Exchange Debentures, as the case may be, and make
payments of principal (premium, if any) and interest thereon in accordance with
the 7.75% Exchange Debenture Indenture or the Exchange Indenture, as the case
may be; (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" below; and (viii) make Permitted Television
Investments in an aggregate amount at any one time outstanding not to exceed
$25,000,000. 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" above.
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" above 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
Credit Agreement; (C) imposed by virtue of applicable corporate law or
regulation and relating solely to the payment of dividends or distributions to
stockholders; (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 with past practices that contains provisions restricting
the assignment of such contract; (F) pursuant to an agreement effecting a
refinancing of Debt Incurred pursuant to an agreement referred to in Clause (A),
(B) or (D) above; provided, however, that the provisions contained in such
refinancing 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 Exchange 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 Transaction 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.
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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
Exchange 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 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 resolution of its Board of Directors referred
to in the preceding sentence with respect to matters solely concerning the
compensation of employees.
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 is 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 Credit Agreement
(or any successor credit facility) to the extent the terms of such Credit
Agreement (or successor credit facility) require such application or prohibit
prepayment of the Exchange Debentures; (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
Exchange Debentures; (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 of any remaining Net Available
Proceeds and so long as any 9 3/8% Notes are outstanding, to make an offer to
purchase the 9 3/8% Notes in accordance with the requirements of the 9 3/8% Note
Indenture; (F) sixth, 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), (D) and (E), to purchases of outstanding Exchange
Debentures 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; (G) seventh, to the extent of any
remaining Net Available Proceeds following the completion of the Offer to
Purchase required by Clause (F); 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 (H) eighth, 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 Exchange 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.
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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 FCC (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 Exchange Debentures pursuant to this covenant
for Exchange Debentures previously acquired by reason of a redemption, tender
offer or other repurchase.
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 Exchange
Debentures (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
Exchange Debentures, prior to such Debt as to such property or assets for so
long as such Debt will be so secured.
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.
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"
above (including the provisions thereof relating to the application of the Net
Available Proceeds therefrom) and (ii) may not permit any 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
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or issuance are applied in accordance with "-- Limitation on Certain Asset
Dispositions" above (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 penultimate sentence of the second paragraph under
"-- Limitation on Certain Asset Dispositions" above); (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 in good faith by the Board of Directors.
Provision of Financial Information
So long as any of the Exchange Debentures 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.
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 before and 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 Exchange 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 Exchange Indenture described under "-- Limitation on Liens
Securing Company Subordinated Debt" above, the Company or the successor entity
to the Company shall have secured the Exchange Debentures as required by such
covenant; and (5) certain other conditions are met. 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 become the obligor in respect of the Exchange Debentures and the
Company will be relieved of all further obligations and covenants, including the
"-- Limitation on Certain Asset Dispositions" above under the Exchange Indenture
and the Exchange Debentures.
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 Exchange Debentures, subject to the consummation of the
Change of Control, at a purchase price equal to 101% of their aggregate
principal amount plus
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accrued interest to the date of purchase. 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 a sufficient
number of its nominees elected to the Board of Directors of the Company such
that such nominees, when added to any existing directors remaining on the Board
of Directors of the Company after such election who are Affiliates 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.
Upon the occurrence of a Change of Control, the Company will also be
required to offer to purchase all of the Existing Notes at 101% of the principal
amount thereof plus accrued and unpaid interest thereon to the date of purchase,
of which $310.1 million principal amount was outstanding as of March 31, 1997.
Upon the occurrence of a Change of Control, the Company would also be required
to offer to purchase all outstanding Preferred Stock (provided there are no
12.75% Debentures outstanding) at a price equal to 101% of the liquidation
preference thereof, plus, without duplication, accumulated and unpaid dividends
thereon. Also 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 Exchange
Debentures, Existing Notes and, in the event there are no 12.75% Debentures
outstanding, Preferred Stock tendered by the holders thereof. The Exchange
Debentures will be subordinated in right of payment to the prior payment in full
of all Senior Debt, including the Senior Debt outstanding under the Credit
Agreement.
Events of Default
The following will be Events of Default under the Exchange Indenture: (a)
failure to pay any interest on any Exchange Debenture when due, continued for 30
days; (b) failure to pay principal of (or premium, if any, on) any Exchange
Debenture when due; (c) failure to purchase Exchange Debentures required to be
purchased pursuant to an Offer to Purchase as described under the "-- Certain
Covenants -- 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 "-- Certain Covenants -- Mergers, Consolidations and
Certain Sales of Assets"; (f) failure to perform any other covenant or warranty
of the Company in the Exchange Indenture, continued for 60 days after written
notice as provided in the Exchange 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.
Subject to the provisions of the Exchange 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 Exchange Indenture at the request or direction of any of the Holders,
unless such Holders shall have offered to the Trustee reasonable indemnity.
Subject to such provisions for the indemnification of the Trustee, the Holders
of a majority in aggregate principal amount of the outstanding Exchange
Debentures 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.
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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
Exchange Debentures may accelerate the maturity of all Exchange Debentures;
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 Exchange Debentures 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 Exchange
Indenture. For information as to waiver of defaults, see "-- Modification and
Waiver."
No Holder of any Exchange Debenture will have any right to institute any
proceeding with respect to the Exchange 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 Exchange Debentures 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
Exchange Debentures a direction inconsistent with such request and shall have
failed to institute such proceeding within 60 days. However, such limitations do
not apply to a suit instituted by a Holder of an Exchange Debenture for
enforcement of payment of the principal of (and premium, if any) or, interest on
such Exchange Debenture on or after the respective due dates expressed in such
Exchange Debenture.
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 Exchange Indenture and as to any default in such performance.
Defeasance
The Exchange 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 Exchange Debentures 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 Exchange Indenture and
the Exchange Debentures, and that the Exchange Debentures shall no longer be
subject to the subordination provisions in the case of either (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 Exchange
Debentures. With respect to Clause (B), the obligations under the Exchange
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 Exchange
Debentures 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 Exchange Debentures
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.
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Modification and Waiver
Modifications and amendments of the Exchange 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 Exchange Debentures; provided,
however, that no such modification or amendment may, without the consent of the
Holder of each outstanding Exchange Debenture affected thereby, (a) change the
Stated Maturity of the principal of, or any installment of interest on, any
Exchange Debenture, (b) reduce the principal amount of (or the premium), or
interest on, any Exchange Debentures, (c) change the place or currency of
payment of principal of (or premium), or interest on, any Exchange Debentures,
(d) impair the right to institute suit for the enforcement of any payment on or
with respect to any Exchange Debentures, (e) reduce the above-stated percentage
of outstanding Exchange Debentures necessary to modify or amend the Exchange
Indenture, (f) reduce the percentage of aggregate principal amount of
outstanding Exchange Debentures necessary for waiver of compliance with certain
provisions of the Exchange Indenture or for waiver of certain defaults, (g)
modify any provisions of the Exchange Indenture relating to the modification and
amendment of the Exchange Indenture or the waiver of past defaults or covenants,
except as otherwise specified, or (h) modify any Offer to Purchase for the
Exchange Debentures required under the "-- Certain Covenants -- Limitation on
Certain Asset Dispositions" and the "Change of Control" covenant thereof.
The Holders of a majority in aggregate principal amount of the outstanding
Exchange Debentures may waive compliance by the Company with certain restrictive
provisions of the Exchange Indenture. The Holders of a majority in aggregate
principal amount of the outstanding Exchange Debentures may waive any past
default under the Exchange Indenture, except a default in the payment of
principal, premium, if any, or interest or a default arising from failure to
purchase any Exchange Debenture tendered required to be purchased pursuant to an
Offer to Purchase.
The Trustee
The Exchange 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 Exchange Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Exchange 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.
The Exchange Indenture and provisions of the TIA 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 Exchange Indenture or in the TIA), it
must eliminate such conflict or resign.
Certain Definitions
Set forth below is a summary of certain of the defined terms used in the
Certificate of Designations for the New Preferred Stock and the Exchange
Indenture. Reference is made to the Certificate of Designations and the Exchange
Indenture for the full definition of all such terms, as well as any other terms
used herein for which no definition is provided.
"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.
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"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 its Subsidiaries outside of the ordinary course of
business. For purposes of the Exchange Indenture, the definition of "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 Exchange Indenture and
then outstanding 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.
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"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 deducted from consolidated revenues of such Person and its
Consolidated Subsidiaries (other than amortization of film and program assets)
in determining Consolidated Net Income for such period, minus (v) non-cash items
added to consolidated revenues of such Person and its Consolidated Subsidiaries
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 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,
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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 Exchange Debentures, excluding however, the Preferred
Stock and the Convertible Preferred Stock, unless the issuer's obligation to
pay, purchase or redeem such security is expressly conditioned on its ability to
do so in compliance with the provisions of the covenant described under the
caption "-- Certain Covenants -- Limitation on Restricted Payments."
"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.
"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.
"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.
"Major Asset Disposition" means any Asset Disposition or series of related
Asset Dispositions involving assets with a fair market value in excess of $2
million.
"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
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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 Board of Directors (filed with the
Trustee in the case of the Exchange Debentures); provided, however, that any
reduction in such reserve following the consummation of such Asset Disposition
will be treated for all purposes of the Exchange Indenture and the New Preferred
Stock and the Exchange Debentures 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 Security Register on the date of the Offer, offering to
purchase up to the securities 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 securities within five
Business Days after the Expiration Date. In the case of an Offer being made to
the holders of Exchange Debentures, 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 "-- Certain Covenants -- 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 securities pursuant to the Offer to
Purchase. The Offer shall also state:
(1) the Section of the operative document pursuant to which the Offer to
Purchase is being made;
(2) the Expiration Date and the Purchase Date;
(3) the aggregate amount of the outstanding securities 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 securities accepted
for payment (as specified pursuant to the operative document);
(5) that the holder may tender all or any portion of the securities
registered in the name of such holder and that any portion of a security
tendered must be tendered in an integral multiple of $1,000;
(6) the place or places where securities are to be surrendered for tender
pursuant to the Offer to Purchase;
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(7) that dividends or interest on any security 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 security accepted for payment pursuant to the Offer to
Purchase and that interest or dividends thereon shall cease to accrue or
accumulate, as the case may be, on and after the Purchase Date;
(9) that each holder electing to tender a security pursuant to the Offer
to Purchase will be required to surrender such security at the place or places
specified in the Offer prior to the close of business on the Expiration Date (if
such security is an Exchange Debenture and, if the Company or the Trustee so
requires, such Exchange Debenture being duly endorsed by, or accompanied by a
written 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
securities 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 amount of the
securities the holder tendered, the certificate number of the security the
holder tendered and a statement that such holder is withdrawing all or a portion
of his tender;
(11) that (i) if securities 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 securities and (ii) if
Exchange Debentures 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 securities equal to the Purchase Amount on a pro rata
basis (with such adjustments as may be deemed appropriate so that only
securities in denominations of $1,000 or integral multiples thereof shall be
purchased); and
(12) that in the case of any holder whose securities are purchased only in
part, the Company shall execute, and in the case of Exchange Debentures the
Trustee shall authenticate and deliver to the holder of such securities without
service charge, a new certificate or certificates, of any authorized
denomination as requested by such holder, in an aggregate amount equal to and in
exchange for the unpurchased portion of the securities 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.
"Person" means any individual, corporation, partnership, joint venture,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
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"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 "-- Certain Covenants -- 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 restrictions or encumbrances 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 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 by a resolution of the Board of
Directors of the Company 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.
"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
Exchange Debentures 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 Exchange Debentures 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 Exchange Debentures, upon notice by 25% or more in principal
amount of the Exchange Debentures 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 7.75% Exchange Debentures shall constitute
Subordinated Debt unless and until the terms thereof shall be amended or
modified after the date of the Exchange Indenture.
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"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, 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 Exchange 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.
Form, Denomination and Book-Entry Procedures
The Old Preferred Stock initially sold to qualified institutional buyers
was represented by one fully-registered global certificate (the "Global
Certificate"). The Global Certificate was deposited upon issuance with The
Depository Trust Company (the "Depository") and registered in the name of the
Depository or a nominee of the Depository (the "Global Certificate Registered
Owner"). The Global Certificate, to the extent directed by holders
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thereof in their Letters of Transmittal, will be exchanged through book-entry
electronic transfer for one or more definitive fully-registered global
certificates without coupons representing the New Preferred Stock (collectively,
the "New Global Certificate") registered in the name of a nominee of the
Depository (the "New Global Certificate Registered Owner"). No service charge
will be made for any registration of transfer or exchange of Preferred Stock,
but the Company may require payment of a sum sufficient to cover any tax or
other governmental charge payable in connection therewith.
Shares of New Preferred Stock issued to non-qualified institutional buyers
in exchange for shares of Old Preferred Stock held by such investors, if any,
will be issued only in certificated, fully registered, definitive form. The New
Global Certificate will, upon request, be exchangeable for other shares of New
Preferred Stock in definitive, fully registered form in whole shares, but only
in accordance with the Depository's customary procedures. The New Global
Certificate will also be exchangeable in certain other limited circumstances.
The Company, the Trustee and any other agent thereof will be entitled to treat
the Depository's nominee as the sole owner and holder of the unexchanged portion
of the New Global Certificate for all purposes.
The Depository has advised the Company that the Depository 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 Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depository'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 the Depository 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 the Depository are recorded on the records of the
Participants and Indirect Participants.
The Depository has also advised the Company that, pursuant to procedures
established by it, (i) upon deposit of the New Global Certificate, the
Depository will credit the accounts of Participants designated by the
Participants with portions of the liquidation preference of the Global
Certificate and (ii) ownership of such interests in the New Global Certificate
will be shown on, and the transfer of ownership thereof will be effected only
through, records maintained by the Depository (with respect to the Participants)
or by the Participants and the Indirect Participants (with respect to other
owners of beneficial interests in the New Global Certificate). The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Old Preferred
Stock, New Preferred Stock and Exchange Debentures will be limited to that
extent.
Except as described below, owners of interests in the Global Certificate
will not have New Preferred Stock registered in their names, will not receive
physical delivery of New Preferred Stock in definitive form and will not be
considered the registered owners or holders thereof for any purpose.
Payments in respect of the liquidation preference, principal of and
premium, if any, and dividends and interest on any New Preferred Stock or
Exchange Debentures registered in the name of the New Global Certificate
Registered Owner will be payable by the Company or the Trustee, as the case may
be, to the New Global Certificate Registered Owner in its capacity as the
registered holder. The Company and the Trustee will treat the persons in whose
names the New Preferred Stock or Exchange Debentures, including the New Global
Certificate, 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 the
Depository's records or any Participant's records relating to or payments made
on account of beneficial ownership interests in the New Global Certificate, or
for maintaining, supervising or reviewing any of the Depository's records or any
Participant's records relating to the beneficial ownership interests in the New
Global Certificate or (ii) any other matter relating to the actions and
practices of the
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Depository or any of its Participants. The Depository has advised the Company
that its current practice, upon receipt of any payment in respect of securities
such as the New Preferred Stock or Exchange Debentures (including dividends,
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 the Depository unless the Depository 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
Preferred Stock or Exchange Debentures 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 the Depository,
the Trustee or the Company. Neither the Company nor the Trustee will be liable
for any delay by the Depository or any of its Participants in identifying the
beneficial owners of the New Preferred Stock or Exchange Debentures, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from the New Global Certificate Registered Owner for all
purposes.
The New Global Certificate is exchangeable for definitive New Preferred
Stock or Exchange Debentures if (i) the Depository notifies the Company that it
is unwilling or unable to continue as Depository for the New Global Certificate
and the Company thereupon fails to appoint a successor Depository, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of the New Preferred Stock or Exchange Debentures in definitive
registered form, (iii) there shall have occurred and be continuing a Voting
Rights Triggering Event or an Event of Default or any event which after notice
or lapse of time or both would be a Voting Rights Triggering Event or an Event
of Default with respect to New Preferred Stock or the Exchange Debentures, or
(iv) as provided in the following paragraph. Such definitive New Preferred Stock
or Exchange Debentures shall be registered in the names of the owners of the
beneficial interests in the New Global Certificate as provided by the
Participants. Exchange Debentures issued in definitive form will be in fully
registered form, without coupons, in minimum denominations of $100,000 and
integral multiples of $1,000 above that amount. Upon issuance of New Preferred
Stock or Exchange Debentures in definitive form, the Company or Trustee, as the
case may be, is required to register the New Preferred Stock or Exchange
Debentures in the name of, and cause the New Preferred Stock or Exchange
Debentures to be delivered to, the person or persons (or the nominee thereof)
identified as the beneficial owners as the Depository shall direct.
