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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended December 31, 1997 Commission file number 0-19728
GRANITE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
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Delaware 13-3458782
(State of Incorporation) (I.R.S. Employer
Identification No.)
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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)
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Securities Registered Pursuant to Section 12(b) of the Act:
None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock (Nonvoting), $.01 par value per share
Cumulative Convertible Exchangeable Preferred Stock, $.01 par value per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No /_/
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /_/
As of March 10, 1998, 9,536,052 shares of Granite Broadcasting Corporation
Common Stock (Nonvoting) and 1,662,519 shares of Granite Broadcasting
Corporation Cumulative Convertible Exchangeable Preferred Stock were
outstanding. The aggregate market value (based upon the last reported sale price
on the Nasdaq National Market on March 10, 1998) of the shares of Common Stock
(Nonvoting) held by non-affiliates was approximately $104,547,824. The aggregate
market value (based upon the last reported sale price on the Nasdaq National
Market on March 10, 1998) of shares of Cumulative Convertible Exchangeable
Preferred Stock held by non-affiliates was approximately $97,160,610. (For
purposes of calculating the preceding amounts only, all directors and executive
officers of the registrant are assumed to be affiliates.) As of March 10, 1998,
178,500 shares of Granite Broadcasting Corporation Class A Voting Common Stock
were outstanding, all of which were held by affiliates.
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of Item 14 of Part IV are incorporated by reference to: Granite
Broadcasting Corporation's Registration Statement No. 33-43770, filed on
November 5, 1991; Granite Broadcasting Corporation's Registration Statement No.
33-52988, filed on October 6, 1992; Granite Broadcasting Corporation's Current
Report on Form 8-K, filed on June 25, 1993; Granite Broadcasting Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, filed on
November 15, 1993; Amendment No. 2 to Granite Broadcasting Corporation's
Registration Statement No. 33-71172, filed on December 16, 1993; Granite
Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, filed on November 14, 1994; Granite Broadcasting
Corporation's Annual Report on Form 10-K for the year ended December 31, 1994,
filed on March 29, 1995; Granite Broadcasting Corporation's Current Report on
Form 8-K, filed on May 19, 1995; Granite Broadcasting Corporation's Current
Report on Form 8-K, filed on July 14, 1995; Granite Broadcasting Corporation's
Registration Statement No. 33-94862, filed on July 21, 1995; Amendment No. 2 to
Granite Broadcasting Corporation's Registration Statement No. 33-94862, filed on
October 6, 1995; Granite Broadcasting Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995, filed on March 28, 1996; Granite
Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, filed on August 13, 1996; Granite Broadcasting Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on
November 14, 1996; Granite Broadcasting Corporation's Current Report on Form
8-K, filed on December 17, 1996; Granite Broadcasting Corporations' Annual
Report on Form 10-K for the year ended December 31, 1996, filed on March 21,
1997; Amendment No. 1 to Granite Broadcasting Corporation's Registration
Statement No. 333-24907, filed on June 10, 1997; Granite Broadcasting
Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
filed on August 8, 1997; Granite Broadcasting Corporation's Current Report on
Form 8-K, filed on October 17, 1997; and Granite Broadcasting Corporation's
Current Report on Form 8-K, filed on March 2, 1998.
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PART I
Item 1. Business
Granite Broadcasting Corporation ("Granite" or the "Company"),
a Delaware corporation, is a group broadcasting company founded in 1988 to
acquire and manage network-affiliated television stations and other media and
communications-related properties. 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. The Company currently owns and operates ten
network-affiliated television stations: KNTV(TV), the ABC affiliate serving San
Jose, California and the Salinas-Monterey, California television market
("KNTV"); WTVH-TV, the CBS affiliate serving Syracuse, New York ("WTVH");
KSEE-TV, the NBC affiliate serving Fresno-Visalia, California ("KSEE"); WPTA-TV,
the ABC affiliate serving Fort Wayne, Indiana ("WPTA"); WEEK-TV, the NBC
affiliate serving Peoria-Bloomington, Illinois ("WEEK-TV"); KBJR-TV, the NBC
affiliate serving Duluth, Minnesota and Superior, Wisconsin ("KBJR"); KEYE-TV,
the CBS affiliate serving Austin, Texas ("KEYE"); WWMT-TV, the CBS affiliate
serving Grand Rapids-Kalamazoo-Battle Creek, Michigan ("WWMT"); WKBW-TV, the ABC
affiliate serving Buffalo, New York ("WKBW"); and WDWB-TV (formerly known as
WXON-TV), the WB Network affiliate serving Detroit, Michigan ("WDWB"). KBJR and
WEEK were acquired in separate transactions in October 1988, WPTA was acquired
in December 1989, KNTV was acquired in February 1990, WTVH and KSEE were
acquired in December 1993, KEYE was acquired in February 1995, WWMT and WKBW
were acquired in separate transactions in June 1995 and WDWB was acquired in
January 1997. WLAJ-TV, the ABC affiliate serving Lansing, Michigan ("WLAJ") is
currently being operated by the Company pursuant to a time brokerage agreement
that was entered into in October 1996. The Company owns each of KNTV, WTVH,
KSEE, WPTA, KBJR, KEYE, WWMT, WKBW and WDWB through separate wholly owned
subsidiaries (collectively, the "Subsidiaries"; references herein to the
"Company" or to "Granite" include Granite Broadcasting Corporation and its
subsidiaries). The Company's long-term objective is to acquire additional
television stations and to pursue acquisitions of other media and
communications-related properties in the future.
Recent Developments
Acquisitions
On January 31, 1997, the Company acquired substantially all the
assets used in the operation of WDWB, the WB Network affiliated station serving
Detroit, Michigan (the "WDWB Acquisition"), for approximately $175,000,000 in
cash and the assumption of certain liabilities. 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.
KOFY Acquisition Agreement
On October 3, 1997, the Company entered into a definitive agreement
with Pacific FM Incorporated ("Pacific"), a California corporation, James J.
Gabbert and Michael P. Lincoln to acquire 51% of the outstanding stock of
Pacific, the owner of KOFY-TV, the WB Network affiliated station serving the San
Francisco-Oakland-San Jose, California television market ("KOFY"). At the
closing of this purchase, it is contemplated that the Company will acquire the
remaining 49% of the stock of Pacific. The total purchase price for all the
stock of Pacific will be $143.75 million in cash, subject to certain
adjustments. In addition, the Company will pay $30 million to the principal
shareholders of Pacific for a covenant not to compete in the San Francisco-San
Jose television market for a period of five years from the closing of the
Company's acquisition.
The proposed acquisition is subject to approval by the Federal
Communications Commission (the "FCC") and other customary closing conditions and
is expected to be completed during the third quarter of 1998. Because
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Granite already owns a television station with an overlapping service area,
KNTV, the Company has requested a permanent waiver of the FCC's local television
multiple ownership rule to permit Granite to own both KNTV and KOFY.
WWMT and WLAJ Sale Agreement
On February 18, 1998, the Company and certain of the Company's
subsidiaries entered into a definitive agreement with Freedom Communications,
Inc. ("Freedom"), a California corporation, whereby Freedom will acquire the
assets of WWMT and WLAJ for a total purchase price of $170 million in cash,
subject to certain adjustments (the "Asset Sale Agreement"). It is anticipated
that proceeds from the sale will be used to fund part of the purchase price of
KOFY.
Granite acquired all of the assets of WWMT in 1995 for $95 million
and has a contract to acquire all of the assets of WLAJ for $19.4 million.
Granite operates WLAJ pursuant to a time brokerage agreement.
The consummation of the transactions described in the Asset Sale
Agreement is contingent on, among other things, approval by the FCC and
satisfaction of other customary closing conditions. It is contemplated that the
sale will close in the second quarter of 1998.
Other Developments
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. The Company has committed to invest
up to $3,500,000 in Datacast LLC, of which $3,250,000 has been invested to date.
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Company and Industry Overview
The following table sets forth general information for each of the
Company's television stations:
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Other
Commercial Expiration
Market Date of Channel/ Network Market Stations Date of
Station Area Acquisition Frequency Affiliation Rank(1) in DMA FCC License
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WDWB-TV Detroit, MI 01/31/97 20/UHF WB 9 5 10/01/05
WWMT-TV Grand Rapids -
Kalamazoo -
Battle Creek, MI 06/01/95(2) 3/VHF CBS 37 6 10/01/05
WKBW-TV Buffalo, NY 06/29/95 7/VHF ABC 40 4 06/01/99
KNTV(TV) San Jose,
Salinas -
Monterey, CA 02/05/90 11/VHF ABC 52 5(3) 12/01/98
KSEE-TV Fresno-
Visalia, CA 12/23/93 24/UHF NBC 55 9(4) 12/01/98
KEYE-TV Austin, TX 02/01/95 42/UHF CBS 60 6 08/01/98
WTVH-TV Syracuse, NY 12/23/93 5/VHF CBS 72 4 06/01/99
WPTA-TV Fort Wayne, IN 12/11/89 21/UHF ABC 102 4 08/01/05
WLAJ-TV Lansing, MI Pending(2),(5) 53/UHF ABC 105 3 10/01/05
WEEK-TV Peoria -
Bloomington,
IL 10/31/88 25/UHF NBC 110 3 12/01/05
KBJR-TV Duluth, MN -
Superior, WI 10/31/88 6/VHF NBC 134 2 12/01/05
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(1) "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.