Subject to certain restrictions on the transferability of the New
Preferred Stock, New Preferred Stock in definitive form will be issued upon the
resale, pledge or other transfer of any New Preferred Stock or interest therein
to any person or entity that is not a qualified institutional buyer or that does
not participate in the Depository.
The information in this section concerning the Depository and the
Depository'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.
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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 September 4, 1996, the Company amended and restated its existing credit
agreement to permit revolving loan borrowings of up to $200,000,000 (the
"Revolving Loans"), all of which is committed, and to permit borrowings of up to
an additional $100,000,000 (the "Additional Loans"), in each instance, the
proceeds of which may be used for working capital and other general corporate
purposes, the repurchase of senior subordinated notes and acquisitions.
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 (ii) guaranteed
by all present and future subsidiaries of the Company, which guarantees are
secured by the pledge of all issued and outstanding shares of capital stock of,
and liens on substantially all of the current and future assets of, the
Company's current and future subsidiaries. The Credit Agreement contains a
negative pledge covenant 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 1.125% and
2.375% (currently 2.125%) or the agent bank's prime rate plus marginal rates
between 0% and 1.125% (currently .875%). The marginal rates are subject to
adjustment under the Credit Agreement, based upon changes in the Company's ratio
of total funded debt to broadcast cash flow after corporate overhead. The
principal amount of the Revolving Loans is payable quarterly, and the Revolving
Loan commitments are subject to reduction in installments, on March 31, June 30,
September 30 and December 31 of each year, commencing December 31, 1998, through
December 31, 2003 when the final payment is due on Revolving Loans. The
principal amounts of any Additional Loans are payable quarterly, and the
Additional Loan commitments are subject to reduction, in installments, on March
31, June 30, September 30 and December 31 of each year, commencing March 31,
2001 through December 31, 2003 when the final payment is due on the Additional
Loans. The Credit Agreement contains representations and warranties, funding and
yield protection provisions, borrowing conditions precedent, financial and other
covenants and restrictions, events of default and other provisions customary for
bank credit agreements of this type. The Credit Agreement requires that not less
than 50% of the Company's aggregate debt have fixed interest rates.
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 Convertible Preferred Stock if no default exists or would be caused by
such payment and (b) the Company may repurchase the Existing Notes and
debentures described in this section if no default exists or would be caused by
such repurchase, (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 date of entering
into the Credit Agreement 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
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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.
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 TIA.
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 Exchange 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 Exchange Debentures, and are senior in right of payment to all
subordinated debt of the Company, including the 7.75% 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 Exchange
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
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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 New Preferred Stock or
the Exchange Debentures 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 12.75% 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% 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 15, 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 TIA.
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 Exchange 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 Exchange Debentures, and
are senior in right of payment to all subordinated debt of the Company,
including the 7.75% 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.
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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 Exchange 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 Exchange Debentures or the New
Preferred Stock 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 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 10 3/8% Note 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.
9 3/8% Senior Subordinated Notes
In February 1996, the Company completed an offering of $110,000,000
aggregate principal amount of its 9 3/8% Rule 144A Senior Subordinated Notes due
December 1, 2005. All of these notes were exchanged for a like principal amount
of the publicly-registered 9 3/8% Senior Subordinated Notes due December 1,
2005, pursuant to an exchange offer completed in July 1996 (the "9 3/8% Notes").
The 9 3/8% Notes are governed by an indenture, dated as of February 22, 1996,
between the Company and The Bank of New York, as trustee (the "9 3/8% Note
Indenture"). The 9 3/8% Note Indenture is by its terms subject to and governed
by the TIA.
Interest on the 9 3/8% Notes is payable in cash semi-annually on June 1
and December 1 of each year. The 9 3/8% Notes do not have the benefit of any
sinking fund obligations, and are not convertible or exchangeable into any other
security.
The 9 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 9 3/8% Note Indenture, which definition is substantially
identical to that contained in the Exchange Indenture), are pari passu in right
of payment, to the extent set forth in the 9 3/8% Note Indenture, with all
senior subordinated debt of the Company, including the Exchange Debentures,
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and are senior in right of payment to all subordinated debt of the Company,
including the 7.75% Exchange Debentures, if issued.
The 9 3/8% Notes are redeemable on or after December 1, 2000, at the
option of the Company, in whole or in part from time to time, at 104.687% of
principal amount thereof, plus accrued interest, reducing to 100% of the
principal amount thereof, plus accrued interest, on or after December 1, 2002.
The Company is required to offer to purchase all outstanding 9 3/8% Notes
at 101% of their principal amount, plus accrued interest, in the event of a
Change of Control (as defined in the 9 3/8% Note Indenture, which definition is
substantially identical to that contained in the Exchange Indenture).
The 9 3/8% Notes are redeemable before December 1, 2000 only in the event
that on or before February 22, 1999 the Company receives proceeds from any sale
of its Capital Stock other than Disqualified Stock (each as defined in the 9
3/8% Note Indenture) in one or more offerings, in which case the Company may, at
its option, use all or a portion of any such proceeds within 75 days of receipt
to redeem 9 3/8% Notes in a principal amount of at least $5,000,000 and up to an
aggregate of 33% of the original principal amount of the 9 3/8% Notes at a
redemption price of 109.375% of the principal amount thereof plus accrued
interest to the date of redemption; provided, however, that at least 67% of the
original principal amount of the 9 3/8% Notes remains outstanding.
The 9 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 9 3/8% Note Indenture
relating to the incurrence of debt, there are no provisions in the 9 3/8% Note
Indenture that would protect the holders of the 9 3/8% Notes in the event of a
highly leveraged transaction.
Events of Default under the 9 3/8% Note Indenture include: (i) failure to
pay principal of or premium, if any, on the 9 3/8% Notes when due at maturity,
upon redemption or otherwise, including failure by the Company to purchase the
9 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 9 3/8% Note Indenture); (ii) failure to pay any interest on any 9 3/8%
Notes when due, continued for 30 days (whether or not such payment shall be
prohibited by the subordination provisions of the 9 3/8% Note Indenture); (iii)
failure to perform any other covenant or agreement of the Company in the 9 3/8%
Notes or the 9 3/8% Note Indenture, continued for 30 days after written notice
as provided in the 9 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.
7.75% Exchange Debentures
If the Company elects to exchange the Convertible Preferred Stock for
the Company's 7.75% Junior Subordinated Convertible Exchange Debentures due
2005 (the "7.75% Exchange Debentures"), the Company will issue the Exchange
Debentures under an Indenture (the "7.75% 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 7.75% Exchange
Debentures will be issued at a rate of $25.00 principal amount of the 7.75%
Exchange Debentures for each share of Convertible Preferred Stock so
exchanged. The Company may only effect such exchange if accrued and unpaid
dividends on the Convertible Preferred Stock have been paid in full.
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The 7.75% 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 Convertible Preferred Stock (excluding
accrued and unpaid dividends payable upon liquidation) and will mature on
December 15, 2005. The 7.75% 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
semi-annually on June 15 and December 15 of each year.
The 7.75% 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 Convertible Preferred Stock then in effect.
The payment of the principal of, premium, if any, and interest on 7.75%
Exchange Debentures will, to the extent set forth in the 7.75% Debenture
Indenture, be subordinated in right of payment to the prior payment in full of
all Senior Indebtedness (as defined in the 7.75% Debenture Indenture), which
generally includes all indebtedness not expressly pari passu with or
subordinated in right of payment to the 7.75% Exchange Debentures.
The 7.75% 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 7.75%
Exchange Debentures at 100% of their principal amount plus accrued interest in
the event of a Change of Control (as defined in the 7.75% Exchange Debenture
Indenture, which definition is identical to that contained in the Exchange
Indenture). 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.
There are no provisions in the 7.75% Exchange Debenture Indenture that
would operate to protect the holders of the Exchange Debentures or the New
Preferred Stock in the event of a highly leveraged transaction.
The following will be Events of Default under the 7.75% Debenture
Indenture: (a) failure to pay principal of or premium, if any, on the 7.75%
Exchange Debentures when due at maturity, upon redemption or otherwise,
including failure by the Company to redeem the 7.75% Exchange Debentures upon a
Change of Control (whether or not such payment shall be prohibited by the
subordination provisions of the 7.75% Debenture Indenture); (b) failure to pay
any interest on any 7.75% Exchange Debentures when due, continued for 30 days
(whether or not such payment shall be prohibited by the subordination provisions
of the 7.75% Debenture Indenture); (c) failure to perform any other covenant or
agreement of the Company in the 7.75% Exchange Debentures or the 7.75% 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
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Restated Certificate of Incorporation, as amended (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.
Convertible Preferred Stock
Holders of the Convertible 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 Convertible 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
Existing Note Indentures and the Credit Agreement. See "Description of Certain
Debt Instruments."
Each share of Convertible 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 January 20, 1997, 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. On March 31, 1997, the last reported sale
price per share of the Common Stock (Nonvoting), as reported by Nasdaq, was
$9.63.
All of the then outstanding shares of Convertible 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 Convertible 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 Certain Debt
Instruments."
Shares of Convertible 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.
The Convertible Preferred Stock is exchangeable in whole, but not in part,
at the option of the Company, for 7.75% Exchange Debentures on any dividend
payment date at the rate of $25.00 principal amount of Exchange Debentures for
each share of Convertible Preferred Stock outstanding at the time of exchange.
See "Description of Certain Debt Instruments -- 7.75% Exchange Debentures." The
Company may only effect such exchange if accrued and unpaid dividends on the
Convertible Preferred Stock have been paid in full.
The Company's exchange of the Convertible Preferred Stock for the 7.75%
Exchange Debentures would constitute an incurrence of indebtedness, and would
therefore be subject to certain restrictions under the Existing Note Indentures,
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
the Convertible Preferred Stock are accrued and unpaid or (ii) the Company
fails to make any payment upon mandatory redemption of the Convertible Preferred
Stock, the number of directors of the Company will be increased by two and the
holders of all outstanding shares of Convertible 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.
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If a Change of Control (as defined below) occurs, each holder of
Convertible Preferred Stock shall have the right, at the holder's option, to
require the Company to repurchase all of such holder's Convertible 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 percent 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 percent of the
conversion price in effect on such trading days, or (ii) at least 90 percent 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 Convertible Preferred Stock
or 7.75% 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 were 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).
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 December 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.
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CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain U.S. federal income tax
considerations relevant to the acquisition of the New Preferred Stock in the
Exchange Offer. This discussion does not purport to be a complete analysis of
all potential tax considerations to prospective purchasers. 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, administrative rulings and pronouncements of the Internal Revenue
Service ("IRS"), and judicial decisions, all as of the date of this Prospectus
and all of which are subject to change at any time, possibly with retroactive
effect. In particular, potential investors should be aware that certain relevant
provisions of the Code have not been subject to definitive interpretation by the
IRS or the courts.
This discussion is limited to those potential investors who would hold the
New Preferred Stock as a "capital asset" for federal income tax purposes. This
discussion does not purport to address federal income tax consequences that may
be applicable to particular categories of stockholders, including insurance
companies, tax-exempt persons, financial institutions, dealers in securities,
persons that own in excess of 10 percent of the Company's stock, persons that
hold New Preferred Stock or Exchange Debentures as part of a straddle or
conversion transaction, persons that have a functional currency other than the
U.S. dollar, holders subject to the alternative minimum tax, and nonUnited
States persons, including foreign corporations and nonresident alien
individuals, some of which may be subject to special rules. This discussion does
not address any tax considerations under the laws of any state, locality or
jurisdiction, 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), PROSPECTIVE
INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS REGARDING THE PARTICULAR TAX
CONSEQUENCES OF AN INVESTMENT IN THE NEW PREFERRED STOCK.
Exchange
An exchange of New Preferred Stock for Old Preferred Stock pursuant to the
Exchange Offer will not result in a taxable disposition to a holder of Old
Preferred Stock. Accordingly, there should be no material federal income tax
consequences to holders receiving New Preferred Stock for Old Preferred Stock
under the Exchange Offer, and a holder should have the same adjusted tax basis
and holding period in the New Preferred Stock as it had in the Old Preferred
Stock immediately before the exchange.
Distributions on New Preferred Stock
Based on current information and projections, it is likely that the
Company will not have current or accumulated earnings and profits ("earnings and
profits") as determined for U.S. federal income tax purposes during at least
some of the period in which the New Preferred Stock will be outstanding. The
availability of earnings and profits in future years will depend on future
profits and losses which cannot be accurately predicted. As a result, during
such time as the Company does not have earnings and profits, distributions on
the New Preferred Stock will be treated as a nontaxable return of capital and
will be applied against and reduce the adjusted tax basis of the New Preferred
Stock in the hands of each holder (but not below zero), thereby increasing the
amount of any gain (or reducing the amount of any loss) which would otherwise be
realized by such holder upon a taxable disposition of such New Preferred Stock.
The amount of any such distribution which exceeds the adjusted tax basis of the
New Preferred Stock in the hands of the holder will be treated as capital gain
and will be long-term capital gain if the holder's holding period for such New
Preferred Stock exceeds one year. Accordingly, distributions on the New
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Preferred Stock which are not out of earnings and profits will not be
characterized as a dividend for U.S. federal income tax purposes with the
additional result that corporate stockholders will not be entitled to claim the
dividends received deduction with respect to such distributions. See the
discussion below under "-- Dividends Received Deduction." The amount of any
distribution will be equal to the amount of cash or the fair market value of the
New Preferred Stock distributed. A holder's initial tax basis for the additional
shares of New Preferred Stock will be equal to the fair market value of such
shares on the date of distribution; the holding period for such shares will
commence on the date of their distribution and will not include such holder's
holding period for the New Preferred Stock with respect to which the additional
shares were distributed.
Treatment of Distributions Out of Earnings and Profits
In the event that the Company does have earnings and profits,
distributions by the Company with respect to the New Preferred Stock (whether
paid in cash or by distribution of additional shares of New Preferred Stock)
will be characterized as dividends that are taxable as ordinary income to the
extent of the Company's earnings and profits.
Dividends Received Deduction
Subject to important restrictions, dividends received out of earnings and
profits by a corporate holder of New Preferred Stock generally will qualify for
the 70 percent dividends received deduction provided by Section 243(a)(1) of the
Code. Under Section 246(b) of the Code, the aggregate dividends received
deduction permitted a corporate holder may not exceed 70 percent of such
holder's "taxable income," as specially computed under that section. Under
Section 246(c) of the Code, the 70 percent dividends received deduction will not
be available with respect to shares of New Preferred Stock which are not held
for at least 46 days (at least 91 days in the case of a dividend attributable to
a period or periods aggregating in excess of 366 days), including the day of
disposition, but excluding the day of acquisition or any day which is at least
46 days (at least 91 days in the case of the more than 366 day period) after the
date on which the New Preferred Stock becomes ex-dividend. The length of time
that a holder is deemed to have held shares for these purposes is reduced for
periods during which the holder's risk of loss with respect to the stock is
diminished by reason of the existence of certain options, contracts to sell,
short sales and other similar transactions. Section 246(c) also denies the
dividends received deduction to the extent that a corporate holder is under an
obligation with respect to substantially similar or related property to make
payments corresponding to the dividend received. Moreover, under Section 246A of
the Code, to the extent that a corporate holder incurs indebtedness "directly
attributable" to investment in the New Preferred Stock and the New Preferred
Stock constitutes "debt-financed portfolio stock" as defined in Section
246A(c)(1) of the Code, the percentage of the dividends received deduction
available to such holder is proportionately reduced.
In addition, for purposes of computing alternative minimum tax liability,
a corporate holder claiming a 70 percent dividends received deduction will be
required to include in its alternative minimum taxable income a portion of any
dividends received deduction allowed in computing its regular taxable income.
Thus, a corporate holder's liability for alternative minimum tax may fail to be
reduced as a result of any dividend received deduction.
On February 6, 1997, President Clinton proposed certain tax law changes
(the "Proposed Legislation") which, among other things, would reduce the
dividends received deduction under Section 243 of the Code from 70 percent to 50
percent, and would alter other limitations contained in Section 246 of the Code.
Based on the language of similar proposals by President Clinton in 1996, it is
believed that the Proposed Legislation would provide that the dividends received
deduction would not be available with respect to New Preferred Stock held for 45
days or less during the 90 day period beginning on the date which is 45 days
before the date on which shares of New Preferred Stock become ex-dividend with
respect to such dividend. Moreover, in the case of dividends attributable to a
period or periods aggregating more than 366 days, it is believed that under the
Proposed Legislation, the dividends received deduction would not be available
with respect to New Preferred Stock held for 90 days or less during the 180 day
period beginning on the date which is 90 days before the date on which shares of
New Preferred Stock become ex-dividend with respect to such dividend.
Additionally, the Proposed Legislation
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would eliminate the dividends received deduction for preferred stock that is
considered the equivalent of a bond, which may include the New Preferred Stock.
It is not clear whether any of these proposals ultimately will be enacted or, if
enacted, will be enacted in the form proposed. There can be no assurance that
the Proposed Legislation, or other legislation enacted after the date hereof,
will not adversely affect the tax treatment of the New Preferred Stock. Although
the Proposed Legislation prescribes a prospective effective date for the
foregoing proposed provisions, in its current form the Proposed Legislation
provides no grandfather protection for stock issued prior to such effective date
and, therefore, if enacted, could apply to dividends paid on the New Preferred
Stock after such effective date.
Section 1059 of the Code requires a corporate holder to reduce (but not
below zero) its basis in the New Preferred Stock by the "nontaxed portion" of
any "extraordinary dividend" if the holder has not held the New Preferred Stock,
subject to a risk of loss, for more than two years before the date the Company
declares, announces, or agrees to, the amount or payment of such dividend,
whichever is earliest. In addition, upon a sale or disposition of such New
Preferred Stock, a holder will recognize gain, in addition to any gain otherwise
required to be recognized, in any amount equal to so much of the nontaxed
portion of all extraordinary dividends as did not cause a reduction in stock
basis due to the limitation on reducing basis below zero. Generally, the
nontaxed portion of an extraordinary dividend is the amount effectively excluded
from income by application of the dividends received deduction. An extraordinary
dividend on preferred stock, such as the New Preferred Stock, is a dividend that
(i) equals or exceeds 5 percent of the holder's adjusted tax basis in the stock,
treating all dividends having ex-dividend dates within an 85-day period as one
dividend, or (ii) exceeds 20 percent of the holder's adjusted tax basis in the
stock, treating all dividends having ex-dividend dates within the same 365-day
period as one dividend. A stockholder may elect to determine whether a dividend
on the New Preferred Stock is extraordinary by reference to the fair market
value of the stock on the day before the ex-dividend date (rather than by
reference to the stockholder's adjusted tax basis) for purposes of the 5 percent
or 20 percent tests described above if the holder is able to establish the fair
market value of the New Preferred Stock as of such date to the satisfaction of
the IRS. An extraordinary dividend would also include any amount treated as a
dividend in the case of a redemption that is either non-pro rata as to all
stockholders or in partial liquidation of the Company, regardless of the
relative size of the dividend and regardless of the corporate holder's holding
period for the New Preferred Stock. The Proposed Legislation would require
immediate recognition of gain under Section 1059 of the Code to the extent a
corporate holder's tax basis would otherwise be reduced below zero, instead of
deferring such gain until the sale or exchange of such stock; such changes are
proposed to take effect retroactively. It is not clear whether such Proposed
Legislation ultimately will be enacted in the form proposed. Thus, there can be
no assurance that the Proposed Legislation, or other legislation enacted after
the date hereof, will not adversely affect the tax treatment of the New
Preferred Stock.
Any dividend on "disqualified preferred stock" is treated as an
extraordinary dividend, without regard to the holder's holding period. Preferred
stock is so treated if, inter alia, such stock at issue has a dividend rate that
declines (or reasonably can be expected to decline) or the issue price exceeds
the liquidation rights or stated redemption price. If constructive stock
dividends were considered paid on the New Preferred Stock under Section 305(c)
(described below), the stock possibly could be considered by the IRS to satisfy
the declining dividend rate test.
The extraordinary dividend rules do not apply with respect to "qualified
preferred dividends." A qualified preferred dividend is any fixed dividend
payable with respect to preferred stock which (i) provides for fixed preferred
dividends payable no less often than annually, and (ii) is not in arrears as to
dividends when acquired, provided the actual rate of return, as determined under
Section 1059(e)(3) of the Code, does not exceed 15 percent. Where a qualified
preferred dividend exceeds the 5 percent (or 20 percent) threshold for
extraordinary dividend status described above, (a) the extraordinary dividend
rules will not apply if the holder holds the stock for more than five years, and
(b) if the holder disposed of the stock before it has been held for more than
five years, the aggregate reduction in basis cannot exceed the excess of the
qualified preferred dividends paid on such stock during the period held by the
taxpayer over the qualified preferred dividends which would have been paid
during such period on the
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basis of the stated rate of return, as determined under Section 1059(e)(3) of
the Code. The length of time that a taxpayer is deemed to have held stock for
this purpose is determined under principles similar to those contained in
Section 246(c) of the Code (discussed above).
CORPORATE HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE POSSIBLE APPLICATION OF SECTION 1059 OF THE CODE TO THEIR OWNERSHIP AND
DISPOSITION OF THE NEW PREFERRED STOCK.
Redemption Premium
If the redemption price of redeemable New Preferred Stock exceeds its
issue price, all or a portion of such excess may, pursuant to Section 305(c) of
the Code, constitute an excess premium (the "Preferred Stock Discount") that is
treated as a series of constructive distributions of property (and thus as
dividends to the extent of the Company's earnings and profits, and otherwise as
distributions subject to the treatment described above) over the period during
which the New Preferred Stock cannot be called for redemption under an economic
accrual method similar to the method described under "-- Taxation of Stated
Interest and Original Issue Discount on Exchange Debentures" below. For this
purpose, Preferred Stock Discount will generally be treated as zero if it is
less than 1/4 of 1 percent of the redemption price multiplied by the number of
complete years from the date of issuance of the stock until the stock is to be
redeemed.
Under the Treasury regulations promulgated under Section 305 of the Code,
Preferred Stock Discount will arise due to the optional redemption feature only
if, based on all of the facts and circumstances as of the date the New Preferred
Stock is issued, redemption pursuant to the optional redemption is more likely
than not to occur. Constructive distribution treatment would not result,
however, if the redemption treatment were solely in the nature of a penalty for
premature redemption. For this purpose, a penalty for premature redemption is a
premium paid as a result of changes in economic or market conditions over which
neither the issuer nor the holder has legal or practical control, such as
changes in prevailing dividend rates. The Treasury regulations provide a safe
harbor pursuant to which constructive distribution treatment will not result
from an issuer call right if (i) the issuer and the holder are unrelated, (ii)
there are no arrangements that effectively require the issuer to redeem the
stock, and (iii) exercise of the option to redeem would not reduce the yield of
the stock. The Company believes that, under the foregoing criteria, the optional
redemption feature does not give rise to Preferred Stock Discount, and
accordingly the Company will not report redemption premium associated with the
optional redemption feature as a constructive distribution. However, because of
the factual nature of this determination, there can be no assurance that such
treatment will be sustained.
Under the Treasury regulations promulgated under Section 305 of the Code,
Preferred Stock Discount will arise due to a change in control redemption
feature only if, (i) under the same criteria discussed above with regard to the
optional redemption feature, a change in control redemption is more likely than
not to occur and in addition the redemption premium associated with such
redemption is other than solely in the nature of a penalty for premature
redemption, or (ii) triggering the Company's obligation to redeem under the
change of control redemption feature is within the legal or practical control of
the holders of the New Preferred Stock (or parties related thereto) and based on
all the facts and circumstances on the issue date such possibility of redemption
is more than remote. The Company believes that, under the foregoing criteria,
the change of control redemption feature does not give rise to Preferred Stock
Discount, and accordingly the Company will not report redemption premium
associated with the change of control redemption feature as a constructive
distribution. However, because of the factual nature of this determination,
there can be no assurance that such treatment will be sustained.
The mandatory redemption and the debenture exchange features should result
in no Preferred Stock Discount for the New Preferred Stock to the extent of the
liquidation preference of $1,000 per share because the redemption price
associated with the mandatory redemption and the debenture exchange is equal to
the liquidation preference of the New Preferred Stock, and because the initial
issue price for the New Preferred Stock is to be at or above its liquidation
preference of $1,000 per share. However, shares of New Preferred Stock
distributed to
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holders of New Preferred Stock in lieu of paying cash dividends may bear
Preferred Stock Discount depending on the issue price of such shares (i.e., the
fair market value of such shares on the date of their issuance).
Sale, Exchange or Redemption of New Preferred Stock
A holder's sale of New Preferred Stock will generally result in taxable
gain or loss equal to the difference between the amount of cash received and the
holder's adjusted basis in the New Preferred Stock sold. Such gain or loss would
be capital gain or loss and would be long-term gain or loss if the holding
period for the shares of New Preferred Stock sold exceeded one year.
Redemptions of New Preferred Stock for cash or in exchange for Exchange
Debentures will be a taxable event to the redeemed stockholder. The amount
received in the redemption will be treated as a distribution taxable as a
dividend (to the extent of the Company's earnings and profits) to the redeemed
stockholder under Section 302 of the Code (and may constitute an extraordinary
dividend under Section 1059 of the Code) unless the redemption: (a) is treated
as a distribution "not essentially equivalent to a dividend" with respect to the
stockholder under Section 302(b)(1); (b) is "substantially disproportionate"
with respect to the stockholder under Section 302(b)(2); (c) "completely
terminates" the stockholder's equity interest in the Company pursuant to Section
302(b)(3); or (d) is of stock held by a noncorporate stockholder and is in
partial liquidation of the Company pursuant to Section 302(b)(4). In determining
whether any of these tests has been met, there generally must be taken into
account shares actually owned by the stockholder and shares considered to be
owned by the stockholder by reason of certain constructive ownership rules set
forth in Section 318 of the Code. A distribution will be "not essentially
equivalent to a dividend" as to a particular stockholder only if it results in a
"meaningful reduction" in the stockholder's interest in the Company, but there
cannot always be certainty as to when such "meaningful reduction" has occurred
because the applicable test is not based on numerical criteria. Prospective
holders of New Preferred Stock should consult their own tax advisors as to the
application of this rule. Satisfaction of the "complete termination" and
"substantially disproportionate" exceptions is dependent upon compliance with
the objective tests set forth in Sections 302(b)(3) and 302(b)(2) of the Code,
respectively.
If any of these tests is met as to a holder, the redemption of the New
Preferred Stock (whether paid in cash or by an exchange of Exchange Debentures
for the New Preferred Stock) generally would be treated as to that holder as an
exchange under Section 302(a) of the Code giving rise to capital gain or loss
(measured by the excess of the amount received (cash or the issue price of the
Exchange Debentures) over the holder's tax basis in the redeemed stock). Such
gain or loss would be long-term capital gain or loss if the holding period for
such New Preferred Stock exceeded one year. In promulgating the regulations
under Section 305 of the Code (discussed above in "Redemption Premium"), the
Treasury Department considered, but declined for the present time, issuing
regulations clarifying whether cumulative unpaid dividends would give rise to
Preferred Stock Discount. Accordingly payments received upon redemption that
represent an amount equal to the cumulative unpaid dividends generally should be
treated in the same manner as other redemption payments if such amount is paid
but no dividend is declared. Under limited circumstances, however, the
extraordinary dividend and/or the redemption premium rules discussed above might
nonetheless apply.
If, however, these tests are not met and a redemption of the New Preferred
Stock is treated as a distribution that is taxable as a dividend, the amount of
the distribution will be measured by the amount of cash or the issue price of
the Exchange Debentures, as the case may be, received by the holder. The
holder's adjusted tax basis in the redeemed New Preferred Stock will be
transferred to any remaining stock holdings in the Company. If the holder does
not retain any actual stock holding in the Company (only holding shares
constructively), the holder may lose such basis entirely. Under the
"extraordinary dividend" provisions of Section 1059 of the Code, a corporate
holder may, under certain circumstances, be required to reduce its basis in the
remaining shares of stock of the Company (and possibly recognize gain upon a
disposition of such shares) to the extent the holder claims the dividends
received deduction with respect to the dividend. See the discussion above under
"-- Treatment of Distributions Out of Earnings and Profits."
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An exchange of the New Preferred Stock for the New Preferred Stock
received pursuant to the Exchange Offer should not result in a taxable
disposition to a holder of the New Preferred Stock.
Depending upon a holder's particular circumstances, the tax consequences
of holding Exchange Debentures may be less advantageous than the tax
consequences of holding New Preferred Stock. Interest payments and, potentially,
original issue discount ("OID") (discussed below in "-- Original Issue Discount
on Exchange Debentures") will be currently includible in the holder's income
when paid or accrued. On the other hand, in the absence of earnings and profits,
a holder will not be required to include in income distributions paid in respect
of the New Preferred Stock until the aggregate amount of such distributions
exceeds the holder's tax basis in such New Preferred Stock. Moreover, if the
Company does have adequate earnings and profits, a corporate holder may be
eligible for the dividends received deduction with respect to such dividend
payments.
PROSPECTIVE HOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE
APPLICATION OF SECTION 302 OF THE CODE IN THE EVENT OF A REDEMPTION.
Original Issue Discount on Exchange Debentures
In the event that the New Preferred Stock is exchanged for Exchange
Debentures and the "stated redemption price at maturity" of the Exchange
Debentures exceeds their "issue price" by more than a de minimis amount (0.25
percent of the stated redemption price at maturity multiplied by the number of
complete years to maturity) the Exchange Debentures will be treated as having
OID equal to the entire amount of such excess.
If the Exchange Debentures are traded on an established securities market
within the 60 day period ending 30 days after the exchange date, the issue price
of the Exchange Debentures will be their fair market value as of their issue
date. Subject to certain limitations described in the Treasury regulations, the
Exchange Debentures will be deemed to be traded on an established securities
market if, among other things, price quotations will be readily available from
dealers, brokers or traders. If the New Preferred Stock, but not the Exchange
Debentures issued and exchanged therefor, is traded on an established securities
market within the 60 day period ending 30 days after the exchange, then the
issue price of each Exchange Debenture should be the fair market value of the
New Preferred Stock exchanged therefor at the time of the exchange. The New
Preferred Stock generally will be deemed to be traded on an established
securities market if, among other things, it appears on a system of general
circulation that provides a reasonable basis to determine fair market value
based on either recent price quotations or recent sales transactions. In the
event that neither the New Preferred Stock nor the Exchange Debentures are
traded on an established securities market within the applicable period, the
issue price of the Exchange Debentures will be their stated principal amount --
namely, their face value -- unless either (i) the Exchange Debentures do not
bear "adequate stated interest" within the meaning of Section 1274 of the Code,
which is unlikely, or (ii) also unlikely, the Exchange Debentures are issued in
a so called "potentially abusive situation" as defined in the Treasury
regulations under Section 1274 of the Code (including a situation involving a
recent sales transaction), in which case the issue price of such Exchange
Debentures generally will be the fair market value of the New Preferred Stock
surrendered in exchange therefor.
The "stated redemption price at maturity" of the Exchange Debentures will
equal the total of all payments under the Exchange Debentures, other than
payments of "qualified stated interest." "Qualified stated interest" generally
is stated interest that is unconditionally payable in cash or other property
(other than an additional debt instrument of the issuer) at least annually at a
single fixed rate. Exchange Debentures that are issued when the Company has the
option to pay interest for certain periods in additional Exchange Debentures
should be treated as having been issued without any qualified stated interest.
Accordingly, the sum of all interest payable pursuant to the stated interest
rate on such Exchange Debentures over the entire term should be included (along
with stated principal) in the stated redemption price at maturity of such
Exchange Debentures. On the other hand, if the Exchange Debentures are issued
after the period for paying interest in additional Exchange Debentures has
passed, then stated interest would qualify as qualified stated interest and none
of such stated interest would be included in
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the stated redemption price at maturity of the Exchange Debentures. Whether or
not stated interest on the Exchange Debentures qualifies as qualified stated
interest, the Exchange Debentures will have OID, subject to the de minimis
exception, if their stated redemption price at maturity exceeds their issue
price.