All market rank data is derived from the Nielsen Station Index for
November 1997.
(2) The Company and certain of its subsidiaries have entered into the Asset
Sale Agreement with Freedom, pursuant to which, subject to certain
conditions, Freedom will acquire the assets of WWMT and WLAJ for a total
purchase price of $170 million in cash, subject to certain adjustments.
See "Recent Developments-WWMT and WLAJ Sale Agreement."
(3) Includes KSMS, Salinas-Monterey and KCU, Salinas, both of which broadcast
entirely in Spanish.
(4) Includes KFTV Hanford-Fresno and KMSG, Sanger-Fresno, both of which
broadcast entirely in Spanish.
(5) WLAJ is currently being operated by the Company pursuant to a time
brokerage agreement.
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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.
The Company's Stations
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)
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Years Ended December 31,
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1993 1994 1995 1996 1997
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Amount % Amount % Amount % Amount % Amount %
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Local/Regional(1)....... $25,416 56.3% $38,802 50.9% $60,969 51.0% $73,491 47.5% $87,412 48.3%
National(2)............. 16,290 36.1 28,548 37.5 48,995 41.0 61,945 40.0 78,833 43.5
Network Compensation(3). 1,286 2.8 2,244 2.9 4,154 3.5 7,289 4.7 7,859 4.3
Political(4)............ 133 0.3 4,060 5.3 1,498 1.3 7,265 4.7 1,036 0.6
Other Revenue(5)........ 2,041 4.5 2,559 3.4 3,849 3.2 4,851 3.1 5,943 3.3
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Total................... $45,166 100.0% $76,213 100.0% $119,465 100.0% $154,841 100.0% $181,083 100.0%
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(1) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers and other local sources.
(2) Represents sale of advertising time to agencies representing national
advertisers.
(3) Represents payment by networks for broadcasting network programming.
(4) Represents sale of advertising time to political advertisers.
(5) 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 1997. Gross revenues from restaurants and
entertainment-related businesses accounted for approximately 13% of the
Company's total gross revenues in 1997. Each other category of advertising
revenue represents less than 5% of the Company's total gross revenues.
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The following is a description of each of the Company's television
stations:
WDWB: Detroit, Michigan
WDWB began operating in 1962 and commenced operating as a WB Network
affiliate in 1995.
Detroit is the 9th largest DMA in the United States with a total of
1,782,000 television households and a population of 4,823,000 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 average household income in the DMA is $43,374 according
to estimates provided in the BIA Investing in Television 1997 Report (the "BIA
Report").
WWMT: Grand Rapids - Kalamazoo - Battle Creek, Michigan
WWMT began operations in 1950 and is affiliated with CBS.
The Grand Rapids - Kalamazoo - Battle Creek economy is centered
around manufacturing, health services, education and financial services. The
average household income in the DMA was $39,023, 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 Buffalo economy is centered around manufacturing, government,
health services and financial services. The average household income in the DMA
was $33,913, 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 began operations in 1955 and is affiliated with ABC.
KNTV is 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." Although the Nielsen rating service
designates KNTV as the ABC affiliate for the Salinas-Monterey market (which is
southwest of and adjacent to San Jose), according to the November 1997 Nielsen
Monterey/Salinas Viewers In Profile Report more than 83% 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 the majority of
such audience resides in Santa Clara County. If Santa Clara County were a
separate DMA with its 540,050 television households, it would rank as the 52nd
largest DMA in the United States.
Santa Clara County has a diverse and affluent economy. The average
effective buying income by household was $57,028, 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
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Stanford University, San Jose State University and Santa Clara University with
enrollments aggregating approximately 51,000 students.
KSEE: Fresno-Visalia, California
KSEE began operations in 1953 and is affiliated with NBC.
Fresno and the San Joaquin Valley is one of the most productive
agricultural areas in the world with over 6,000 square miles planted with more
than 250 different crops. Although farming continues to be the single most
important part of the Fresno area economy, the area now attracts a variety of
service-based industries and manufacturing and industrial operations. No single
employer or industry dominates the local economy. The average income by
household in the DMA was $33,428, 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.
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 average income per household in the DMA was
$41,348, according to estimates provided in the BIA Report. In addition to the
University of Texas, Southwestern University, Saint Edwards University and
Southwest Texas State University are located in the DMA. Total university
enrollment in the DMA is approximately 100,000 students.
WTVH: Syracuse, New York
WTVH began operations in 1948 and is affiliated with CBS.
The Syracuse economy is centered on manufacturing, education and
government. The average income by household in the DMA was $35,285, 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 began operations in 1957 and is affiliated with ABC.
The Fort Wayne economy is centered on manufacturing, government,
insurance, financial services and education. The average income by household in
the DMA was $39,231, 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. Fort Wayne 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.
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WLAJ: Lansing, Michigan
WLAJ began operations in 1990 and is an ABC affiliate.
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
average household income in the DMA is $38,948 according to estimates provided
in the BIA Report.
WEEK-TV and WEEK-FM: Peoria-Bloomington, Illinois
WEEK began operations in 1953 and is affiliated with NBC. WEEK-FM,
acquired in January 1997, is run in combination with WEEK-TV.
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, healthcare 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 healthcare center.
The economy of Bloomington, on the other hand, is focused on insurance,
education, agriculture and manufacturing. Prominent corporations located in
Bloomington include State Farm Insurance Company, Country Companies Insurance
Company and Diamond-Star Motors Corporation (a subsidiary of Mitsubishi). The
average income by household in the DMA was $40,341, according to estimates
provided in the BIA Report. The Peoria-Bloomington area is also the home of
numerous institutions of higher education including Bradley University, Illinois
Central College, Illinois Wesleyan University, Illinois State University, Eureka
College and the University of Illinois College of Medicine, with enrollments
aggregating over 38,000 students.
KBJR: Duluth, Minnesota and Superior, Wisconsin
KBJR began operations in 1954 and is affiliated with NBC.
The area's primary industries include mining, fishing, food
products, paper, medical, shipping, tourism and timber. The average income by
household in the DMA was $30,421, 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 two airplane maintenance facilities in
the Duluth area that management estimates added approximately 1,000 jobs to the
Duluth area's economy. 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
area 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 (collectively, the "Networks"), 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.
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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 WDWB 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). WDWB has an affiliation arrangement with the WB Network, which
is terminable by either party at will.
Under each of the Company's affiliation agreements, the Networks may
increase or decrease network compensation and, under certain circumstances,
terminate the agreement upon advance written notice. Under the Company's
ownership, none of its stations has received a termination notice from its
respective Network.
In substance, each affiliation agreement provides the stations with
the right to broadcast all programs transmitted by the Network with which it is
affiliated. In exchange, the Network has the right to sell a substantial
majority of the advertising time during such broadcast. In addition, for every
hour that the station elects to broadcast Network programming, the Network pays
the station a fee, specified in each affiliation agreement, which varies with
the time of day. Typically, "prime-time" programming (Monday through Saturday
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
-8-
<PAGE>
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 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 not 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 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 of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC and empowers the FCC, among other
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
-9-
<PAGE>
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 1998, 1999 and 2005.
Although there can be no assurance that the Company's licenses will be renewed,
the Company is not aware of any facts or circumstances that would prevent the
Company from having its licenses renewed.
FCC regulations govern the multiple ownership of broadcast stations
and other media on a national and local level. The Telecommunications Act of
1996 directs the FCC to eliminate or modify certain rules regarding the multiple
ownership of broadcast stations and other media on a national and local level.
Pursuant to this directive, the FCC has revised its rules to eliminate the limit
on the number of television stations that an individual or entity may own or
control nationally, provided that the audience reach of all television stations
owned does not exceed 35% of all U.S. households. The FCC also 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
-10-
<PAGE>
(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.
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. See "Digital Television Service."
In accordance with requirements of the Telecommunications Act of
1996, the FCC has approved a voluntary rating system proposed by the broadcast
industry to identify video programming that contains sexual, violent or such
other material about which parents should be informed prior to viewing by
children. The rating system also indicates the appropriateness of the
programming for children according to age and/or maturity. The rating system
applies to all television programming except news, sports and unedited movies
rated by the Motion Picture Association of America.
In connection with this programming rating system, the FCC also has
established technical requirements of equipping new television receivers with a
device, termed a "V-chip," which will permit parents to block programming with a
common rating designation from their television sets. By July 1, 1999, one half
of all new television receiver models with picture screens 13 inches or greater
will be required to be equipped with this "V-chip." By January 1, 2000, the
V-chip will be required in all qualifying new receivers.
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
-11-
<PAGE>
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.