Taxation of Stated Interest and Original Issue Discount on Exchange Debentures
Each holder of an Exchange Debenture with OID will be required to include
in gross income an amount equal to the sum of the "daily portions" of the OID
for all days during the taxable year in which such holder holds the Exchange
Debenture, even though the cash to which such income is attributable may not be
received until sale, redemption or maturity of the Exchange Debenture. The daily
portions of OID required to be included in a holder's gross income in a taxable
year will be determined under a constant yield method by allocating to each day
during the taxable year in which the holder holds the Exchange Debenture a pro
rata portion of the OID thereon which is attributable to the "accrual period" in
which such day is included. The amount of the OID attributable to each accrual
period will be the product of the "adjusted issue price" of the Exchange
Debenture at the beginning of such accrual period multiplied by the "yield to
maturity" of the Exchange Debenture (properly adjusted for the length of the
accrual period). The adjusted issue price of an Exchange Debenture at the
beginning of an accrual period is the original issue price of the Exchange
Debenture plus the aggregate amount of OID that accrued in all prior accrual
periods, and less any cash payments (other than qualified stated interest
payments, which can only apply if the Exchange Debentures were issued after
April 1, 2002) on the Exchange Debenture. The "yield to maturity" is the
discount rate that, when used in computing the present value of all principal
and interest payments to be made under the Exchange Debenture, produces an
amount equal to the issue price of the Exchange Debenture. An "accrual period"
may be of any length and may vary in length over the term of the debt
instrument, provided that each accrual period is no longer than one year and
each scheduled payment of principal or interest occurs either on the final day
or the first day of an accrual period. In general, the foregoing constant yield
method will result in the allocation of less OID to the early years of the term
of the Exchange Debentures and more for later years.
An additional Exchange Debenture (a "Secondary Debenture") issued in
payment of interest with respect to an initially issued Exchange Debenture (an
"Initial Debenture") will not be considered as a payment made on the Initial
Debenture and will instead be aggregated with the Initial Debenture for purposes
of computing and accruing OID on the Initial Debenture. As between the Initial
Debenture and the Secondary Debenture, the adjusted issue price of the Initial
Debenture would be allocated between the Initial Debenture and the Secondary
Debenture in proportion to their respective principal amounts. That is, upon the
issuance of a Secondary Debenture with respect to an Initial Debenture, the
Initial Debenture and the Secondary Debenture derived from the Initial Debenture
are treated as initially having the same adjusted issue price and inherent
amount of OID per dollar of principal amount. The Initial Debenture and the
Secondary Debenture derived therefrom also would be treated as having the same
yield to maturity. Similar treatment would be applied when additional Secondary
Debentures are issued in lieu of paying interest. The issue date of the Initial
Debenture will also be the issue date of the Secondary Debenture.
In the event that the Exchange Debentures are issued after April 1, 2002,
when the Company no longer has the option to pay interest thereon in additional
Exchange Debentures, stated interest would be included in income by a holder in
accordance with such holder's usual method of accounting. In all other cases,
all stated interest will be treated as payments on the Exchange Debentures under
the rules discussed above.
The Company will furnish annually to the IRS and to certain record holders
of the Exchange Debentures information relating to the OID, if any, accruing
during the calendar year. Such information will be based on the amount of OID
that would have accrued to a holder who acquired the Exchange Debenture on
original issue. Accordingly, other holders will be required to determine for
themselves whether they are eligible to report a reduced amount of OID for
federal income tax purposes.
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Bond Premium on Exchange Debentures
If the holder's basis in the Exchange Debentures exceeds the amount
payable at the maturity date (or earlier call date, if appropriate), such excess
will be deductible by the holder of the Exchange Debentures as amortizable bond
premium over the term of the Exchange Debentures (taking into account earlier
call dates, as appropriate), under a yield-to-maturity formula, if an election
by the holder under Section 171 of the Code is made or is already in effect. An
election under Section 171 of the Code is available only if the Exchange
Debentures are held as capital assets. This election is revocable only with the
consent of the IRS and applies to all obligations owned or subsequently acquired
by the holder on or after the first day of the taxable year to which the
election applies. To the extent the excess is deducted as amortizable bond
premium, the holder's adjusted tax basis in the Exchange Debentures will be
reduced. Except as may otherwise be provided in future Treasury regulations, the
amortizable bond premium will be treated as an offset to interest income on the
Exchange Debentures rather than as a separate deduction item. Proposed
regulations with a prospective effective date coordinate these amortizable bond
premium rules with the acquisition premium rules in "-- Acquisition Premium on
Exchange Debentures" below, and in general would defer to the operation of the
acquisition premium rules in the case of Exchange Debentures issued on or before
April 1, 2002, when the Company has the option to pay interest on Exchange
Debentures in additional Exchange Debentures (thus precluding stated interest
thereon from being qualified stated interest).
Acquisition Premium on Exchange Debentures
A holder of an Exchange Debenture issued with OID who purchases such
Exchange Debenture for an amount that is greater than its then adjusted issue
price but equal to or less than the sum of all amounts payable on the Exchange
Debenture after the purchase date (other than payments, if any, of qualified
stated interest) will be considered to have purchased such Exchange Debenture at
an "acquisition premium." Under the acquisition premium rules, the amount of OID
which such holder must include in income with respect to such Exchange Debenture
for any taxable year will be reduced by the portion of such acquisition premium
properly allocable to such year.
Market Discount on Exchange Debentures
Purchasers of New Preferred Stock should be aware that the disposition of
Exchange Debentures may be affected by the market discount provisions of the
Code. The market discount rules generally provide that if a holder of a debt
instrument purchases it at a "market discount" and thereafter realizes gain upon
a disposition or a retirement of the debt instrument, the lesser of such gain or
the portion of the market discount that has accrued on a straight line basis (or
on a constant interest rate basis, if such alternative rate of accrual has been
elected by the holder under Section 1276(b) of the Code) while the debt
instrument was held by such holder will be taxed as ordinary income at the time
of such disposition. "Market discount" with respect to the Exchange Debentures
will be the amount, if any, by which the "revised issue price" of an Exchange
Debenture (or its stated redemption price at maturity if the Exchange Debenture
has no OID) exceeds the holder's basis in the Exchange Debenture immediately
after such holder's acquisition, subject to a de minimis exception. The "revised
issue price" of an Exchange Debenture is its issue price increased by the
portion of OID previously includible in the gross income of prior holders for
periods prior to the acquisition of the Exchange Debenture by the holder
(without regard to any acquisition premium exclusion) and reduced by prior
payments other than payments of qualified stated interest.
A holder who acquires an Exchange Debenture at a market discount also may
be required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
Exchange Debenture until the holder disposes of the Exchange Debenture in a
taxable transaction. Moreover, to the extent of any accrued market discount on
such Exchange Debenture, any partial principal payment with respect to the
Exchange Debenture will be includible as ordinary income upon receipt.
Similarly, to the extent of any accrued market discount on such Exchange
Debenture, otherwise unrecognized gain in the Exchange Debenture will be
includible as ordinary income upon disposition of such Exchange Debenture in
certain otherwise non-taxable transfers (such as gifts).
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A holder of Exchange Debentures acquired at a market discount may elect
for federal income tax purposes to include market discount in gross income as
the discount accrues, either on a straight-line basis or on a constant interest
rate basis. This current inclusion election, once made, applies to all market
discount obligations acquired on or after the first date of the first taxable
year to which the election applies, and may not be revoked without the consent
of the IRS. If a holder of Exchange Debentures makes such an election, the
foregoing rules with respect to the recognition of ordinary income on sales and
other dispositions of such debt instruments, and with respect to the deferral of
interest deductions on indebtedness incurred or maintained to purchase or carry
such debt instruments, would not apply.
Election to Treat All Interest as Original Issue Discount
A holder may elect to include in gross income all interest that accrues on
an Exchange Debenture using the constant yield method described above under the
heading "-- Taxation of Stated Interest and Original Issue Discount on Exchange
Debentures." Holders should consult their own tax advisors regarding the manner
and advisability of making this election.
Applicable High Yield Discount Obligation Consequences
The Exchange Debentures will constitute "applicable high yield discount
obligations" ("AHYDOs") if the yield to maturity of such Exchange Debentures is
equal to or greater than the sum of the relevant applicable federal rate (the
"AFR") for debt instruments at the time the Exchange Debentures are issued plus
five percentage points and they have "significant" OID. A debt instrument is
treated as having significant OID if the aggregate amount that would be included
in gross income with respect to such debt instrument for periods before the
close of any accrual period ending after the date five years after the date of
issue exceeds the sum of (i) the aggregate amount of interest to be paid in cash
under the debt instrument before the close of such accrual period and (ii) the
product of the initial issue price of such debt instrument and its yield to
maturity. It is currently impossible to determine whether the Exchange
Debentures will be treated as AHYDOs because the amount of OID, if any,
attributable to the Exchange Debentures cannot be determined until they are
issued.
If the Exchange Debentures are AHYDOs, a portion of the tax deductions
that would otherwise be available to the Company in respect of the Exchange
Debentures will be deferred or disallowed, which, in turn, might reduce the
after-tax cash flows of the Company. More particularly, if the Exchange
Debentures constitute AHYDOs, the Company will not be entitled to deduct OID
that accrues with respect to such Exchange Debentures until amounts attributable
to OID are paid in cash. In addition, if the yield to maturity of the Exchange
Debentures exceeds the sum of the relevant AFR plus six percentage points (the
"Excess Yield"), the "disqualified portion" of the OID accruing on the Exchange
Debenture will be characterized as a non-deductible dividend with respect to the
Company and also may be treated as a dividend distribution solely for purposes
of the dividends received deduction with respect to holders that are U.S.
corporations. In general, the "disqualified portion" of OID for any accrual
period will be equal to the product of (i) a percentage determined by dividing
the Excess Yield by the yield to maturity and (ii) the OID for the accrual
period. Subject to otherwise applicable limitations, such a corporate holder
will be entitled to a dividends received deduction (generally at a 70% rate)
with respect to the disqualified portion of the accrued OID if the Company has
sufficient earnings and profits. To the extent that the Company's earnings and
profits are insufficient, any portion of the OID that otherwise would have been
recharacterized as a dividend for purposes of the dividends received deduction
will continue to be taxed as ordinary OID income in accordance with the rules
described above in "-- Taxation of Stated Interest and Original Issue Discount
on Exchange Debentures."
Redemption or Sale of Exchange Debentures
Generally, any redemption or sale of the Exchange Debentures by a holder
would result in taxable gain or loss equal to the difference between the sum of
the amount of cash and the fair market value of other property received (except
to the extent attributable to accrued, but previously untaxed, interest, which
portion of the consideration would be taxed as ordinary income) and the holder's
adjusted basis in the Exchange Debentures. The
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adjusted tax basis of a holder who receives an Exchange Debenture in exchange
for New Preferred Stock will generally be equal to the issue price of the
Exchange Debenture increased by any OID with respect to the Exchange Debenture
included in the holder's income prior to sale or redemption of the Exchange
Debenture, reduced by any amortizable bond premium applied against the holder's
income prior to sale or redemption of the Exchange Debenture and by any cash
payments other than payments of qualified stated interest. Except to the extent
that an intention to call the Exchange Debentures prior to their maturity
existed at the time of their original issue as an agreement or understanding
between the Company and the original holders of a substantial amount of the
Exchange Debentures (which the Company believes is unlikely, but might
nonetheless be asserted by the IRS under a theory that the optional redemption
and the change in control redemption in respect of the Exchange Debentures
manifests such an intention), and subject to the above discussion of market
discount, such gain or loss would be capital gain or loss and would be long term
capital gain or loss if the holder's holding period for the Exchange Debentures
exceeded one year.
Backup Withholding
Federal income tax backup withholding at a rate of 31 percent on
dividends, interest payments (including accrued OID), and proceeds from a sale,
exchange, or redemption of New Preferred Stock or Exchange Debentures, 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.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS DOES
NOT CONSIDER THE FACTS AND CIRCUMSTANCES OF ANY PARTICULAR PROSPECTIVE HOLDER'S
SITUATION OR STATUS, AND ACCORDINGLY DOES NOT CONSTITUTE TAX ADVICE. EACH
PURCHASER OF NEW PREFERRED STOCK OR EXCHANGE DEBENTURES SHOULD CONSULT ITS OWN
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO IT, INCLUDING THOSE UNDER
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS, AND UNDER ANY RECENT OR PROSPECTIVE
CHANGES IN APPLICABLE TAX LAWS.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives shares of New Preferred Stock for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such shares of New Preferred Stock.
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 shares of New Preferred
Stock received in exchange for shares of Old Preferred Stock only where such
shares of Old Preferred Stock 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
Registration Statement has been declared effective, or such shorter period as
will terminate when all shares of Old Preferred Stock acquired by broker-dealers
for their own accounts as a result of market-making activities or other trading
activities have been exchanged for shares of New Preferred Stock and resold by
such broker-dealers.
The Company will not receive any proceeds from any sale of New Preferred
Stock by broker-dealers. New shares of Preferred Stock 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 shares of New
Preferred Stock 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 shares of New Preferred Stock. Any broker-dealer that resells shares of New
Preferred Stock 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 shares of New Preferred Stock may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of shares of
New Preferred Stock 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 Registration Statement has been
declared effective, or such shorter period as will terminate when all shares of
Old Preferred Stock acquired by broker-dealers for their own accounts as a
result of market-making activities or other trading activities have been
exchanged for shares of New Preferred Stock 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 other than commissions or concessions of
any brokers or dealers and the fees of any counsel or other advisors or experts
retained by the holders of the Preferred Stock, except as expressly set forth in
the Registration Rights Agreement, and will indemnify the holders of the
Preferred Stock (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, 1996, and the financial
statements of WXON for each of the two years in the period ended September 30,
1996, have been audited by Ernst & Young LLP, independent auditors, as set forth
in their reports dated January 24, 1997 with respect to the Company and January
17, 1997 with respect to WXON and are included herein in reliance upon such
reports given upon the authority of said firm as experts in accounting and
auditing.
125
<PAGE>
LEGAL MATTERS
The validity of the New Preferred Stock 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, and for the
Initial Purchasers by Sullivan & Cromwell, 125 Broad Street, New York, New York
10004. 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).
126
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
Reference
---------
GRANITE BROADCASTING CORPORATION
Report of Independent Auditors................................... F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1994, 1995 and 1996............................... F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996..... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for
the Years Ended December 31, 1994, 1995 and 1996............... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1994, 1995 and 1996............................... F-6
Notes to Consolidated Financial Statements....................... F-7
WXON-TV, INC.
Report of Independent Auditors................................... F-22
Balance Sheets as of September 30, 1996 and 1995
and January 30, 1997 (unaudited)............................... F-23
Statements of Income and Retained Earnings for the Years Ended
September 30, 1996, and 1995 and the four month period ended
January 30, 1997 and January 31, 1996 (unaudited).............. F-24
Statements of Cash Flows for the Years Ended September 30, 1996
and 1995 and for the four month period ended January 30, 1997
and January 31, 1996 (unaudited)............................... F-25
Notes to Financial Statements ................................... F-26
F-1
<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, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1996. Our
audits 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, 1996. 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, 1996 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
January 24, 1997
F-2
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Net revenue ................................................................. $ 62,856,425 $ 99,894,627 $ 129,164,353
Station operating expenses .................................................. 37,763,732 55,398,930 72,089,368
Depreciation ................................................................ 3,420,850 4,513,919 6,144,193
Amortization ................................................................ 4,714,721 9,329,444 11,823,775
Corporate expense ........................................................... 2,162,621 3,131,943 4,799,984
Non-cash compensation expense ............................................... 281,896 363,384 495,819
------------ ------------ -------------
Operating income .......................................................... 14,512,605 27,157,007 33,811,214
Other (income) expenses:
Equity in net (income) loss of investee ................................... - (439,033) 995,019
Interest expense, net ..................................................... 10,707,147 27,026,680 36,915,306
Other ..................................................................... 307,929 797,576 1,034,351
------------ ------------ -------------
Income (loss) before income taxes
and extraordinary item .................................................. 3,497,529 (228,216) (5,133,462)
Provision for income taxes ................................................ 450,125 554,884 761,000
------------ ------------ -------------
Income (loss) before extraordinary item ..................................... 3,047,404 (783,100) (5,894,462)
Extraordinary loss .......................................................... - - (2,891,250)
Net income (loss) ....................................................... $ 3,047,404 $ (783,100) $ (8,785,712)
============ ============ =============
Net loss attributable to
common shareholders ....................................................... $ (687,730) $ (4,333,381) $ (12,310,993)
============ ============ =============
Per common share:
Loss before extraordinary item ........................................ $ (0.15) $ (0.73) $ (1.09)
Extraordinary loss .................................................... - - (0.34)
------------ ------------ -------------
Net loss ............................................................ $ (0.15) $ (0.73) $ (1.43)
============ ============ =============
Weighted average common shares outstanding .................................. 4,497,758 5,920,294 8,611,606
</TABLE>
See accompanying notes.
F-3
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
---------------------------------------
ASSETS 1995 1996
------ -------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents....................................... $ 95,123 $ 555,753
Accounts receivable, less allowance for doubtful accounts
($505,759 in 1995 and $391,910 in 1996)....................... 26,186,579 27,057,451
Film contract rights............................................ 5,813,366 6,276,660
Other current assets............................................ 3,854,774 9,784,966
------------ ------------
TOTAL CURRENT ASSETS.................................... 35,949,842 43,674,830
PROPERTY AND EQUIPMENT, NET....................................... 32,132,126 33,562,019
FILM CONTRACT RIGHTS AND OTHER NONCURRENT ASSETS.................. 3,725,612 4,284,578
DEFERRED FINANCING FEES, less accumulated amortization
($2,947,833 in 1995 and $4,049,724 in 1996)..................... 14,849,529 14,181,662
INTANGIBLE ASSETS, NET............................................ 365,564,029 356,860,115
------------ ------------
$452,221,138 $452,563,204
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable................................................ $ 5,285,619 $ 4,016,964
Accrued interest................................................ 5,595,610 6,071,378
Other accrued liabilities....................................... 3,500,066 4,497,534
Film contract rights payable and other current liabilities...... 6,946,068 9,578,365
------------ ------------
TOTAL CURRENT LIABILITIES................................ 21,327,363 24,164,241
LONG-TERM DEBT.................................................... 341,000,000 351,560,900
FILM CONTRACT RIGHTS PAYABLE...................................... 3,669,534 3,383,428
DEFERRED TAX LIABILITY AND OTHER
NONCURRENT LIABILITIES.......................................... 31,869,240 31,102,272
COMMITMENTS
REDEEMABLE PREFERRED STOCK........................................ 45,487,500 45,487,500
STOCKHOLDERS' EQUITY (DEFICIT):
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
8,499,716 shares of Common Stock (Nonvoting) (8,218,240 shares at December
31, 1995) issued and outstanding.............................. 83,967 86,782
Additional paid-in capital...................................... 46,864,202 45,547,145
Accumulated deficit............................................. (36,590,198) (45,375,910)
Less: Unearned compensation.................................... (1,490,470) (2,506,279)
Note receivable from officer............................... - (886,875)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)..................... 8,867,501 (3,135,137)
------------ ------------
$452,221,138 $452,563,204
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1994, 1995 and 1996
<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, 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 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
Dividend on Cumulative Convertible
Exchangeable Preferred Stock ............................. (3,525,281)
Exercise of Stock Options .................................. 2,008 888,805
Issuance of Common Stock (Nonvoting) ....................... 807 (807)
Grant of Stock Award under Management Stock Plan ........... 1,511,628
Stock Expense Related to Management Stock Plan ............. (191,402)
Net loss
----------- --------- -------- ---------- -----------
Balance at December 31, 1996 ............................... $ 1,785 $ 84,997 $ -- $ -- $45,547,145
=========== ========= ======== ========== ===========
<CAPTION>
Note Total
(Accumulated Unearned Receivable Stockholders'
Deficit) Compensation From Officer Equity (Deficit)
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
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 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
Dividend on Cumulative Convertible
Exchangeable Preferred Stock .......................... (3,525,281)
Exercise of Stock Options ............................... (886,875) 3,938
Issuance of Common Stock (Nonvoting) .................... --
Grant of Stock Award under Management Stock Plan ........ (1,511,628) --
Stock Expense Related to Management Stock Plan .......... 495,819 304,417
Net loss ................................................ (8,785,712) (8,785,712)
------------ ------------ ------------ ------------
Balance at December 31, 1996 ............................ $(45,375,910) $ (2,506,279) $ (886,875) $ (3,135,137)
============ ============ ============ ============
</TABLE>
See accompanying notes.
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ................................................................ $ 3,047,404 $ (783,100) $ (8,785,712)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Amortization of intangible assets and deferred financing fees .................. 4,714,721 9,329,444 11,823,775
Extraordinary loss ............................................................. - - 2,891,250
Depreciation ................................................................... 3,420,850 4,513,919 6,144,193
Non-cash compensation expense .................................................. 281,896 363,384 495,819
Non-cash deferred income taxes ................................................. - 1,115,000 975,000
Deferred income taxes .......................................................... - (824,116) (589,000)
Equity in net (income) loss of investee ........................................ - (439,033) 995,019
Change in assets and liabilities net of effects from acquisitions of stations:
Increase in accounts receivable ................................................ (1,499,860) (7,528,139) (870,872)
Increase in accrued liabilities ................................................ 1,496,559 2,307,778 1,473,236
(Decrease) increase in accounts payable ........................................ (420,205) 2,689,051 (1,268,655)
Decrease (increase) in film contract rights and
other noncurrent assets ....................................................... 640,968 (3,448,429) (517,279)
(Decrease) increase in film contract rights payable
and other liabilities ......................................................... (3,390,646) 3,222,796 1,193,223
Increase in other assets ....................................................... (2,484,068) (1,712,859) (668,776)
------------- ------------- -------------
Net cash provided by operating activities ......................................... 5,807,619 8,805,696 13,291,221
------------- ------------- -------------
Cash flows from investing activities:
Deposit for station acquisition and other related costs ......................... - - (5,957,000)
Investment in Datacast, LLC ..................................................... - - (1,500,000)
Payment for acquisitions of stations, net of cash acquired ...................... -(228,660,507) -
Capital expenditures ............................................................ (2,627,793) (7,682,188) (6,938,477)
------------- ------------- -------------
Net cash used in investing activities ......................................... (2,627,793) (236,342,695) (14,395,477)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from bank loan ......................................................... 1,500,000 174,250,000 34,000,000
Retirement of senior subordinated notes ......................................... - - (15,500,000)
Proceeds from exercise of stock options ......................................... - 32,950 3,938
Repayment of bank borrowings .................................................... (1,250,000) (107,500,000) (117,500,000)
Redemption of Adjustable Rate Preferred Stock ................................... - (2,000,000) -
Payment of deferred financing fees .............................................. (129,771) (10,537,110) (5,363,771)
Proceeds from senior subordinated notes ......................................... - 175,000,000 109,450,000
Dividends paid .................................................................. (3,564,120) (3,561,280) (3,525,281)
Other financing activities ...................................................... 663,894 - -
------------- ------------- -------------
Net cash provided by (used in) financing activities ........................... (2,779,997) 225,684,560 1,564,886
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents .............................. 399,829 (1,852,439) 460,630
Cash and cash equivalents, beginning of year ...................................... 1,547,733 1,947,562 95,123
------------- ------------- -------------
Cash and cash equivalents, end of year ............................................ $ 1,947,562 $ 95,123 $ 555,753
============= ============= =============
Supplemental information:
Cash paid for interest .......................................................... $ 10,176,398 $ 24,699,248 $ 36,451,009
Cash paid for income taxes ...................................................... 251,512 149,751 112,532
Non-cash investing and financing activities:
Non-cash capital expenditures ................................................. 350,409 459,786 635,609
</TABLE>
See accompanying notes
F-6
<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 1996 presentation. The Company accounts for
its investment in Datacast, LLC under the equity method of accounting.
Revenue recognition
The Company recognizes revenue from the sale of advertising at the
time the advertisements are aired.
Intangibles
Intangible assets at December 31 are summarized as follows:
1995 1996
------------ ------------
Goodwill $ 75,192,619 $ 76,202,853
Network affiliations 247,941,641 247,941,641
Broadcast licenses 67,896,861 67,896,861
------------ -----------
391,031,121 392,041,355
Accumulated amortization (25,467,092) (35,181,240)
------------ ------------
$365,564,029 $356,860,115
============ ============
The intangible assets are characterized as scarce assets with long
and productive lives and 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) the
sale of 10 3/8% Notes (as defined) and the sale of 9 3/8% Notes (as defined).
The deferred financing fees related to the bank credit agreement are being
amortized over seven years, ten years for the 12.75% Debentures, the 10 3/8%
Notes and the 9 3/8% Notes and twelve years for the Cumulative Convertible
Exchangeable Preferred Stock.
F-7
<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, 1996, the obligation for programming that had not
been recorded because the program rights were not available for broadcasting
aggregated $16,965,469.
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.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
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, 1996 is 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-8
<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.
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.
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.
On January 31, 1997 the Company acquired substantially all the assets used
in the operation of WXON-TV, the WB affiliate serving Detroit, Michigan for
$175,000,000 in cash and the assumption of certain liabilities.
The following table summarizes the unaudited consolidated pro forma
results of operations for the years ended December 31, 1995 and 1996 assuming
the acquisition of WXON-TV, KEYE-TV, WWMT-TV and WKBW-TV had occurred as of
January 1, 1995:
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Net revenue $145,532,000 $147,231,000
Station operating expenses 74,398,000 78,577,000
Income (loss) before extraordinary item
in 1996 5,187,000 (1,544,000)
Loss before extraordinary item per
common share $ (2.95) $ (2.81)
</TABLE>
Time brokerage agreement
The Company operates WLAJ-TV, the ABC affiliate serving Lansing,
Michigan, pursuant to a time brokerage agreement. The terms of the agreement
require the Company to pay a monthly fee in exchange for the right to provide
station programming and sell related advertising time. The fee is expensed as
incurred. The agreement terminates if the Company exercises its option to
acquire WLAJ-TV. The agreement to acquire substantially all of the assets used
in the operation of WLAJ-TV is for $19,400,000 in cash and the assumption of
certain liabilities. The Company classifies the fee as interest expense to the
extent interest is imputed based on the purchase price of the station. In
connection with this agreement, the Company agreed to provide a loan guarantee
of up to $12,000,000 in favor of the owner of WLAJ-TV. The guarantee is
collateralized by all of the assets of WLAJ-TV.
F-9
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 3-- Property and Equipment
The major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1995 1996
------------- ------------
<S> <C> <C>
Land.......................................... $ 2,527,708 $ 2,527,708
Buildings and improvements.................... 14,729,378 16,607,496
Furniture and fixtures........................ 4,380,475 5,691,019
Technical equipment and other................. 27,711,903 31,924,360
------------ -----------
49,349,464 56,750,583
Less: Accumulated depreciation............... 17,217,338 23,188,564
------------ -----------
Net property and equipment.................... $ 32,132,126 $33,562,019
============ ===========
</TABLE>
Note 4 -- Other Accrued Liabilities
Other accrued liabilities are summarized below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1995 1996
------------- ------------
<S> <C> <C>
Compensation and benefits..................... $ 2,001,193 $ 2,367,808
Other......................................... 1,498,873 2,129,726
------------ -----------
Total......................................... $ 3,500,066 $ 4,497,534
=========== ===========
</TABLE>
Note 5 -- Other Current Assets
Other current assets are summarized below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1995 1996
------------- ------------
<S> <C> <C>
Barter and other receivables.................. $ 2,542,824 $ 2,400,386
Escrow deposit related to station
acquisition and other related costs......... - 5,957,000
Other......................................... 1,311,950 1,427,580
------------ -----------
Total......................................... $ 3,854,774 $ 9,784,966
=========== ===========
</TABLE>
F-10
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Long-term Debt
The carrying amounts and fair values of the Company's long-term debt
at December 31, are as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1996
------------------------------------ ----------------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
--------------- ---------- --------------- ----------
<S> <C> <C> <C> <C>
Senior Bank Debt............... $106,000,000 $106,000,000 $22,500,000 $22,500,000
9 3/8% Senior Subordinated Notes,
net of unamortized discount.. - - 96,060,900 94,087,500
10 3/8% Senior Subordinated
Notes........................ 175,000,000 180,278,000 173,000,000 178,622,500
12.75% Senior Subordinated
Notes........................ 60,000,000 65,559,600 60,000,000 65,625,000
------------- ------------- ------------ ------------
Total.......................... $341,000,000 $351,837,600 $351,560,900 $360,835,000
============ ============ ============ ============
</TABLE>
The fair value of the Company's Senior Subordinated Notes is
estimated based on quoted market prices. The carrying amount of the Company's
borrowings under its credit facility approximates fair value.
Senior bank debt
The Company's existing 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. The Amended and Restated Credit Agreement was 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.
The Second Amended and Restated Credit Agreement was further amended
and restated on September 4, 1996 (as amended and restated the "Third Amended
and Restated Credit Agreement") to create a reducing revolving credit facility
of up to $200,000,000 and permits borrowings of up to $300,000,000 in the
aggregate. The proceeds from this facility are available for acquisitions and
for general working capital purposes as defined in the agreement.
Outstanding principal balances under the Third Amended and Restated
Credit Agreement bear interest at floating rates equal to LIBOR (the "LIBOR
Rate") plus marginal rates between 1.125% and 2.375% or the prime rate plus
marginal rates between 0.0% and 1.125%. The LIBOR Rate was 5.6875% plus a
marginal rate of 2.375% at December 31, 1996. The LIBOR Rate was 5.75% - 5.938%
plus a marginal rate of 2.50% at December 31, 1995. The marginal rate is subject
to change based upon changes in the ratio of outstanding principal balances to
operating cash flow. The principal amount of the revolving loans are subject to
reduction in installments commencing December 31, 1998 through December 31,
2003, when the final payment is due.
F-11
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Long-term Debt -- (Continued)
The Third 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 Third 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.
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
Third 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 issued $175,000,000 aggregate principal amount of its
10 3/8% Senior Subordinated Notes (the "10 3/8% Notes") due May 15, 2005. On May
6, 1996, the Company purchased $2,000,000 face amount of its 10 3/8% Notes at a
discount and recognized an extraordinary loss, after the write-off of a portion
of related deferred financing fees, of $44,150.
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
F-12
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 6 -- Long-term Debt -- (Continued)
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 Third
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.
On February 22, 1996, the Company completed an offering of
$110,000,000 principal amount of its 9 3/8% 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 then existing bank credit agreement and for general
working capital purposes. In connection with the repayment of the term loan,
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.
The 9 3/8% Notes will be redeemable in the event that on or before
February 22, 1999 the Company receives 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 within 75 days of receipt to redeem certain amounts of the
9 3/8% Notes with certain limitations. In addition, the 9 3/8% Notes are
redeemable at any time on or after December 1, 2000, at the option of the
Company, in whole or in part, at certain prices declining annually to 100% of
the principal amount on or after December 1, 2002, plus accrued interest. The
Company is required to offer to purchase all outstanding 9 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 9 3/8% Notes).
The 9 3/8% Notes are subordinate in right of payment to all existing
and future Senior Debt (as defined in the Indenture) and rank pari passu with
all senior subordinated debt and senior to all subordinated debt. The provisions
of the Indenture contains 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 their 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.
On June 19, 1996, the Company purchased $13,500,000 face amount of
its 9 3/8% Notes at a discount and recognized an extraordinary gain, after the
write-off of a portion of related deferred financing fees, of $663,052.
There are no scheduled principal maturities on all long-term debt
for the five years subsequent to December 31, 1996.
F-13
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 7 -- Commitments
Future minimum lease payments under long-term operating leases as of
December 31, 1996 are as follows:
1997......................................... $ 839,000
1998......................................... 699,000
1999......................................... 598,000
2000......................................... 411,000
2001 ........................................ 295,000
2002 and thereafter.......................... 2,402,000
-----------
$ 5,244,000
===========
Rent expense, including escalation charges, was $116,000, $559,000
and $929,000 for the years ended December 31, 1994, 1995 and 1996, respectively.