Digital Television Service
The FCC has adopted rules authorizing DTV service and intends to
adopt other rules to implement the new service. In 1996, the FCC adopted a
transmission standard for DTV which is consistent with a consensus agreement
voluntarily developed by a broad cross-section of parties, including the
broadcasting, equipment manufacturing and computer industries. This digital
standard should improve the quality of both the audio and video signals of
television stations. The FCC has "set aside" channels within the existing
television spectrum for DTV and limited initial DTV eligibility to existing
television stations and certain applicants for new television stations
("Existing Broadcasters"). The FCC has adopted a DTV table of allotments as well
as service and licensing rules to implement the service. The DTV allotment table
provides a channel for DTV operations for each Existing Broadcaster and is
intended to enable Existing Broadcasters to replicate their existing service
areas. The affiliates of CBS, NBC, ABC and Fox in the ten largest U.S.
television markets are required to initiate commercial DTV service with a
digital signal by May 1, 1999. Affiliates of these networks located in the 11th
through the 30th largest U.S. television markets must begin DTV operation by
November 1, 1999. All other commercial stations are required to begin DTV
broadcasts by May 1, 2002. All of the company-owned stations must meet the May
1, 2002 construction deadline. By 2006, broadcasters will have to convert to DTV
service, terminate their existing analog service and surrender their present
analog channel to the FCC. The FCC has begun issuing construction permits for
DTV operations to broadcast licensees. None of the Company's stations have yet
sought FCC authorization for DTV operation.
Due to increased equipment requirements, implementation of DTV
service will impose substantial additional costs on television stations. 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 does not know the effect the authorization of DTV
service will have on the company's business or capital expenditure requirements.
The FCC has proposed other rules to implement DTV service. The FCC
proposes to impose certain fees on DTV licensees for the transmission of
non-broadcast services (e.g., paid subscription services) over their DTV
spectrum. The FCC also has announced its intention to initiate rulemaking
proceedings soon to examine: (1) whether, and the extent to which, "must carry"
obligations should be applied to DTV service; (2) the extent to which additional
public interest obligations should be imposed on DTV licensees; and (3) various
DTV tower siting issues.
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 involvement in the broadcasting industry; (iii) rules relating to
political broadcasting and advertising; (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) changes to the standards governing the evaluation and
regulation of television programming directed towards children, and
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<PAGE>
violent and indecent programming; and (vii) restrictions on the advertisement of
certain alcoholic products. 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 Telecommunications Act of 1996 requires the FCC to review
the broadcast ownership rules every two years and to repeal or modify any rules
that are determined to no longer be in the public interest. As a result of this
mandate, the FCC recently initiated an inquiry to review all of its broadcast
ownership rules. 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.
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
1,160 persons, of whom approximately 235 are represented by three unions
(including 11 bargaining units) pursuant to contracts expiring in 1998, 1999 and
2000 (and two of which are expired but which the Company is currently
renegotiating) at the Company's stations. The Company believes its relations
with its employees are good.
Certain sections of this Form 10-K, including "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain various forward looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which represent the
Company's expectations or beliefs concerning future events. The forward looking
statements include, without limitation, the renewal of the Company's FCC
licenses and the Company's ability to meet its future liquidity needs. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements. Such factors include, without limitation, general
economic conditions, competition in the markets in which the Company's stations
are located, technological change and innovation in the broadcasting industry
and proposed legislation.
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<PAGE>
Item 2. 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.
-14-
<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 9/30/02
Low Power
Transmission Site Leased 100 sq. feet 1/1/01(1)
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 3/22/34
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(2)
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 -
WDWB Southfield, Michigan
Office Leased 8,850 sq. feet 5/31/99
Southfield, Michigan
Studio and Tower Site Leased(3) 30,000 sq. feet 9/30/06
</TABLE>
- ----------
(1) Assuming exercise of all of the Company's renewal options under such
lease.
(2) This lease is in effect on a month-to-month basis and is currently being
renegotiated by the Company.
(3) The Company owns a 3,400 square foot building on the property.
-15-
<PAGE>
Item 3. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
-16-
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock (Nonvoting) is traded over-the-counter on the
Nasdaq National Market under the symbol GBTVK. As of March 10, 1998, the
approximate number of record holders of Common Stock (Nonvoting) was 152.
The range of high and low prices for the Common Stock (Nonvoting) for each
full quarterly period during 1996 and 1997 is set forth in Note 13 to the
Consolidated Financial Statements in Item 8 hereof. At March 10, 1998, the
closing price of the Common Stock (Nonvoting) was $12 per share.
The Company's publicly traded Cumulative Convertible Exchangeable
Preferred Stock, par value $.01 per share (the "Cumulative Convertible
Exchangeable Preferred Stock") is traded over-the-counter on the Nasdaq National
Market under the symbol GBTVP. The range of high and low prices for each full
quarterly period during 1996 and 1997, is set forth in Note 13 to the
Consolidated Financial Statements in Item 8 hereof. As of March 10, 1998, the
closing price for the Cumulative Convertible Exchangeable Preferred Stock was
$59.75 per share.
There is no established public trading market for the Company's Class A
Voting Common Stock, par value $.01 per share (the "Voting Common Stock;" the
Voting Common Stock and the Common Stock (Nonvoting) are referred to herein
collectively as the "Common Stock"). As of March 10, 1998, the number of record
holders of Voting Common Stock was 2.
The Company has declared and paid quarterly cash dividends at a quarterly
rate of $.4844 per share on the Cumulative Convertible Exchangeable Preferred
Stock each quarter since its issuance and anticipates continuing to pay such
dividends. The Company has, however, never declared or paid a cash dividend on
its Common Stock and does not anticipate paying a dividend on its Common Stock
in the foreseeable future. The payment of cash dividends on Common Stock is
subject to certain limitations under the Indentures governing the Company's
10-3/8% Senior Subordinated Notes due May 15, 2005 and 9-3/8% Senior
Subordinated Notes due December 1, 2005, respectively, and is restricted under
the Company's credit agreement (the "Credit Agreement"). The Company is also
prohibited from paying dividends on any Common Stock until all accrued but
unpaid dividends on the Cumulative Convertible Exchangeable Preferred Stock and
the Company's Series A Convertible Preferred Stock, par value $.01 per share
(the "Series A Preferred Stock"), are paid in full. All outstanding shares of
Series A Preferred Stock were converted into Common Stock (Nonvoting) in August
1995. Accrued dividends on the Series A Preferred Stock, which totaled $262,844
at December 31, 1997, are payable on the later of December 31, 1999 or the date
on which such dividends may be paid under the Company's existing debt
instruments. If unpaid, dividends on outstanding shares of Cumulative
Convertible Exchangeable Preferred Stock will accrue at an annual rate of
$1.9375 per share.
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<PAGE>
Item 6. Selected Financial Data
The information set forth below should be read in conjunction with the
consolidated financial statements and notes thereto included at Item 8 herein.
The selected consolidated financial data for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 are derived from the Company's audited Consolidated
Financial Statements.
The acquisitions by the Company of its operating properties during the
periods reflected in the following selected financial data materially affect the
comparability of such data from one period to another.
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
Statement of Operations Data: (Dollars in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Net revenue ............................................ $ 37,499 $ 62,856 $ 99,895 $ 129,164 $ 153,512
Station operating expenses ............................. 22,790 37,764 55,399 72,089 83,729
Time brokerage agreement fees .......................... -- -- -- 150 600
Depreciation ........................................... 2,398 3,420 4,514 6,144 5,718
Amortization ........................................... 3,359 3,873 7,592 9,737 13,824
Corporate expense ...................................... 1,375 2,162 3,132 4,800 6,639
Non-cash compensation .................................. 123 282 363 496 986
--------- --------- --------- --------- ---------
Operating income ....................................... 7,454 15,355 28,895 35,748 42,016
Other expenses ......................................... 479 309 798 1,034 1,167
Equity in net loss (income) of investee ................ -- -- (439) 995 1,531
Interest expense, net .................................. 10,977 10,707 27,026 36,765 38,986
Non-cash interest expense .............................. 505 842 1,738 2,087 2,182
--------- --------- --------- --------- ---------
Income (loss) before income taxes and extraordinary item (4,507) 3,497 (228) (5,133) (1,850)
(Provision) benefit for income tax ..................... 472 (450) (555) (761) (1,616)
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item ................ (4,035) 3,047 (783) (5,894) (3,466)
Extraordinary loss on extinguishment of debt ........... (1,007) -- -- (2,891) (5,569)
--------- --------- --------- --------- ---------
Net income (loss) ...................................... $ (5,042) $ 3,047 $ (783) $ (8,785) $ (9,035)
========= ========= ========= ========= =========
Net loss attributable to common shareholders ........... $ (5,278) $ (688) $ (4,368) $ (12,310) $ (31,207)
========= ========= ========= ========= =========
Basic and diluted loss before extraordinary item
per common share ..................................... $ (0.98) $ (0.15) $ (0.74) $ (1.09) $ (2.93)
========= ========= ========= ========= =========
Basic and diluted net loss per common share ............ $ (1.21) $ (0.15) $ (0.74) $ (1.43) $ (3.57)
========= ========= ========= ========= =========
Weighted average common shares outstanding ............. 4,365 4,498 5,920 8,612 8,765
<CAPTION>
December 31,
-------------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total assets ........................................... $ 191,517 $ 189,881 $ 452,221 $ 452,563 $ 633,614
Total debt ............................................. 99,000 99,250 341,000 351,561 392,779
Redeemable preferred stock ............................. 49,139 49,171 45,488 45,488 207,700
Stockholders' equity (deficit) ......................... 12,075 11,729 8,868 (3,135) (33,257)
</TABLE>
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<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Introduction
The consolidated financial statements of the Company reflect significant
increases between the years ended December 31, 1997 and 1996 in substantially
all line items. The principal reasons for such increases are the acquisition of
WDWB, the WB affiliate serving Detroit, Michigan, on January 31, 1997, the
operation of WLAJ, the ABC affiliate serving Lansing, Michigan, under a time
brokerage agreement which commenced in October 1996.
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. Amounts 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, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
Year ended December 31
---------------------------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Operating income .............. $28,896,000 $35,748,000 $42,016,000
Add:
Time brokerage agreement fees -- 150,000 600,000
Depreciation and amortization 12,105,000 15,881,000 19,542,000
Corporate expense ........... 3,132,000 4,800,000 6,639,000
Non-cash compensation ....... 363,000 496,000 986,000
----------- ----------- -----------
Broadcast cash flow ........... $44,496,000 $57,075,000 $69,783,000
=========== =========== ===========
</TABLE>
"Broadcast cash flow" means operating income plus time brokerage agreement
fees, 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 loss 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.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
which is effective for fiscal periods beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components. The Company believes that this Statement will not have an
effect on the manner in which it currently reports its financial information.
Also in June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information" which is
also effective for fiscal periods beginning after December 15, 1997. SFAS No.
131 establishes standards for reporting information about operating segments and
for related disclosures about products, services, geographic areas and major
customers. The Company has not yet made a determination of the impact, if any,
that SFAS No. 131 will have on the manner in which it reports its financial
information.
-19-
<PAGE>
Years ended December 31, 1996 and 1997
Net revenue for the year ended December 31, 1997 totaled $153,512,000, an
increase of $24,348,000, or 19% compared to net revenue of $129,164,000 for the
year ended December 31, 1996. Of the increase, $19,287,000 resulted from the
inclusion of eleven months of operations of WDWB and an additional nine months
of operations of WLAJ. The remaining increase was primarily due to increases in
local and national advertising revenue as well as incremental revenue from the
Company's Internet ventures. Such increases exceeded the anticipated reduction
in political advertising revenue during a non-election year.
Station operating expenses for the year ended December 31, 1997 totaled
$83,729,000, an increase of $11,640,000 or 16% compared to $72,089,000 for the
same period a year earlier. Of the increase, $7,868,000 was due to the inclusion
of eleven months of operations of WDWB and an additional nine months of
operations of WLAJ. The remaining increase was primarily due to increased news,
sales and administrative expenses.
Depreciation and amortization increased $3,661,000 or 23% for the twelve
months ended December 31, 1997 as compared to the prior year primarily due to
the acquisition of WDWB in January of 1997. Corporate expense increased
$1,839,000, or 38% during the year ended December 31, 1997 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 $490,000 or 99% during
the year ended December 31, 1997 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 and to
members of the Company's Board of Directors under the Company's Non-Employee
Directors Stock Plan, which was adopted on April 29, 1997.
As a result of the factors discussed above, operating income increased
$6,268,000 or 18% during the year ended December 31, 1997 compared to 1996.
The equity in net loss of investee of $1,532,000 and $995,000 for the
years ended December 31, 1997 and 1996, respectively, resulted from the Company
recognizing its pro rata share of the losses of Datacast, LLC under the equity
method of accounting.
Net interest expense was $38,986,000 compared to $36,765,000 a year
earlier, an increase of 6%. This increase was primarily due to higher levels of
outstanding indebtedness as a result of the acquisition of WDWB, offset in part,
by the results of the Company's strategic plan to reduce its cost of borrowing.
During the first quarter of 1997, the Company purchased $19,405,000 principal
amount of its 9 3/8% Senior Subordinated Notes, due December 1, 2005 (the "9
3/8% Notes"), at a discount. During the third quarter of 1997, the Company
exercised its option to redeem the entire outstanding $60,000,000 principal
amount of its 12.75% Senior Subordinated Debentures, due September 1, 2002 (the
"12.75% Debentures"), at a redemption price of 106.375%. The Company replaced
all of this subordinated debt with bank debt of a lower rate, thereby reducing
its cost of borrowing.
During 1997, the Company incurred an extraordinary loss of $5,569,000 on
the early extinguishment of debt. See "--Liquidity and Capital Resources."
Net loss totaled $9,036,000 during the year ended December 31, 1997
compared to net loss of $8,786,000 during the same period a year earlier, an
increase of $250,000. This change is primarily due to the changes in the line
items discussed above.
Years ended December 31, 1995 and 1996
Net revenue for the year ended December 31, 1996 totaled $129,164,000, an
increase of $29,269,000, or 29% 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
-20-
<PAGE>
primarily a result of increased local and national advertising, political
spending and increased network compensation.
Station operating expenses for the year ended December 31, 1996 totaled
$72,089,000, an increase of $16,690,000, or 30% 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.
Depreciation and amortization increased by $3,776,000, or 31% 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% 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
$6,852,000 or 24% 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 $36,765,000 during the year ended December
31, 1996, an increase of $9,739,000, or 36% 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.
Net loss totaled $8,786,000 during the year ended December 31, 1996
compared to net loss of $783,000 during 1995, an increase of $8,003,000. This
change was primarily due to the changes in the line items discussed above.
Liquidity and Capital Resources
In October 1996, the Company entered into agreements with the owner of
WLAJ, 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 $19,400,000 in cash and the assumption
of certain liabilities. 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 WDWB for $175,000,000 and the assumption of certain liabilities. The Company
financed the acquisition through the sale of 150,000 shares of its 12-3/4%
Cumulative Exchangeable Preferred Stock (the "12-3/4% Cumulative Exchangeable
Preferred Stock") at $1,000 per share and borrowings of $27,500,000 under the
Company's bank credit agreement (the "Credit Agreement").
-21-
<PAGE>
In March 1997, the Company purchased $19,405,000 principal amount of its
9-3/8% Notes at a discount. In September 1997, the Company exercised its option
to redeem the entire outstanding $60,000,000 principal amount of its 12.75%
Debentures at a redemption price of 106.375% of the principal amount thereof
plus accrued interest, for an aggregate consideration of $67,650,000. The
Company used borrowings under the Credit Agreement to fund these redemptions,
thereby reducing its cost of borrowing. In connection with the repurchase of its
9-3/8% Notes and its 12.75% Debentures, the Company recognized an extraordinary
loss, after the write-off of a portion of related deferred financing fees, of
$5,569,000 for the year ended December 31, 1997.
On October 3, 1997, the Company entered into a definitive agreement to
acquire KOFY, the WB Network affiliated television station serving San
Francisco-Oakland-San Jose, California, the nation's fifth largest television
market, for $173,750,000. On February 19, 1998, the Company announced that it
had entered into a definitive agreement with Freedom Communications, Inc.,
whereby Freedom will acquire the assets of WWMT, the CBS affiliate serving Grand
Rapids-Kalamazoo-Battle Creek, Michigan and WLAJ, the ABC affiliate serving
Lansing, Michigan for $170,000,000, payable in cash at the closing of the
transaction. It is anticipated that proceeds from the sale will be used to fund
part of the purchase price of KOFY. The Company has sufficient net operating
loss carryforwards for federal tax purposes to offset the gain that will be
recognized on the sale of WWMT and WLAJ, however, the Company anticipates having
to pay federal alternative minimum taxes and certain other state taxes in
connection with the sale.
The Company's Credit Agreement allows for revolving credit borrowings of
$200,000,000 and permits 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. The Company was in technical
default of a financial covenant at September 30, 1997 and December 31, 1997,
which has been waived by the lenders. On February 17, 1998, the Company and its
lenders entered into an amendment to modify this covenant. As of February 28,
1998, subject to compliance with financial covenants, the Company had
$60,000,000 of the revolving credit facility borrowings available for
acquisitions and working capital purposes.
Cash flows provided by operating activities were $10,345,000 during the
year ended December 31, 1997, compared to $13,291,000 during the year ended
December 31, 1996, and $8,806,000 during the year ended December 31, 1995. The
decrease from 1996 to 1997 was primarily a result of an increase in net
operating assets and higher cash interest expense, offset in part by higher
operating cash flow. The increase from 1995 to 1996 resulted primarily from
higher broadcasting flow offset, in part, by higher cash interest expense.
Cash flows used in investing activities were $186,499,000 during the year
ended December 31, 1997, compared to $14,395,000 during the year ended December
31, 1996, and $236,343,000 during the year ended December 31, 1995. The increase
in cash flows used in investing activities from 1996 to 1997 related primarily
to the acquisition of WDWB. The decrease in cash flows used in investing
activities from 1995 to 1996 related primarily to the acquisition of KEYE, WWMT
and WKBW in 1995.