Note 8 -- Redeemable Preferred Stock
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 $262,844 at December 31, 1995 and 1996.
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 Queen City III Limited
Partnership, 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
F-14
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 8 -- Redeemable Preferred Stock -- (Continued)
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, 1996). 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.
In January 1997, the Company authorized 400,000 shares of its 12
3/4% Cumulative Exchangeable Preferred Stock (the "New Preferred Stock"), par
value $.01 per share. In connection with the Company's acquisition of WXON-TV,
150,000 shares of the New Preferred Stock were issued in January 1997 at a price
of $1,000 per share. Holders of the New Preferred Stock are entitled to receive
dividends at an annual rate of 12 3/4% per share payable semi-annually on April
1 and October 1 of each year. The Company may elect to pay dividends prior to
April 1, 2002 in additional shares of New Preferred Stock. Dividends on the New
Preferred Stock are cumulative and accrue without interest, if unpaid.
The New Preferred Stock is entitled to a preference of $1,000 per
share initially, plus accumulated and unpaid dividends in the event of
liquidation or winding up of the Company. The Company is required, subject to
certain conditions, to redeem all of the New Preferred Stock outstanding on
April 1, 2009, at a redemption price equal to 100% of the then effective
liquidation preference thereof, plus, without duplication, accumulated and
unpaid dividends to the date of redemption.
Subject to certain conditions, each share of the New Preferred Stock
is exchangeable, in whole or in part, at the option of the Company, for the
Company's 12 3/4% Exchange Debentures (the "New Exchange Debentures") on any
scheduled dividend payment date at the rate of $1,000 principal amount of New
Exchange Debentures for each share of New Preferred Stock outstanding at the
time of the exchange.
Note 9 -- Stockholders' Equity
Stock option plans
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-
F-15
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Stockholders' Equity -- (Continued)
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, 1994, 1995 and 1996,
204,700, 467,850 and 521,000, 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,
1995 and 1996, options granted under the Director Option Plan were outstanding
for the purchase of 101,700 and 97,200 shares of Common Stock (Nonvoting),
respectively. 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 each regular quarterly meeting ("Regular Quarterly Meeting")
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.
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("FAS 123"). Accordingly, no compensation expense has been
recognized for the stock option plans. For purposes of FAS 123 pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period, therefore, the impact on pro forma net loss in
1995 and 1996 may not be representative of the impact in future years. The
Company's pro forma information for years ended December 31, follows:
1995 1996
-------- ----------
Pro forma net loss..................... $969,498 $9,473,649
Pro forma loss per share:
Primary.............................. $(0.76) $(1.51)
Fully diluted........................ $(0.76) $(1.51)
The fair value for each option grant was estimated at the date of
grant using a binomial option pricing model with the following weighted-average
assumptions for the various grants made during 1995 and 1996: risk-free interest
rate of 5.77% and 5.92%; no dividend yield; expected volatility of 25%; and
expected lives of two to three years.
The binomial option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. The Company's employee stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate.
F-16
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Stockholders' Equity -- (Continued)
<TABLE>
<CAPTION>
1995 1996
------------------------------- ------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
<S> <C> <C> <C> <C>
Outstanding at beginning of year .......................... 714,850 $ 4.05 1,048,950 $ 5.22
Granted ................................................... 348,400 7.57 1,029,000 14.19
Exercised ................................................. (7,400) 4.25 (200,750) 4.44
Forfeited ................................................. (6,900) 4.87 (4,500) 7.10
---------- ----------
Outstanding at end of year ................................ 1,048,950 5.22 1,872,700 10.22
========== ==========
Exercisable at end of year ................................ 480,350 4.24 573,200 5.27
Weighted-average fair value of
options granted during the year ......................... $ 1.86 $ 5.23
</TABLE>
Exercise prices for options outstanding as of December 31, 1996
ranged from $3 to $16.
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 750,000 shares of Common Stock
(Nonvoting) for grant under the Management Stock Plan. As of December 31, 1996,
a total of 610,875 Bonus Shares have been allocated pursuant to the Management
Stock Plan.
The total number of common shares outstanding at December 31, 1996
assuming conversion of all outstanding convertible preferred stock and exercise
of all outstanding stock options is as follows:
Class A Common Stock......................... 178,500
Common Stock (Nonvoting)..................... 8,499,716
Conversion of Cumulative Convertible
Exchangeable Preferred Stock............... 9,097,500
Stock option plans........................... 1,872,700
-----------
19,648,416
===========
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.
F-17
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 10 -- Income Taxes -- (Continued)
The provision for income taxes for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- -------
<S> <C> <C> <C>
Current taxes:
Federal............................................... $ 100,000 $ - $ -
State................................................. 416,125 264,000 375,000
------- ------- -------
516,125 264,000 375,000
Deferred taxes:
Federal............................................... (101,000) 154,400 285,700
State................................................. 35,000 136,484 100,300
-------- ------- -------
(66,000) 290,884 386,000
---------- ------- -------
Provision for income taxes............................... $ 450,125 $ 554,884 $ 761,000
========= ========== ==========
</TABLE>
The provision for income taxes for the years ended December 31, 1995
and 1996 is comprised of a non-cash provision for income taxes, relating to
WKBW-TV of $1,100,000 and $975,000, respectively, 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 $19,000,000, 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.
F-18
<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 are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1995 1996
-------------- -------------
<S> <C> <C>
Deferred tax liability from excess carrying value
of non-goodwill intangible assets over tax basis................ $ 31,245,043 $ 39,648,565
Deferred tax assets:
Net operating loss carryforward................................. 15,168,786 24,293,786
Other........................................................... 400,134 304,862
------------ -----------
Total deferred tax assets......................................... 15,568,920 24,598,648
Valuation allowance............................................... (6,542,673) (7,554,878)
------------ -----------
Net deferred tax assets........................................... 9,026,247 17,043,770
------------ -----------
Net deferred tax liability........................................ $ 22,218,796 $22,604,795
============ ===========
</TABLE>
The difference between the U.S. federal statutory tax rate and the
Company's effective tax rate for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
U.S. statutory rate ........................................... 35.0% (35.0%) (35.0%)
Nondeductible amortization .................................... 7.4 201.4 22.2
State and local taxes ......................................... 10.0 160.8 9.3
Alternative minimum tax ....................................... 2.9 - -
Increase (decrease) in valuation allowance .................... (42.4) (84.1) 18.3
------ ------ ------
Effective tax rate ............................................ 12.9% 243.1% 14.8%
====== ====== ======
</TABLE>
At December 31, 1996, the Company had a net operating loss
carryforward for federal tax purposes of approximately $49,000,000 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 1994, 1995 and 1996, the change in valuation
allowance relates to the utilization of or increase in net operating loss
carryforwards.
F-19
<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 (the
"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
$237,000, $499,000 and $642,000 for the years ended December 31, 1994, 1995 and
1996, 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, $518,257 for the
year ended December 31, 1994, 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
$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.
In 1996, the Company lent one of its officers $886,875 to pay the
exercise price incurred in connection with exercising options and $409,000 to
pay related personal income taxes. The loans are term loans which provide for an
annual interest rate of 8%, payable annually on April 23 and December 31,
respectively, of each year, with all principal and remaining interest due on
April 23 and December 31, 2001, respectively. The amount of the loan made in
connection with exercising options is shown in the balance sheet at December 31,
1996 as a reduction to stockholders' equity.
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 1995 and 1996, as reported by Nasdaq:
1995 High Low
---- ---- ---
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
1996
----
First Quarter................................ $12-1/8 $9-1/4
Second Quarter............................... 13-1/2 11-1/4
Third Quarter................................ 15 11-1/2
Fourth Quarter............................... 14 9-7/8
F-20
<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)
-- (Continued)
As of March 3, 1997, the closing price per share for the Company's
Common Stock (Nonvoting), as reported by Nasdaq was $9-5/8 per share.
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 1995 and 1996, as
reported by Nasdaq:
1995 High Low
---- ---- ---
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
1996
----
First Quarter................................ $61-7/8 $48-1/8
Second Quarter............................... 68-5/8 60
Third Quarter................................ 75-1/2 60
Fourth Quarter............................... 75-1/2 50
As of March 3, 1997, the closing price for the Company's Cumulative
Convertible Exchangeable Preferred Stock, as reported by Nasdaq, was $50-5/8 per
share.
F-21
<PAGE>
Report of Independent Auditors
The Board of Directors
WXON-TV, Inc.
We have audited the accompanying balance sheets of WXON-TV, Inc. as of September
30, 1996 and 1995, and the related statements of income and retained earnings
and cash flows for the years then ended. 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 financial position of WXON-TV, Inc. at September 30,
1996 and 1995, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
New York, New York
January 17, 1997
F-22
<PAGE>
WXON-TV, Inc.
Balance Sheets
<TABLE>
<CAPTION>
September 30, January 30,
1996 1995 1997
-------------- -------------- ------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash $ 142,239 $ 846,383 $ 268,766
Marketable securities 215,923 211,204 1,820,709
Accounts receivable, net of allowance for doubtful accounts
($120,000 in 1996 and $128,000 in 1995) 3,332,485 3,283,585 3,545,783
Notes receivable from officers 7,665,615 4,703,359 7,614,894
Prepaid expenses and other assets 204,556 52,626 103,380
Program rights, including $3,413,758 and $3,178,875
of barter in 1996 and 1995, respectively 4,626,203 5,350,918 4,650,037
----------- ----------- ----------
Total current assets 16,187,021 14,448,075 18,003,569
Property and equipment, net 290,609 381,254 267,117
Deposits (principally with IRS) 1,253,768 975,232 1,253,510
Program rights 842,546 1,497,753 82,352
Goodwill 260,612 260,612 260,612
----------- ----------- -----------
Total assets $18,834,556 $17,562,926 $19,867,160
=========== =========== ===========
Liabilities and shareholders' equity Current liabilities:
Note payable due bank $ 2,457,681 $ 600,000 $ -
Accounts payable 163,150 185,216 80,506
Accrued liabilities 408,472 341,343 80,144
Deferred revenue - - 5,000,000
Obligations for program rights, including $3,413,758 and
$3,178,875 of barter in 1996 and 1995, respectively 5,463,735 6,210,706 4,951,927
--------- --------- ---------
Total current liabilities 8,493,038 7,337,265 10,112,577
Obligations for program rights 697,490 1,626,934 -
Shareholders' equity:
Common stock, $1 par value:
300,000 shares authorized 58,000 shares
issued and outstanding 58,000 58,000 58,000
Capital in excess of par value 294,621 294,621 294,621
Retained earnings 9,300,939 8,246,106 9,401,962
--------- --------- ---------
9,653,560 8,598,727 9,754,583
Net unrealized loss on marketable securities (9,532) - -
----------- ----------- -----------
Total shareholders' equity 9,644,028 8,598,727 9,754,583
----------- ----------- -----------
Total liabilities and shareholders' equity $18,834,556 $17,562,926 $19,867,160
=========== =========== ===========
</TABLE>
See accompanying notes.
F-23
<PAGE>
WXON-TV, Inc.
Statements of Income and Retained Earnings
<TABLE>
<CAPTION>
Four Month Four Month
Period Ended Period Ended
Years ended September 30, January 30, January 31,
1996 1995 1997 1996
----------- ----------- --------- ---------
(unaudited)
<S> <C> <C> <C> <C>
Net revenues $19,636,708 $20,370,703 $ 5,613,841 $ 7,131,797
Barter revenue 5,434,729 5,637,872 1,553,707 1,973,822
----------- ----------- --------- ---------
Total revenue 25,071,437 26,008,575 7,167,548 9,105,619
Station operating expense, including
$273,000 in related party management fees
in 1996 and 1995 and $650,000 and $825,000
in related party national sales
representative fees in 1996 and 1995,
respectively 13,812,451 13,989,667 4,009,446 5,002,675
Depreciation expense 121,386 168,134 23,492 30,020
----------- ----------- ---------- ----------
Total operating expenses 13,933,837 14,157,801 4,032,938 5,032,695
Operating income 11,137,600 11,850,774 3,134,610 4,072,924
Other income (expense):
Interest income including $565,337 in
1996 and $178,442 in 1995 from related
parties 596,738 313,179 96,977 86,759
Interest expense (161,984) (2,917) (35,564) (37,689)
Realized loss on marketable securities - (117,698) - -
Other income (loss) 32,479 (2,391) - -
----------- ------------ ------------ ------------
467,233 190,173 61,413 49,070
----------- ----------- ---------- ----------
Net income 11,604,833 12,040,947 3,196,023 4,121,994
Retained earnings at beginning of period 8,246,106 7,850,159 9,300,939 8,246,106
S corporation distributions (10,550,000) (11,645,000) (3,095,000) (3,550,000)
----------- ----------- ---------- ----------
Retained earnings at end of period $ 9,300,939 $ 8,246,106 $ 9,401,962 $ 8,818,100
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-24
<PAGE>
WXON-TV, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
Four Month Four Month
Period Ended Period Ended
Years ended September 30, January 30, January 31,
1996 1995 1997 1996
----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities
Net income $11,604,833 $12,040,947 $ 3,196,023 $ 4,121,994
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense 121,386 168,134 23,492 30,020
Loss on sale of marketable securities - 117,698 - -
Loss on sale of fixed assets 822 2,414 - -
Program rights assets and liabilities (296,492) (765,152) (472,938) (86,914)
(Increase) decrease in assets:
Accounts receivable (48,900) 411,353 (213,298) (686,461)
Deposits (278,536) (21,669) 258 -
Prepaid expense and other assets (151,930) (13,173) 101,176 28,919
Increase (decrease) in liabilities:
Accounts payable (22,066) 56,583 (82,644) (31,203)
Accrued liabilities 67,129 (17,852) (328,328) (250,384)
----------- ----------- ----------- -----------
Net cash provided by operating activities 10,996,246 11,979,283 2,223,741 3,125,921
Cash flows from investing activities
Net cash paid for marketable securities (14,251) (56,439) (1,595,254) (5,001)
Proceeds from sale of marketable securities -- 1,689,849 - -
Purchase of fixed assets (31,564) (84,696) - -
----------- ----------- ----------- -----------
Net cash provided by (used in)
investing activities (45,815) 1,548,714 (1,595,254) (5,001)
Cash flows from financing activities
(Increase) decrease in notes receivable due
from related parties (2,962,256) (4,356,449) 50,721 (1,370,285)
Deposit received on pending sale of station - - 5,000,000 -
Proceeds from note payable due bank 2,457,681 600,000 - 1,300,000
Repayment of note payable due bank (600,000) - (2,457,681) -
S corporation distributions (10,550,000) (11,645,000) (3,095,000) (3,550,000)
Net cash used in financing activities (11,654,575) (15,401,449) (501,960) (3,620,285)
Net increase (decrease)
in cash (704,144) (1,873,452) 126,527 (499,315)
Cash at beginning of period 846,383 2,719,835 142,239 846,383
----------- ----------- ----------- -----------
Cash at end of period $ 142,239 $ 846,383 $ 268,766 $ 347,068
=========== =========== =========== ===========
Supplemental disclosure of cash
flow information
Cash paid during the year for:
Interest $ 148,279 $ - $ - $ -
</TABLE>
See accompanying notes.
F-25
<PAGE>
WXON-TV, Inc.
Notes to Financial Statements
1. Summary of Significant Accounting Policies
a. Nature of Business
WXON-TV, Inc. (the "Company") broadcasts commercial television programming
in the metropolitan Detroit television market. Commercial time is sold and
credit is granted to customers who are predominately advertising agencies.
Collateral is not required for credit granted. Consequently, the Company's
ability to collect amounts due from customers is affected by economic
fluctuations in the advertising industry and the metropolitan Detroit
television market. The accompanying unaudited interim financial statements
do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments of a normal
recurring nature which are necessary for a fair presentation of the
results for the interim period have been made.
b. Cash
Cash includes cash in checking and savings accounts and cash on hand.
c. Program Rights
Program rights represent the cost of broadcast license agreements for
television programming. In accordance with the provisions of Financial
Accounting Standards Board Statement No. 63, "Financial Reporting by
Broadcasters," the Company records assets and liabilities for broadcast
license agreements at the gross amount of the rights acquired and
obligations incurred under these license agreements when the license
period has begun, the cost of the program is known and the program has
been accepted and is available for its first telecast.