Cash flows provided by financing activities were $177,769,000 during the
year ended December 31, 1997, compared to $1,565,000 during the year ended
December 31, 1996, and $225,685,000 during the year ended December 31, 1995. The
increase from 1996 to 1997 resulted primarily from a net increase in bank
borrowings, proceeds from the 12-3/4% Cumulative Exchangeable Preferred Stock
offering and a decrease in payments for deferred financing fees offset, in part,
by a net increase in repurchase of subordinated debt. The decrease from 1995 to
1996 resulted primarily from a decrease in net bank borrowings offset, in part,
by a decrease in payments for deferred financing fees.
The computer applications which the Company utilizes in its operations are
not complex. Any modification of the Company's software that may be needed in
order to handle the upcoming change in the century is covered under the
software's licensing agreement. The Company has determined that there will be no
material costs incurred to modify its applications in order to handle the
upcoming change in the century.
-22-
<PAGE>
The Company believes that internally generated funds from operations, and
borrowings under its revolving working capital facility, if necessary, will be
sufficient to satisfy the Company's cash requirements for its existing
operations for the next twelve months and for the foreseeable future thereafter.
-23-
<PAGE>
Item 8. Financial Statements and Supplementary Data
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, 1997 and 1996, 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, 1997.
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, 1997. 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, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
New York, New York
February 6, 1998
-24-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Net revenue .......................................... $ 99,894,627 $ 129,164,353 $ 153,511,540
Station operating expenses ........................... 55,398,930 72,089,368 83,728,786
Time brokerage agreement fees ........................ -- 150,000 600,000
Depreciation ......................................... 4,513,919 6,144,193 5,717,989
Amortization ......................................... 7,590,885 9,737,136 13,824,248
Corporate expense .................................... 3,131,943 4,799,984 6,639,159
Non-cash compensation expense ........................ 363,384 495,819 985,634
------------- ------------- -------------
Operating income ................................... 28,895,566 35,747,853 42,015,724
Other (income) expenses:
Equity in net (income) loss of investee ............ (439,033) 995,019 1,531,542
Interest expense, net .............................. 27,026,680 36,765,306 38,985,979
Non-cash interest expense .......................... 1,738,559 2,086,639 2,181,686
Other .............................................. 797,576 1,034,351 1,167,144
------------- ------------- -------------
Loss before income taxes and extraordinary item .... (228,216) (5,133,462) (1,850,627)
Provision for income taxes ......................... 554,884 761,000 1,616,212
------------- ------------- -------------
Loss before extraordinary item ....................... (783,100) (5,894,462) (3,466,839)
Extraordinary loss ................................... -- (2,891,250) (5,569,119)
------------- ------------- -------------
Net loss ......................................... $ (783,100) $ (8,785,712) $ (9,035,958)
============= ============= =============
Net loss attributable to common shareholders ......... $ (4,368,497) $ (12,310,993) $ (31,207,468)
============= ============= =============
Per common share:
Basic and diluted loss before extraordinary item $ (0.74) $ (1.09) $ (2.93)
Basic and diluted extraordinary loss ........... -- (0.34) (0.64)
------------- ------------- -------------
Basic and diluted net loss ................... $ (0.74) $ (1.43) $ (3.57)
============= ============= =============
Weighted average common shares outstanding ........... 5,920,294 8,611,606 8,764,705
</TABLE>
See accompanying notes.
-25-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------------
ASSETS 1996 1997
------ ------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ................................ $ 555,753 $ 2,170,927
Accounts receivable, less allowance for doubtful accounts
($391,910 in 1996 and $408,290 in 1997) ................ 27,057,451 35,308,464
Film contract rights ..................................... 6,276,660 10,097,262
Other current assets ..................................... 9,784,966 10,958,742
------------- -------------
TOTAL CURRENT ASSETS ............................. 43,674,830 58,535,395
PROPERTY AND EQUIPMENT, NET ................................ 33,562,019 36,004,876
FILM CONTRACT RIGHTS AND OTHER NONCURRENT ASSETS ........... 4,284,578 7,041,000
DEFERRED FINANCING FEES, less accumulated amortization
($4,049,724 in 1996 and $4,747,664 in 1997) .............. 14,181,662 10,213,314
INTANGIBLE ASSETS, NET ..................................... 356,860,115 521,819,428
------------- -------------
$ 452,563,204 $ 633,614,013
============= =============
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------
CURRENT LIABILITIES:
Accounts payable ......................................... $ 4,016,964 $ 3,885,239
Accrued interest ......................................... 6,071,378 4,387,546
Other accrued liabilities ................................ 4,497,534 5,682,202
Film contract rights payable and other current liabilities 9,578,365 13,779,691
------------- -------------
TOTAL CURRENT LIABILITIES ......................... 24,164,241 27,734,678
LONG-TERM DEBT ............................................. 351,560,900 392,779,025
FILM CONTRACT RIGHTS PAYABLE ............................... 3,383,428 6,905,486
DEFERRED TAX LIABILITY AND OTHER
NONCURRENT LIABILITIES ................................... 31,102,272 31,751,733
COMMITMENTS
REDEEMABLE PREFERRED STOCK ................................. 45,487,500 207,699,808
STOCKHOLDERS' 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 Class A
Common Stock and 8,676,157 shares of Common Stock
(Nonvoting) (8,499,716 shares at December 31, 1996)
issued and outstanding ................................. 86,782 88,546
Additional paid-in capital ............................... 45,547,145 24,529,712
Accumulated deficit ...................................... (45,375,910) (54,411,868)
Less: Unearned compensation ............................. (2,506,279) (2,529,232)
Treasury stock .................................... -- (47,000)
Note receivable from officer ...................... (886,875) (886,875)
------------- -------------
TOTAL STOCKHOLDERS' DEFICIT ..................... (3,135,137) (33,256,717)
------------- -------------
$ 452,563,204 $ 633,614,013
============= =============
</TABLE>
See accompanying notes.
-26-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Class A Common Series B Series C
Common Stock Preferred Preferred
Stock (Nonvoting) Stock Stock
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ................... $ 1,785 $ 43,966 $ 4,633 $ 10,079
Accretion of and dividends on Series A
Redeemable Preferred Stock ...................
Conversion of Series A Redeemable Preferred
Stock and Series B and C Preferred
Stock into Common Stock (Nonvoting) .......... 36,069 (4,633) (10,079)
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock ..............
Exercise of stock options ...................... 1,574
Issuance of Common Stock (Nonvoting) ........... 573
Grant of stock award under Management Stock Plan
Stock expense related to Management Stock Plan .
Net loss .......................................
------------ ------------ ------------ ------------
Balance at December 31, 1995 ................... 1,785 82,182 -- --
Dividend on Cumulative Convertible
Exchangeable Preferred Stock .................
Exercise of stock options ...................... 2,008
Issuance of Common Stock (Nonvoting) ........... 807
Grant of stock award under Management Stock Plan
Stock expense related to Management Stock Plan .
Net loss .......................................
------------ ------------ ------------ ------------
Balance at December 31, 1996 ................... 1,785 84,997 -- --
Dividends on redeemable preferred stock ........
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock ......
Exercise of stock options ...................... 124
Conversion of redeemable preferred stock
into Common Stock (Nonvoting) ................ 650
Issuance of Common Stock (Nonvoting) ........... 990
Repurchase of redeemable preferred stock .......
Grant of stock award under Management Stock Plan
Stock expense related to Management Stock Plan .
Net loss .......................................
------------ ------------ ------------ ------------
Balance at December 31, 1997.................... $ 1,785 $ 86,761 $ -- $ --
============ ============ ============ ============
<CAPTION>
Additional Note
Paid-in (Accumulated Unearned Receivable
Capital Deficit) Compensation From Officer
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994 ................... $ 48,688,435 $(35,807,098) $ (1,213,104) $ --
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) .......... 1,200,518
Dividend on Cumulative Convertible
Exchangeable Preferred Stock and
Adjustable Rate Preferred Stock .............. (3,550,281)
Exercise of stock options ...................... 31,376
Issuance of Common Stock (Nonvoting) ........... (573)
Grant of stock award under Management Stock Plan 640,750 (640,750)
Stock expense related to Management Stock Plan . (110,907) 363,384
Net loss ....................................... (783,100)
------------ ------------ ------------ ------------
Balance at December 31, 1995 ................... 46,864,202 (36,590,198) (1,490,470) --
Dividend on Cumulative Convertible
Exchangeable Preferred Stock ................. (3,525,281)
Exercise of stock options ...................... 888,805 (886,875)
Issuance of Common Stock (Nonvoting) ........... (807)
Grant of stock award under Management Stock Plan 1,511,628 (1,511,628)
Stock expense related to Management Stock Plan . (191,402) 495,819
Net loss ....................................... (8,785,712)
------------ ------------ ------------ ------------
Balance at December 31, 1996 ................... 45,547,145 (45,375,910) (2,506,279) (886,875)
Dividends on redeemable preferred stock ........ (21,729,672)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock ...... (441,838)
Exercise of stock options ...................... 58,164
Conversion of redeemable preferred stock
into Common Stock (Nonvoting) ................ 324,350
Issuance of Common Stock (Nonvoting) ........... (990)
Repurchase of redeemable preferred stock .......
Grant of stock award under Management Stock Plan 1,008,587 (1,008,587)
Stock expense related to Management Stock Plan . (236,034) 985,634
Net loss ....................................... (9,035,958)
------------ ------------ ------------ ------------
Balance at December 31, 1997.................... $ 24,529,712 $(54,411,868) $ (2,529,232) $ (886,875)
============ ============ ============ ============
<CAPTION>
Total
Treasury Stockholders'
Stock Equity (Deficit)
------------ ----------------
<S> <C> <C>
Balance at December 31, 1994 ................... $ -- $ 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 --
Stock expense related to Management Stock Plan . 252,477
Net loss ....................................... (783,100)
------------ ------------
Balance at December 31, 1995 ................... -- 8,867,501
Dividend on Cumulative Convertible
Exchangeable Preferred Stock ................. (3,525,281)
Exercise of stock options ...................... 3,938
Issuance of Common Stock (Nonvoting) ........... --
Grant of stock award under Management Stock Plan --
Stock expense related to Management Stock Plan . 304,417
Net loss ....................................... (8,785,712)
------------ ------------
Balance at December 31, 1996 ................... -- (3,135,137)
Dividends on redeemable preferred stock ........ (21,729,672)
Accretion of offering costs related to
Cumulative Exchangeable Preferred Stock ...... (441,838)
Exercise of stock options ...................... 58,288
Conversion of redeemable preferred stock
into Common Stock (Nonvoting) ................ 325,000
Issuance of Common Stock (Nonvoting) ........... --
Repurchase of redeemable preferred stock ....... (47,000) (47,000)
Grant of stock award under Management Stock Plan --
Stock expense related to Management Stock Plan . 749,600
Net loss ....................................... (9,035,958)
------------ ------------
Balance at December 31, 1997.................... $ (47,000) $(33,256,717)
============ ============
</TABLE>
See accompanying notes.
-27-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ..................................................... $ (783,100) $ (8,785,712) (9,035,958)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Extraordinary loss ......................................... -- 2,891,250 5,569,119
Amortization of intangible assets .......................... 7,590,885 9,737,136 13,824,248
Depreciation ............................................... 4,513,919 6,144,193 5,717,989
Non-cash compensation expense .............................. 363,384 495,819 985,634
Non-cash deferred income taxes ............................. 1,115,000 975,000 1,730,561
Non-cash interest expense .................................. 1,738,559 2,086,639 2,181,686
Deferred income taxes ...................................... (824,116) (589,000) (536,349)
Equity in net loss (income) of investee .................... (439,033) 995,019 1,531,542
Change in assets and liabilities net of effects from
acquisitions of stations:
Increase in accounts receivable ............................ (7,528,139) (870,872) (8,251,013)
Increase (decrease) in accrued liabilities ................. 2,307,778 1,473,236 (629,972)
Increase (decrease) in accounts payable .................... 2,689,051 (1,268,655) (131,725)
Increase in film contract rights and other noncurrent assets (3,448,429) (517,279) (4,981,012)
Increase in film contract rights payable
and other liabilities ..................................... 3,222,796 1,193,223 4,086,757
Increase in other assets ................................... (1,712,859) (668,776) (1,716,398)
------------- ------------- -------------
Net cash provided by operating activities ..................... 8,805,696 13,291,221 10,345,109
------------- ------------- -------------
Cash flows from investing activities:
Deposit for station acquisition and other related costs ..... -- (5,957,000) (5,960,000)
Investment in Datacast, LLC ................................. -- (1,500,000) (1,500,000)
Payment for acquisitions of stations, net of cash acquired .. (228,660,507) -- (173,164,089)
Capital expenditures ........................................ (7,682,188) (6,938,477) (5,874,633)
------------- ------------- -------------
Net cash used in investing activities ..................... (236,342,695) (14,395,477) (186,498,722)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from bank loan ..................................... 174,250,000 34,000,000 138,500,000
Retirement of senior subordinated notes ..................... -- (15,500,000) (82,897,588)
Repayment of bank borrowings ................................ (107,500,000) (117,500,000) (18,000,000)
Redemption of Adjustable Rate Preferred Stock ............... (2,000,000) -- --
Payment of deferred financing fees .......................... (10,537,110) (5,363,771) (210,873)
Proceeds from senior subordinated notes ..................... 175,000,000 109,450,000 --
Proceeds from Preferred Stock Offering, net ................. -- -- 143,889,789
Dividends paid .............................................. (3,561,280) (3,525,281) (3,523,828)
Other financing activities, net ............................. 32,950 3,938 11,287
------------- ------------- -------------
Net cash provided by financing activities ................. 225,684,560 1,564,886 177,768,787
------------- ------------- -------------
Net (decrease) increase in cash and cash equivalents .......... (1,852,439) 460,630 1,615,174
Cash and cash equivalents, beginning of year .................. 1,947,562 95,123 555,753
------------- ------------- -------------
Cash and cash equivalents, end of year ........................ $ 95,123 $ 555,753 $ 2,170,927
============= ============= =============
Supplemental information:
Cash paid for interest ...................................... $ 24,699,248 $ 36,451,009 $ 40,711,506
Cash paid for income taxes .................................. 149,751 112,532 193,000
Non-cash investing and financing activities:
Non-cash capital expenditures ............................. 459,786 635,609 668,747
Stock dividend ............................................ -- -- 13,009,715
Other non-cash financing activity ......................... -- 886,875 --
</TABLE>
See accompanying notes.
-28-
<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. 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:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Goodwill ............... $ 76,202,853 $ 219,891,911
Network affiliations ... 247,941,641 256,691,641
Broadcast licenses ..... 67,896,861 94,219,861
------------- -------------
392,041,355 570,803,413
Accumulated amortization (35,181,240) (48,983,985)
------------- -------------
Net intangible assets .. $ 356,860,115 $ 521,819,428
============= =============
</TABLE>
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 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 and ten years for the 10-3/8% Notes and the 9-3/8%
Notes. The deferred financing fees relating to the 12.75% Debentures were
completely written-off during 1997 in conjunction with the repurchase of those
debentures. See Note 6 -- "Long-Term Debt." Amortization of deferred financing
fees is classified as non-cash interest expense on the consolidated statement of
operations.
-29-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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, 1997, the obligation for programming that had not
been recorded because the program rights were not available for broadcasting
aggregated $23,918,632.
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
In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share." Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to the Statement 128 requirements.
Net loss per common share for each of the three years in the period
ended December 31, 1997 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 in the diluted
earnings per share calculation would have been antidilutive in all three years.
-30-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 2 - Acquisitions and Dispositions
On January 31, 1997 the Company acquired substantially all the
assets used in the operation of WDWB-TV (formerly known as WXON-TV), the WB
affiliate serving Detroit, Michigan for $175,000,000 in cash and the assumption
of certain liabilities. The acquisition has been accounted for under the
purchase method of accounting and the results of operations are included in the
Company's consolidated statement of operations from the date of acquisition.
The following comprises the allocation of the purchase price:
<TABLE>
<S> <C>
Purchase price $ 175,000,000
Net tangible assets acquired, principally film
contract rights and property and equipment (1,080,000)
Broadcast license (26,250,000)
Network affiliation agreement (8,750,000)
-------------
Goodwill $ 138,920,000
=============
</TABLE>
On October 3, 1997, the Company entered into a definitive agreement
to acquire KOFY-TV, the WB affiliate serving San Francisco-Oakland-San Jose,
California, for $173,750,000 in cash and the assumption of certain liabilities.
On February 19, 1998, the Company announced that it had entered into
a definitive agreement with Freedom Communications, Inc. whereby Freedom will
acquire the assets of WWMT-TV, the CBS affiliate serving Grand
Rapids-Kalamazoo-Battle Creek, Michigan and WLAJ-TV, the ABC affiliate serving
Lansing, Michigan for $170,000,000, payable in cash at the closing of the
transaction. It is anticipated that proceeds from the sale will be used to fund
part of the purchase price of KOFY-TV.
The following table summarizes the unaudited consolidated pro forma
results of operations for the years ended December 31, 1996 and 1997 assuming
the acquisition of WDWB-TV had occurred as of January 1, 1996 and the
acquisition of KOFY-TV and the disposition of WWMT-TV and WLAJ-TV had occurred
as of January 1, 1997:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Net revenue $ 147,231,000 $ 148,711,000
Station operating expenses 78,577,000 84,925,000
Loss before extraordinary item (1,544,000) (18,237,000)
Loss before extraordinary item per
common share $ (2.81) $ (4.81)
</TABLE>
The Company currently operates WLAJ-TV pursuant to a time brokerage
agreement. The terms of the agreement require the Company to pay a monthly fee
and reimburse certain expenses in exchange for the right to provide station
programming and sell related advertising time. Nevertheless, as the holder of
the FCC license, the owner-operator retains full control and responsibility for
the operation of the station, including control over all programming broadcast
on the station. The time brokerage agreement terminates on the earlier of the
date the Company exercises its option to acquire WLAJ-TV or October 17, 2001.