Barter programming transactions are accounted for at the fair market value
of programming received. Accordingly, the fair value of the programming
received is capitalized and amortized to expense as used. The related
liability for these barter programming transactions is also recorded at
the fair value of the programming received and is amortized to income as
commercial time is aired.
Amortization of program rights is computed for financial statement
purposes using a sliding-scale method based upon the total available runs
for a program and the number of times shown. The sliding-scale method
results in a higher amortization expense for the first time a program is
broadcast and a smaller amortization expense for each successive broadcast
of the same title. Amortization expense for financial statement purposes
for the years ended September 30, 1996 and 1995 amounted to $8,041,435 and
$8,620,402, respectively. Management estimates that amounts included in
current assets will be charged to operations in the next fiscal year.
Program rights are valued at the lower of unamortized cost or net
realizable value.
Gains of $41,277 and $414,205 in 1996 and 1995, respectively, on the sale
of program rights to third parties are recorded as a reduction in
programming expense.
d. Revenue Recognition
Revenue from the sale of advertising is recognized at the time the
advertisements are aired.
F-26
<PAGE>
WXON-TV, Inc.
Notes to Financial Statements
1. Summary of Significant Accounting Policies (continued)
e. Property and Equipment
Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives as follows:
Buildings 10 years
Leasehold improvements 5 to 30 years
Production and transmitting equipment 5 to 7 years
Machinery and equipment 5 years
Furniture and fixtures 7 years
f. Goodwill
The Company was acquired in 1969 in a business combination accounted for
using the purchase method. Goodwill of $260,612 at September 30, 1996 and
1995 represents the excess of the purchase price over fair value of the
net assets acquired. In accordance with Accounting Principles Board
Opinion No. 16, "Business Combinations," goodwill recognized from business
combinations consummated prior to November 1, 1970 is not being amortized
because it has not diminished in value.
g. Advertising Costs
The Company expenses advertising costs as incurred. Advertising expense
for the years ended September 30, 1996 and 1995 was $185,116 and $304,587,
respectively.
h. Income Taxes
The Company, with the consent of its shareholders, elected under the
Internal Revenue Code to be an S corporation effective January 1, 1985. In
lieu of corporation income taxes, the shareholders of an S corporation are
taxed on their proportionate share of the Company's taxable income.
Therefore, no provision or liability for federal income taxes has been
included in these financial statements.
An S corporation with a year end other than a calendar year is required by
the Internal Revenue Service to make certain deposits based on projected
income. The amounts on deposit at September 30, 1996 and 1995 are
$1,253,095 and $974,817, respectively.
i. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
F-27
<PAGE>
WXON-TV, Inc.
Notes to Financial Statements
2. Marketable Securities
Marketable securities consist primarily of shares of mutual funds that are
considered available for sale securities and valued at fair value.
Management estimates fair value based upon quoted market prices of the
shares of mutual funds held at the balance sheet dates. An unrealized
holding loss on marketable securities of $9,532 is included as a separate
component of stockholders' equity at September 30, 1996. There is no
unrealized gain or loss from marketable securities included as a separate
component of stockholders' equity at September 30, 1995.
There were no realized gains or losses from the sale of marketable
securities during the year ended September 30, 1996. During the year ended
September 30, 1995, the Company recognized a loss of $117,698 from the
sale of marketable securities for $1,689,849 that had a cost of
$1,807,547.
3. Property and Equipment
The major classifications of property and equipment are as follows:
September 30,
1996 1995
----------- -----------
Buildings $ 86,223 $ 86,223
Leasehold improvements 80,971 80,971
Production and transmitting equipment 1,788,376 1,824,705
Machinery and equipment 261,701 261,992
Furniture and fixtures 426,284 411,027
----------- -----------
2,643,555 2,664,918
Less accumulated depreciation 2,352,946 2,283,664
----------- -----------
Net property and equipment $ 290,609 $ 381,254
=========== ===========
4. Note Payable
The Company has a line of credit with a bank permitting borrowings of up
to $3,000,000 with interest at the bank's prime rate (8.25% and 8.75% at
September 30, 1996 and 1995, respectively). The note is secured by all
items deposited in any account with the bank and accounts receivable. The
note has restrictive covenants regarding the extension of credit to
parties other than officers, sale of assets having an aggregate book value
in excess of $1,000,000, purchase or ownership of certain securities, and
change of control. The note was repaid subsequent to year-end.
The carrying amount of the note payable approximates its fair value.
F-28
<PAGE>
WXON-TV, Inc.
Notes to Financial Statements
5. Obligations for Program Rights
The approximate obligations for recorded cash program rights for the years
subsequent to September 30, 1996, are as follows:
1997 $2,049,977
1998 534,556
1999 162,934
----------
$2,747,467
==========
In addition to the recorded obligations, the Company is committed for
payments of approximately $988,000 at September 30, 1996, for the purchase
of program rights which did not meet the criteria for recording such
obligations at September 30, 1996.
6. Commitments and Contingencies
The Company leases office space under a long-term operating lease
agreement expiring in May 1999. The Company also has several other
operating lease agreements some of which may be terminated at the
Company's option upon prior written notice. Rent expense for office
operating leases during the years ended September 30, 1996 and 1995 was
$244,470 and $240,906, respectively.
The future operating lease commitments for the next five years are
estimated as follows:
1997 $ 266,118
1998 262,586
1999 205,264
2000 102,000
2001 102,000
Beyond 2001 510,000
----------
$1,447,968
==========
From October 1, 1995 through December 3, 1995, the Company violated an FCC
requirement limiting the amount of commercial time in children's
programming. The Company exceeded these commercial limits on children's
programming during weekend broadcasts on 48 separate occasions.
Violations of the commercial limits rule must be reported to the FCC at
the time the station files its license renewal application, at which time
the FCC will determine what penalty, if any, to issue against the station.
The Company is currently unable to estimate the penalty, if any, to be
assessed. However, the Company and its legal counsel do not believe that
such violations will have a material effect on its financial position or
on its ability to renew its FCC license. As such, no loss contingency has
been accrued.
F-29
<PAGE>
7. Related Party Transactions
The majority shareholder and another shareholder formed a sales
representative firm that entered into an exchange agreement to act as the
Company's national sales representative. The agreement became effective
July 24, 1989 and is effective until terminated by either party upon six
months written notice to the other party. Commissions are to be paid by
the Company to the related party at an amount equal to its expenses plus
an agreed upon amount, which in total amounted to approximately $650,000
and $825,000 for the years ended September 30, 1996 and 1995,
respectively.
A related corporation, owned by a minority shareholder, performed
management services for the Company during the years ended September 30,
1996 and 1995, which amounted to approximately $273,000, respectively.
The Company has notes receivable due from officers totaling $7,665,615 and
$4,703,359 at September 30, 1996 and 1995, respectively. The notes
receivable are unsecured and due on demand with interest at 9% per annum.
Interest income from related party notes receivable amounted to $565,337
and $178,442 for the years ended September 30, 1996 and 1995,
respectively.
The Company also purchases programs, production and other services from
related parties. Payments for these related party transactions were
approximately $96,000 and $85,000 for the years ended September 30, 1996
and 1995, respectively.
8. Retirement Plan
The Company has an employee 401(k) retirement plan (the "Plan") covering
all eligible employees. The contributions to the Plan are based upon
elective salary deferrals by Plan participants. An officer of the Company
is the trustee of the Plan. The Company did not make any contributions to
the Plan during the years ended September 30, 1996 and 1995.
9. Financial Instruments
The Company maintains its cash balances in one financial institution
located in the metropolitan Detroit area. The balances are insured by the
Federal Deposit Insurance Corporation up to $100,000. At September 30,
1996 and 1995, the Company's uninsured cash balances total approximately
$500,000 and $1,200,000, respectively.
Concentrations of credit risk with respect to trade accounts receivable
are limited due to the large number of customers comprising the company's
customer base and their dispersion across different industries and
geographical locations.
10. Subsequent Event
In January 1997, the Company sold its broadcast license and certain assets
and liabilities to Granite Broadcasting Corporation for $175,000,000 in
cash.
F-30
<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 Granite Broadcasting Corporation Directors' Stock
Option Plan (the "Directors' Plan") (incorporated by reference as Exhibit 10.19
to this Registration Statement), which provides that the Company shall indemnify
and hold harmless each member of the board of directors of the Company against
certain liabilities arising out of any action, suit or proceeding regarding
administration of the Directors' Plan in which such person may be involved by
reason of his being or having been a member of the Board of Directors of the
Company, except liabilities arising from such person's gross negligence or
willful misconduct or in respect of any matter in which any settlement is
effected to an amount in excess of the amount approved by the Company on the
advice of its legal counsel.
Reference is made to the Exchange and Registration Rights Agreement filed
as Exhibit 4.43 to this Registration Statement which provides for
indemnification for the officers and directors of the Company signing a
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.
II-1
<PAGE>
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
1.1k/ Purchase Agreement, dated January 27, 1997, among Granite
Broadcasting Corporation and the Purchasers named therein.
3.1g/ Third Amended and Restated Certificate of Incorporation of the
Company, as amended.
3.2g/ Amended and Restated Bylaws of the Company, as amended.
3.3k/ Certificate of Designations of the Powers, Preferences and
Relative, Participating, Optional and Other Special Rights of
the Company's 12 3/4% Cumulative Exchangeable Preferred Stock
and Qualifications, Limitations and Restrictions Thereof.
4.272/ 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.
4.282/ Form of 12.75% Senior Subordinated Debenture due September 1,
2002.
4.303/ 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.
4.313/ Form of Junior Subordinated Convertible Debenture.
4.35i/ Third Amended and Restated Credit Agreement, dated as of
September 4, 1996, among Granite Broadcasting Corporation, the
Lenders named therein, Bankers Trust Company, as Agent, and The
Bank of New York, First Union National Bank of North Carolina,
Goldman Sachs Credit Partners L.P., and Union Bank of
California, as Co-Agents.
4.374/ 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.
4.385/ Form of 10 3/8% Senior Subordinated Note due May 15, 2005.
4.41g/ 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.
4.426/ Form of 9 3/8% Senior Subordinated Note due December 1, 2005.
4.43k/ Exchange and Registration Rights Agreement, dated as of January
31, 1997, by and between Granite Broadcasting Corporation and
Goldman, Sachs & Co., BT Securities Corporation, Lazard Freres
& Co. LLC and Salomon Brothers Inc.
4.44k/ Indenture, dated as of January 31, 1997, between Granite
Broadcasting Corporation and The Bank of New York for the
Company's 12 3/4% Series A Exchange Debentures and 12 3/4%
Exchange Debentures due April 1, 2009.
II-2
<PAGE>
4.45k/ Form of 12 3/4% Exchange Debenture due April 1, 2009.
5.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning the legality of the Preferred Stock (to be filed by
amendment).
7.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning liquidation preference (to be filed by amendment).
8.1 Legal Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
concerning certain tax matters (to be filed by amendment).
10.1h/ Granite Broadcasting Corporation Stock Option Plan, as amended
on July 24, 1996.
10.21/ Target Cash Flow Option Plan and Agreement dated as of October
31, 1988 among Granite Broadcasting Corporation, W. Don
Cornwell and Stuart J. Beck.
10.95/ Network Affiliation Agreement (KBJR-TV).
10.105/ Network Affiliation Agreement (WEEK-TV).
10.11g/ Network Affiliation Agreement (KNTV(TV)).
10.12g/ Network Affiliation Agreement (WPTA-TV).
10.131/ Employment Agreement dated as of September 20, 1991 between
Granite Broadcasting Corporation and W. Don Cornwell.
10.141/ Employment Agreement dated as of September 20, 1991 between
Granite Broadcasting Corporation and Stuart J. Beck.
10.15h/ Granite Broadcasting Corporation Management Stock Plan, as
amended July 24, 1996.
10.16a/ Purchase and Sale Agreement between the Company and Meredith
Corporation, dated June 15, 1993.
10.17b/ 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.
10.183/ Letter Agreement, dated December 7, 1993, between Granite and
Meredith Corporation, amending the Purchase and Sale Agreement
dated June 15, 1993.
10.19k/ Granite Broadcasting Corporation Director Stock Option Plan,
as amended on February 25, 1997.
10.204/ Network Affiliation Agreement (WTVH-TV).
10.215/ Network Affiliation Agreement (KSEE-TV).
10.22c/ 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.
II-3
<PAGE>
10.23d/ Purchase and Sale Agreement, dated as of February 20, 1995,
among Granite Broadcasting Corporation, Busse Broadcasting
Corporation and WWMT, Inc.
10.244/ Network Affiliation Agreement (KEYE-TV).
10.25d/ Granite Broadcasting Corporation Employee Stock Purchase Plan,
dated February 28, 1995.
10.264/ Network Affiliation Agreement (WWMT).
10.27e/ 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.
10.28f/ Network Affiliation Agreement (WKBW).
10.29j/ Purchase and Sale Agreement, dated as of December 2, 1996, by
and between Granite Broadcasting Corporation and WXON-TV, Inc.
10.30k/ Employment Agreement dated as of September 19, 1996, between
Granite Broadcasting Corporation and Robert E. Selwyn, Jr.
11.k/ Statement of Computation of Per Share Earnings.
12. Statement of Computation of Financial Ratios.
21.k/ Subsidiaries of the Company.
23.1 Consent of Independent Auditors (Ernst & Young LLP).
23.2 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).
25. Statement of Eligibility of Trustee.
27. Financial Data Schedule.
99.1 Letter of Transmittal (to be filed by amendment).
99.2 Notice of Guaranteed Delivery (to be filed by amendment).
- ----------
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.
II-4
<PAGE>
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.
6/ Incorporated by reference to Exhibit 4.43 to Amendment No. 1
to Registration Statement - No. 333-3376 filed on June 3,
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 July 14, 1995.
g/ 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.
h/ Incorporated by reference to the similarly numbered exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996, as filed on August 13, 1996.
i/ Incorporated by reference to the similarly numbered exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996, filed on November 14, 1996.
j/ Incorporated by reference to Exhibit Number 1 to the Company's
Current Report on Form 8-K, filed on December 17, 1996.
k/ 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, 1996, filed on March 21, 1997.
II-5
<PAGE>
(b) Financial Statement Schedule
Schedule II - Granite Broadcasting Corporation: Valuation of
Qualifying Assets.
II-6
<PAGE>
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 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-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this 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 10th day of April, 1997.
GRANITE BROADCASTING CORPORATION
By: /s/W. DON CORNWELL
----------------------------------------
W. Don Cornwell
Chief Executive Officer and
Chairman of the Board of Directors
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints W. Don Cornwell, Stuart J. Beck and
Lawrence I. Wills and each of them, his true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for and in his name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as might or could
be done in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/W. DON CORNWELL Chief Executive Officer (Principal Executive Officer) April 10, 1997
- -------------------------- and Chairman of the Board of Directors
W. Don Cornwell
/s/STUART J. BECK President, Secretary (Principal Financial Officer) and April 10, 1997
- -------------------------- Director
Stuart J. Beck
/s/LAWRENCE I. WILLS Vice President Finance and Controller (Principal April 10, 1997
- -------------------------- Accounting Officer)
Lawrence I. Wills
Director
- --------------------------
Martin F. Beck
/s/JAMES L. GREENWALD Director April 10, 1997
- --------------------------
James L. Greenwald
/s/VICKEE JORDAN ADAMS Director April 10, 1997
- --------------------------
Vickee Jordan Adams
/s/EDWARD DUGGER III Director April 10, 1997
- --------------------------
Edward Dugger III
/s/CHARLES J. HAMILTON, JR. Director April 10, 1997
- --------------------------
Charles J. Hamilton, Jr.
/s/THOMAS R. SETTLE Director April 10, 1997
- --------------------------
Thomas R. Settle
/s/MIKAEL SALOVAARA Director April 10, 1997
- --------------------------
Mikael Salovaara
</TABLE>
<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 year doubtful accounts and expenses written off(1) of year
----------------- ------- ----------------- ------------ ------------ -------
<S> <C> <C> <C> <C> <C>
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
For the year ended December 31, 1996.... 505,759 - 212,665 326,514 391,910
</TABLE>
1 Net of recoveries.
S-1
<PAGE>
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- ------ -------
1.1(k) Purchase Agreement, dated January 27,
1997, among Granite Broadcasting
Corporation and the Purchasers named
therein.
3.1(g) Third Amended and Restated Certificate of
Incorporation of the Company, as amended.
3.2(g) Amended and Restated Bylaws of the
Company, as amended.
3.3(k) Certificate of Designations of the
Powers, Preferences and Relative,
Participating, Optional and Other
Special Rights of the Company's 12
3/4% Cumulative Exchangeable Preferred
Stock and Qualifications, Limitations
and Restrictions Thereof.
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(i) Third Amended and Restated Credit
Agreement, dated as of September 4,
1996, among Granite Broadcasting
Corporation, the Lenders named
therein, Bankers Trust Company, as
Agent, and The Bank of New York, First
Union National Bank of North Carolina,
Goldman Sachs Credit Partners L.P. and
Union Bank of California, as
Co-Agents.
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.
<PAGE>
Exhibit
Number Exhibit
- ------ -------
4.38(5) Form of 10 3/8% Senior Subordinated
Note due May 15, 2005.
4.41(g) 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(g) Form of 9 3/8% Senior Subordinated Note
due December 1, 2005.
4.43(k) Exchange and Registration Rights
Agreement, dated as of January 31,
1997, by and between Granite
Broadcasting Corporation and Goldman,
Sachs & Co., BT Securities
Corporation, Lazard Freres & Co. LLC
and Salomon Brothers Inc.
4.44(k) Indenture, dated as of January 31,
1997, between Granite Broadcasting
Corporation and The Bank of New York
for the Company's 12 3/4% Series A
Exchange Debentures and 12 3/4%
Exchange Debentures due April 1, 2009.
4.45(k) Form of 12 3/4% Exchange Debenture due
April 1, 2009.
5.1 Legal Opinion of Akin, Gump, Strauss,
Hauer & Feld, L.L.P. concerning the
legality of Preferred Stock (to be
filed by amendment).
7.1 Legal Opinion of Akin, Gump, Strauss,
Hauer & Feld, L.L.P. concerning
liquidation preference (to be filed by
amendment).
8.1 Legal Opinion of Akin, Gump, Strauss,
Hauer & Feld, L.L.P. concerning
certain tax matters (to be filed by
amendment).
10.1(h) Granite Broadcasting Corporation Stock
Option Plan, as amended on July 24,
1996.
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).
<PAGE>
Exhibit
Number Exhibit
- ------ -------
10.11(g) Network Affiliation Agreement
(KNTV(TV)).
10.12(g) 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(h) Granite Broadcasting Corporation
Management Stock Plan, as amended July
24, 1996.
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(k) Granite Broadcasting Corporation
Director Stock Option Plan, as amended
on February 25, 1997.
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).
10.25(d) Granite Broadcasting Corporation
Employee Stock Purchase Plan, dated
February 28, 1995.
<PAGE>
Exhibit
Number Exhibit
- ------ -------
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(f) Network Affiliation Agreement (WKBW).
10.29(j) Purchase and Sale Agreement, dated as
of December 2, 1996, by and between
Granite Broadcasting Corporation and
WXON-TV, Inc.
10.30(k) Employment Agreement dated as of
September 19, 1996 between Granite
Broadcasting Corporation and Robert E.
Selwyn, Jr.
11.(k) Statement of Computation of Per Share
Earnings.
12. Statement of Computation of Financial
Ratios.
21.(k) Subsidiaries of the Company.
23.1 Consent of Independent Auditors (Ernst
& Young LLP).
23.2 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).
25. Statement of Eligibility of Trustee.
27. Financial Data Schedule.
99.1 Letter of Transmittal (to be filed by
amendment).
99.2 Notice of Guaranteed Delivery (to be
filed by amendment).
- ------
(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.
<PAGE>
(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.
(6) Incorporated by reference to Exhibit 4.43 to Amendment No., 1 to
Registration Statement No. 333-3376 filed on June 3, 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 July 14, 1995.
(g) 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.
(h) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996, as filed on August 13, 1996.
(i) Incorporated by reference to the similarly numbered exhibit to the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, filed on November 14, 1996.
(j) Incorporated by reference to Exhibit Number 1 to the Company's
Current Report on Form - 8-K, filed on December 17, 1996.
(k) 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, 1996, filed on March 21, 1997.
<PAGE>
Exhibit 12
GRANITE BROADCASTING CORPORATION
COMPUTATION OF BROADCAST CASH FLOW MARGIN
(in thousands except percentage)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1996
1992 1993 1994 1995 1996 PRO FORMA
---------- --------- --------- --------- ---------- -----------
Net revenue.............................. $35,957 $37,499 $62,856 $99,895 $129,164 $150,536
---------- --------- --------- --------- ---------- -----------
---------- --------- --------- --------- ---------- -----------
Operating income......................... $ 6,865 $ 6,949 $14,513 $27,157 $ 33,811 $ 42,043
Add: Depreciation........................ 2,279 2,398 3,420 4,514 6,144 6,425
Amortization........................ 3,983 3,864 4,715 9,330 11,824 16,158
Corporate expense................... 1,192 1,375 2,162 3,132 4,800 4,800
Non-cash compensation expense....... 123 282 363 496 496
---------- --------- --------- --------- ---------- -----------
Broadcast cash flow...................... $14,319 $14,709 $25,092 $44,496 $ 57,075 $ 69,922
---------- --------- --------- --------- ---------- -----------
Broadcast cash flow margin............... 39.8% 39.2% 39.9% 44.5% 44.2% 46.4%
---------- --------- --------- --------- ---------- ------------
---------- --------- --------- --------- ---------- ------------
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF OPERATING CASH FLOW MARGIN
(in thousands except percentage)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA
---------- ---------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net revenue............... $35,957 $37,499 $62,856 $99,895 $129,164 $150,536
---------- --------- --------- --------- ---------- -----------
---------- --------- --------- --------- ---------- -----------
Operating income.......... $ 6,865 $ 6,949 $14,513 $27,157 $ 33,811 $ 42,043
Add: Depreciation......... 2,279 2,398 3,420 4,514 6,144 6,425
Amortization......... 3,983 3,864 4,715 9,330 11,824 16,158
Non-cash
compensation
expense............. 123 282 363 496 496
---------- --------- --------- --------- ---------- -----------
Operating cash flow....... 13,127 13,334 22,930 41,364 52,275 65,122
---------- --------- --------- --------- ---------- -----------
Operating cash flow
margin.................. 36.5% 35.6% 36.5% 41.4% 40.5% 43.3%
---------- --------- --------- --------- ---------- -----------
---------- --------- --------- --------- ---------- -----------
</TABLE>
2
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF OPERATING CASH FLOW TO
TOTAL INTEREST EXPENSE (in
thousands except ratios)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA
---------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating income.............. $ 6,865 $ 6,949 $14,513 $27,157 $ 33,811 $ 42,043
Add: Depreciation............. 2,279 2,398 3,420 4,514 6,144 6,425
Amortization............. 3,983 3,864 4,715 9,330 11,824 16,158
Non-cash compensation
expense................. 123 282 363 496 496
---------- --------- --------- --------- --------- -----------
Operating cash flow........... 13,127 13,334 22,930 41,364 52,275 65,122
Total interest expense........ 11,675 10,977 10,707 27,029 37,114 39,831
---------- --------- --------- --------- --------- -----------
Ratio of operating cash flow
to total interest expense... 1.12 x 1.21 x 2.14 x 1.53 x 1.41 x 1.63 x
---------- --------- --------- --------- --------- -----------
---------- --------- --------- --------- --------- -----------
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO
FIXED CHARGES
(in thousands except ratios)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense.............................. $11,676 $10,977 $10,707 $27,026 $37,114 $39,831
Amortization of deferred financing costs...... 305 505 842 1,738 2,271 2,705
Interest component of rental expense........ 40 38 35 35 48 48
--------- --------- --------- --------- --------- -----------
Total fixed charges...................... $12,021 $11,520 $11,584 $28,799 $39,433 $42,584
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Earnings:
Income (loss) before income taxes and
extraordinary item......................... (5,297) (4,507) 3,497 (228) (4,138) (773)
Fixed charges............................. 12,021 11,520 11,584 28,799 39,433 42,584
--------- --------- --------- --------- --------- -----------
Adjusted earnings............................. $ 6,724 $ 7,013 $15,081 $28,571 $35,295 $41,811
--------- --------- --------- --------- --------- -----------
Ratio of earnings to fixed charges............ -- -- 1.30 x -- -- --
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDEND
(in thousands except ratios)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fixed Charges:
Interest expense....................................... $11,676 $10,977 $10,707 $27,026 $35,295 $41,811
Amortization of deferred financing costs............... 305 505 842 1,738 2,271 2,705
Interest component of rental expense.................. 40 38 35 35 48 48
--------- --------- --------- --------- --------- -----------
Total fixed charges................................. 12,021 11,520 11,584 28,799 37,614 44,564
Preferred stock dividend............................... 93 236 3,735 3,550 3,525 22,650
--------- --------- --------- --------- --------- -----------
Combined fixed charges and preferred stock
dividend......................................... $12,114 $11,756 $15,319 $32,349 $41,139 $67,214
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Earnings:
Income (loss) before income taxes and extraordinary
item................................................ (5,297) (4,507) 3,497 (228) (4,138) (773)
Combined fixed charges and preferred stock dividend... 12,114 11,756 15,319 32,349 41,139 67,214
--------- --------- --------- --------- --------- -----------
Adjusted earnings....................................... $ 6,817 $ 7,249 $18,816 $32,121 $37,001 $66,441
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
Ratio of earnings to combined fixed charges and
preferred stock dividend............................. -- -- 1.23 x -- -- --
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF LONG-TERM DEBT TO
OPERATING CASH FLOW
(in thousands except ratios)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating income.................................... $ 6,865 $ 6,949 $14,513 $27,157 $33,811 $42,043
Add: Depreciation................................... 2,279 2,398 3,420 4,514 6,144 6,425
Amortization................................... 3,983 3,864 4,715 9,330 11,824 16,158
Non-cash compensation expense.................. 123 282 363 496 496
--------- --------- --------- --------- --------- -----------
Operating cash flow................................. 13,127 13,334 22,930 41,364 52,275 65,122
Total long-term debt................................ 99,315 97,750 95,000 341,000 351,561 378,961
--------- --------- --------- --------- --------- -----------
Ratio of long-term debt to operating cash flow...... 7.57 x 7.33 x 4.14 x 8.24 x 6.73 x 5.82 x
--------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- -----------
</TABLE>
<PAGE>
GRANITE BROADCASTING CORPORATION
COMPUTATION OF RATIO OF LONG-TERM DEBT AND NEW
PREFERRED STOCK TO OPERATING CASH FLOW
(in thousands except ratios)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996
1992 1993 1994 1995 1996 PRO FORMA
--------- --------- --------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Operating income................................... $42,043
Add: Depreciation.................................. 6,425
Amortization.................................. 16,158
Non-cash compensation expense................. 496
-----------
Operating cash flow................................ 65,122
Long-term debt and New Preferred Stock............. 523,311
-----------
Ratio of long-term debt and New Preferred
Stock to operating cash flow...................... 8.04 x
-----------
-----------
</TABLE>
<PAGE>
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4 No.________) and related Prospectus
pertaining to the exchange offering of $153,241,000 liquidation preference of
12-3/4% Cumulative Exchangeable Preferred Stock of Granite Broadcasting
Corporation and the inclusion of 1) our report dated January 4, 1997, 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, 1996; and 2) our report dated January 17, 1997, with respect to
the financial statements of WXON-TV for each of the two years in the period
ended September 30, 1996.
ERNST & YOUNG LLP
New York, New York
April 9, 1997
<PAGE>
CONFORMED COPY
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
GRANITE BROADCASTING CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 13-3458782
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
767 Third Avenue, 34th Floor
New York, New York 10017
(Address of principal executive offices) (Zip code)
----------------------
12 3/4% Exchange Debentures due 2009
(Title of the indenture securities)
================================================================================
<PAGE>
1. General information. Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising authority to which
it is subject.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y.
12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
Exhibits identified in parentheses below, on file with the Commission, are
incorporated herein by reference as an exhibit hereto, pursuant to Rule
7a-29 under the Trust Indenture Act of 1939 (the "Act") and Rule 24 of the
Commission's Rules of Practice.
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b to
Form T-1 filed with Registration Statement No. 33-21672 and Exhibit
1 to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to Form
T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE>
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement No.
33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or
examining authority.
-3-
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 4th day of April, 1997.
THE BANK OF NEW YORK
By: /s/ MARY LAGUMINA
-------------------------------
Name: MARY LAGUMINA
Title: ASSISTANT VICE PRESIDENT
-4-
<PAGE>
- --------------------------------------------------------------------------------
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business September 30,
1996, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin .................. $ 4,404,522
Interest-bearing balances .......... 732,833
Securities:
Held-to-maturity securities ........ 789,964
Available-for-sale securities ...... 2,005,509
Federal funds sold in domestic offices of the bank:
Federal funds sold ................... 3,364,838
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................28,728,602
LESS: Allowance for loan and
lease losses ..............584,525
LESS: Allocated transfer risk
reserve........................429
Loans and leases, net of unearned
income, allowance, and reserve 28,143,648
Assets held in trading accounts ...... 1,004,242
Premises and fixed assets (including
capitalized leases) ................ 605,668
Other real estate owned .............. 41,238
Investments in unconsolidated
subsidiaries and associated
companies .......................... 205,031
Customers' liability to this bank on
acceptances outstanding ............ 949,154
Intangible assets .................... 490,524
Other assets ......................... 1,305,839
-----------
Total assets ......................... $44,043,010
===========
LIABILITIES
Deposits:
In domestic offices ................ $20,441,318
Noninterest-bearing .......8,158,472
Interest-bearing .........12,282,846
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 11,710,903
Noninterest-bearing ..........46,182
Interest-bearing .........11,664,721
Federal funds purchased in
domestic offices of the
bank:
Federal funds purchased ............ 1,565,288
Demand notes issued to the U.S.
Treasury ........................... 293,186
Trading liabilities .................. 826,856
Other borrowed money:
With original maturity of one year
or less .......................... 2,103,443
With original maturity of more than
one year ......................... 20,766
Bank's liability on acceptances exe-
cuted and outstanding .............. 951,116
Subordinated notes and debentures .... 1,020,400
Other liabilities .................... 1,522,884
-----------
Total liabilities .................... 40,456,160
-----------
EQUITY CAPITAL
Common stock ........................ 942,284
Surplus ............................. 525,666
Undivided profits and capital
reserves .......................... 2,129,376
Net unrealized holding gains
(losses) on available-for-sale
securities ........................ ( 2,073)
Cumulative foreign currency transla-
tion adjustments .................. ( 8,403)
-----------
Total equity capital ................ 3,586,850
-----------
Total liabilities and equity
capital ........................... $44,043,010
===========
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
J. Carter Bacot |
Thomas A. Renyi | Directors
Alan R. Griffith |
- --------------------------------------------------------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 555,753
<SECURITIES> 0
<RECEIVABLES> 27,057,451
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 43,674,830
<PP&E> 33,562,019
<DEPRECIATION> 0
<TOTAL-ASSETS> 452,563,204
<CURRENT-LIABILITIES> 24,164,241
<BONDS> 351,560,900
45,487,500
0
<COMMON> 86,782
<OTHER-SE> (3,221,919)
<TOTAL-LIABILITY-AND-EQUITY> 452,563,204
<SALES> 129,164,353
<TOTAL-REVENUES> 129,164,353
<CGS> 72,089,368
<TOTAL-COSTS> 95,353,139
<OTHER-EXPENSES> 2,029,370
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 37,114,336
<INCOME-PRETAX> (5,133,462)
<INCOME-TAX> 761,000
<INCOME-CONTINUING> (5,894,462)
<DISCONTINUED> 0
<EXTRAORDINARY> (2,891,250)
<CHANGES> 0
<NET-INCOME> (8,785,712)
<EPS-PRIMARY> (1.43)
<EPS-DILUTED> (1.43)
</TABLE>