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.
In connection with this agreement, the Company agreed to provide a loan
guarantee of up to
-31-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
$12,000,000 in favor of the owner of WLAJ-TV. The loan guarantee is
collateralized by all of the assets of WLAJ-TV.
Note 3-- Property and Equipment
The major classifications of property and equipment are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Land .......................... $ 2,527,708 $ 2,537,708
Buildings and improvements .... 16,607,496 17,563,498
Furniture and fixtures ........ 5,691,019 6,794,548
Technical equipment and other . 31,924,360 37,684,627
----------- -----------
56,750,583 64,580,381
Less: Accumulated depreciation 23,188,564 28,575,505
----------- -----------
Net property and equipment .... $33,562,019 $36,004,876
=========== ===========
</TABLE>
Note 4 -- Other Accrued Liabilities
Other accrued liabilities are summarized below:
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1997
---------- ----------
<S> <C> <C>
Compensation and benefits .... $2,367,808 $2,328,753
Other ........................ 2,129,726 3,353,449
---------- ----------
Total ........................ $4,497,534 $5,682,202
========== ==========
</TABLE>
Note 5 -- Other Current Assets
Other current assets are summarized below:
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Barter and other receivables ........ $ 2,400,386 $ 2,650,070
Escrow deposit related to station
acquisition and other related costs 5,957,000 6,470,000
Other ............................... 1,427,580 1,838,672
----------- -----------
Total ............................... $ 9,784,966 $10,958,742
=========== ===========
</TABLE>
-32-
<PAGE>
Note 6 -- Long-term Debt
The carrying amounts and fair values of the Company's long-term debt
are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1997
--------------------------- ---------------------------
Carrying Amount Fair Value Carrying Amount Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Senior Bank Debt ................ $ 22,500,000 $ 22,500,000 $143,000,000 $143,000,000
9-3/8% Senior Subordinated Notes,
net of unamortized discount ... 96,060,900 94,087,500 76,779,025 78,058,700
10-3/8% Senior Subordinated
Notes ......................... 173,000,000 178,622,500 173,000,000 181,217,500
12.75% Senior Subordinated
Notes ......................... 60,000,000 65,625,000 -- --
------------ ------------ ------------ ------------
Total ........................... $351,560,900 $360,835,000 $392,779,025 $402,276,200
============ ============ ============ ============
</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 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 5.1825% plus a
marginal rate of 2.375% at December 31, 1997. 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.
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. The Company was in technical
default of a financial covenant at September 30, 1997 and December 31, 1997
which has been waived by the lenders. On February 17, 1998, the Company and its
lenders entered into an amendment to modify this covenant. 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 had outstanding $60,000,000 aggregate principal amount
of its 12.75% Senior Subordinated Debentures (the "12.75% Debentures") due
September 1, 2002.
-33-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
On September 1, 1997, the Company exercised its option to redeem the
entire outstanding $60,000,000 principal amount of its 12.75% Debentures at a
redemption price of 106.375% of the principal amount thereof, plus accrued
interest. As a result, the Company recognized an extraordinary loss, including
the write-off of a portion of related deferred financing fees, of $5,248,315.
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 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. In June 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. In March 1997, the Company purchased
$19,405,000 face amount of its 9-3/8% Notes at a discount and recognized an
extraordinary loss, after the write-off of a portion of related deferred
financing fees, of $320,804.
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).
-34-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
There are no scheduled principal maturities on all long-term debt
for the five years subsequent to December 31, 1997.
Note 7 -- Commitments
Future minimum lease payments under long-term operating leases as of
December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998.............................................. $ 1,151,000
1999.............................................. 930,000
2000.............................................. 647,000
2001.............................................. 518,000
2002 ............................................. 403,000
2003 and thereafter............................... 2,530,000
------------
$ 6,179,000
============
</TABLE>
Rent expense, including escalation charges, was $559,000, $929,000
and $1,038,000 for the years ended December 31, 1995, 1996 and 1997,
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, 1996 and 1997.
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.
-35-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Dividends on the Cumulative Convertible Exchangeable Preferred Stock are
cumulative and accrue without interest, if unpaid.
Each share of Cumulative Convertible Exchangeable Preferred Stock is
convertible, at the option of the holder, into shares of Common Stock
(Nonvoting). The Cumulative Convertible Exchangeable Preferred Stock is
convertible into Common Stock (Nonvoting) on a 5 for 1 share basis. The current
conversion price of the Cumulative Convertible Exchangeable Preferred Stock is
$5.00 per share, subject to adjustment upon the occurrence of certain events.
The Cumulative Convertible Exchangeable Preferred Stock is entitled to a
preference of $25.00 per share plus accrued and unpaid dividends in the event of
liquidation, dissolution or winding up of the Company ($45,162,500 liquidation
value at December 31, 1997). 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.
12-3/4% Cumulative Exchangeable Preferred Stock
In January 1997, the Company authorized 400,000 shares of its
12-3/4% Cumulative Exchangeable Preferred Stock (the "12-3/4% Cumulative
Exchangeable Preferred Stock"), par value $.01 per share. In connection with the
Company's acquisition of WDWB-TV, 150,000 shares of the 12-3/4% Cumulative
Exchangeable Preferred Stock were issued in January 1997 at a price of $1,000
per share. Holders of the 12-3/4% Cumulative Exchangeable 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 Third Amended and
Restated Credit Agreement currently prohibits the payment of cash dividends on
the 12-3/4% Cumulative Exchangeable Preferred Stock. The Company may elect to
pay dividends prior to April 1, 2002 in additional shares of 12-3/4% Cumulative
Exchangeable Preferred Stock. Dividends on the 12-3/4% Cumulative Exchangeable
Preferred Stock are cumulative and accrue without interest, if unpaid.
The 12-3/4% Cumulative Exchangeable 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 ($163,009,715
liquidation value at December 31, 1997). The Company is required, subject to
certain conditions, to redeem all of the 12-3/4% Cumulative Exchangeable
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 12-3/4% Cumulative
Exchangeable 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 "12-3/4%
Exchange Debentures") on any scheduled dividend payment date at the rate of
$1,000 principal amount of 12-3/4% Exchange Debentures for each share of 12-3/4%
Cumulative Exchangeable Preferred Stock outstanding at the time of the exchange.
-36-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 9 -- Stockholders' Equity
Stock option plans
The Company has a stock option plan (the "Stock Option Plan") for
officers and certain key employees. On April 29, 1997, the Stock Option Plan was
amended to increase the shares of Common Stock (Nonvoting) subject to options
available for grant to 3,000,000 from 2,000,000. 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 nonqualified 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, 1995, 1996 and 1997, 467,850, 521,000 and 762,550, 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
nonqualified 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,
1996 and 1997, options granted under the Director Option Plan were outstanding
for the purchase of 97,200 and 265,100 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" ("SFAS 123"). Accordingly, no compensation expense has been
recognized for the stock option plans. For purposes of SFAS 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
1996 and 1997 may not be representative of the impact in future years. The
Company's pro forma information for years ended December 31, follows:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Pro forma net loss ...... $ (9,473,649) $ (10,301,413)
Pro forma loss per share:
Basic ................. $ (1.51) $ (3.70)
Diluted ............... $ (1.51) $ (3.70)
</TABLE>
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 1996 and 1997: risk-free interest
rate of 5.77% and 5.92% in 1996 and 5.67% in 1997; no dividend yield; expected
volatility of 25% in 1996 and 38% in 1997; and expected lives of two to three
years in 1996 and three years in 1997.
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
-37-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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.
<TABLE>
<CAPTION>
1996 1997
-------------------------- --------------------------
Weighted-Average Weighted-Average
Options Exercise Price Options Exercise Price
------- -------------- ------- --------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,048,950 $ 5.22 1,872,700 $10.22
Granted ......................... 1,029,000 14.19 481,000 8.89
Exercised ....................... (200,750) 4.44 (12,350) 4.72
Forfeited ....................... (4,500) 7.10 (4,500) 9.75
--------- ---------
Outstanding at end of year ...... 1,872,700 10.22 2,336,850 9.98
========= =========
Exercisable at end of year ...... 573,200 5.27 883,950 6.11
Weighted-average fair value of
options granted during the year $ 3.01 $ 2.84
</TABLE>
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------------- ----------------------------------
Number Weighted-Average Weighted-Average Number Weighted-Average
Range of Outstanding Remaining Exercise Outstanding Exercise
Exercise Prices @ 12/31/97 Contractual Life Price @ 12/31/97 Price
--------------- ---------- ---------------- ----- ---------- -----
<S> <C> <C> <C> <C> <C>
$3-$7 788,150 6.9 years $5.07 698,150 $4.82
$8.38-$16 1,548,700 5.6 years $12.48 185,800 $10.96
--------- -------
2,336,850 883,950
</TABLE>
Management Stock Plan
In April 1993, the Company adopted a Management Stock Plan providing
for the grant from time to time of awards denominated in shares of Common Stock
(Nonvoting) (the "Bonus Shares") to salaried executive employees of the Company.
The Company has set aside a reserve of 750,000 shares of Common Stock
(Nonvoting) for grant under the Management Stock Plan. Shares generally vest
over a five-year period. As of December 31, 1997, the Company has allocated a
total of 694,150 Bonus Shares pursuant to the Management Stock Plan, 437,600 of
which had vested through December 31, 1997. For the years ended December 31,
1995, 1996 and 1997, 124,500, 216,875 and 95,275 shares were granted pursuant to
the Management Stock Plan. The weighted-average grant-date fair value of those
shares is $7.38, $10.17 and $10.10, respectively.
Non-Employee Directors' Stock Plan
In April of 1997, the Company adopted a Non-Employee Directors'
Stock Plan (the "Director Stock Plan"), providing an annual grant of the
Company's Common Stock (Nonvoting) to each eligible non-employee director of a
number of shares equal to $20,000 divided by the fair market value of the Common
Stock (Nonvoting) on the date of grant. The Company has set aside a reserve of
100,000 shares of Common Stock (Nonvoting) for grant under the Director Stock
Plan. Shares granted vest immediately. For the year ended December 31, 1997,
16,716 shares were granted pursuant to the Director Stock Plan. The
weighted-average grant date fair value of those shares is $8.38.
-38-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
The total number of common shares outstanding at December 31, 1997
assuming conversion of all outstanding convertible preferred stock and exercise
of all outstanding stock options is as follows:
<TABLE>
<S> <C>
Class A Common Stock...................................... 178,500
Common Stock (Nonvoting).................................. 8,676,157
Conversion of Cumulative Convertible
Exchangeable Preferred Stock............................ 9,032,500
Stock option plans........................................ 2,336,850
-----------
20,224,007
===========
</TABLE>
Note 10 -- Income Taxes
The Company files a consolidated federal income tax return for its
entities with the exception of the subsidiary that holds the investment in
WKBW-TV. For all periods presented, the Company provides for income taxes as
required under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, the Company records
income taxes using a liability approach for financial accounting and reporting
which results in the recognition and measurement of deferred tax assets based on
the likelihood of realization of tax benefits in future years.
The provision for income taxes for the years ended December 31 consists of
the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ----------
<S> <C> <C> <C>
Current taxes:
Federal............................. $ -- $ -- $ --
State............................... 264,000 375,000 422,000
-------- -------- ----------
264,000 375,000 422,000
Deferred taxes:
Federal............................. 154,400 285,700 844,212
State............................... 136,484 100,300 350,000
-------- -------- ----------
290,884 386,000 1,194,212
-------- -------- ----------
Provision for income taxes............. $554,884 $761,000 $1,616,212
======== ======== ==========
</TABLE>
The provision for income taxes for the years ended December 31, 1996 and
1997 is comprised of a non-cash provision for income taxes, relating to WKBW-TV
of $975,000 and $1,730,561, 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 $19,900,000, 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.
-39-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (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,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax liability from excess carrying value
of non-goodwill intangible assets over tax basis......... $ 39,648,565 $ 46,918,623
Deferred tax assets:
Net operating loss carryforward ......................... 24,293,786 33,183,110
Other.................................................... 304,862 187,122
------------ ------------
Total deferred tax assets.................................. 24,598,648 33,370,232
Valuation allowance........................................ (7,554,878) (10,254,066)
------------ ------------
Net deferred tax assets.................................... 17,043,770 23,116,166
------------ ------------
Net deferred tax liability................................. $ 22,604,795 $ 23,802,457
============ ============
</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>
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
U.S. statutory rate.......................... (35.0%) (35.0%) (35.0%)
Nondeductible amortization................... 201.4 22.2 35.5
State and local taxes........................ 160.8 9.3 35.1
(Decrease) increase in valuation allowance... (84.1) 18.3 51.7
----- ----- -----
Effective tax rate........................... 243.1% 14.8% 87.3%
===== ===== =====
</TABLE>
At December 31, 1997, the Company had a net operating loss carryforward
for federal tax purposes of approximately $73,000,000 that 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 1995, 1996 and 1997, the change in valuation allowance relates
to the utilization of or increase in net operating loss carryforwards.
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 $499,000, $642,000 and
$718,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
-40-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Note 12 -- Related Party
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 annually in April 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 in April 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 and 1997 as a reduction to stockholders'
equity.
In 1997, the Company lent one of its officers $441,530 to pay certain
personal taxes. The loan is a term loan which provides for an annual interest
rate of 8%, payable annually on April 16 of each year with all principal and
remaining interest due April 16, 2001.
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 1996 and 1997, as reported by Nasdaq:
<TABLE>
<CAPTION>
1996 High Low
- ---- ---- ---
<S> <C> <C>
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
1997
- ----
First Quarter.................................... $11-1/4 $9-1/2
Second Quarter................................... 10-7/8 8-1/8
Third Quarter.................................... 12-7/8 9-7/8
Fourth Quarter................................... 11-1/2 8-7/8
</TABLE>
As of February 27, 1998, the closing price per share for the Company's
Common Stock (Nonvoting), as reported by Nasdaq was $11-13/16 per share.
-41-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
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 1996 and 1997, as
reported by Nasdaq:
<TABLE>
<CAPTION>
1996 High Low
- ---- ---- ---
<S> <C> <C>
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
<CAPTION>
1997
- ----
<S> <C> <C>
First Quarter............................................. $58 $49
Second Quarter............................................ 56-7/8 43-3/8
Third Quarter............................................. 64-3/4 50-1/8
Fourth Quarter............................................ 58-7/8 45
</TABLE>
As of February 27, 1998, the closing price for the Company's Cumulative
Convertible Exchangeable Preferred Stock, as reported by Nasdaq, was $59-1/2 per
share.
-42-
<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, 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
For the year ended December 31, 1997.... 391,910 134 396,829 380,583 408,290
</TABLE>
- ----------
(1) Net of recoveries.
-43-
<PAGE>
Item 9. Changes and Disagreements With Accountants on Accounting and Financial
Disclosure
None.
-44-
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth information concerning the executive
officers and directors of the Company as of February 1, 1998:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
W. Don Cornwell(1)............. 50 Chairman of the Board, Chief Executive
Officer and Director
Stuart J. Beck(1).............. 51 President, Treasurer, Secretary and
Director
Robert E. Selwyn, Jr........... 54 Chief Operating Officer
Lawrence I. Wills.............. 37 Vice President-Finance and Controller
Ellen McClain.................. 33 Vice President-Corporate Development and
Treasurer
James L. Greenwald(2).......... 70 Director
Vickee Jordan Adams............ 38 Director
Martin F. Beck(2).............. 80 Director
Edward Dugger, III(2).......... 48 Director
Thomas R. Settle(1)(3)......... 57 Director
Charles J. Hamilton, Jr.(3).... 50 Director
Mikael Salovaara(3)............ 44 Director
</TABLE>
- ----------
(1) Member of the Stock Option Committee.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee and Management Stock Plan Committee.
Mr. Cornwell is a founder of the Company and has been Chairman of the
Board of Directors and Chief Executive Officer of the Company since February
1988. Mr. Cornwell served as President of the Company, which office then
included the duties of chief executive officer, until September 1991 when he was
elected to the newly-created office of Chief Executive Officer. Prior to
founding the Company, Mr. Cornwell served as a Vice President in the Investment
Banking Division of Goldman, Sachs & Co. ("Goldman Sachs") from May 1976 to July
1988. In addition, Mr. Cornwell was the Chief Operating Officer of the Corporate
Finance Department of Goldman Sachs from January 1980 to August 1987. Mr.
Cornwell is a director of Hershey Trust Company, the Milton S. Hershey School,
Pfizer, Inc. and CVS Corporation. 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 The American Women in
Radio and Television Society and of the Board of The Advertising Council. 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
-45-
<PAGE>
received a bachelor of science degree from the University of Tennessee in 1968.
From 1990 until 1993, Mr. 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 as 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 is a director of Paxson Communications Corp. and Source Media
Inc. 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 Senior Vice President, Director of
Communications Training with Ketchum Public Relations, 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 a director
of WNYC Radio, a member of the Board of Advisers for the Wildlife
Conservation Society and an Advisory Council Member of the New York
Zoological Society. She also serves on the Board of Women Executives in
Public Relations. 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 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,
and its investment management company, UNC Partners, Inc., since June 1990. Mr.
Dugger is a director of the Federal Reserve Bank of Boston and Envirotest
Systems Corp. 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.
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 LLP 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.
-46-
<PAGE>
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 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 Triennial Option Period completed
in February 1997: James L. Greenwald, Vickee Jordan Adams, Martin F. Beck,
Thomas R. Settle, Charles J. Hamilton, Jr. and Mikael Salovaara. See "Executive
Compensation -- Director Stock Option Plan."
Under the Director Option Plan, directors receive Options ("Automatic
Committee Awards") to purchase shares of Common Stock (Nonvoting) for service on
certain of the committees of the Board of Directors (each a "Committee").
Automatic Committee Awards to purchase 1,500 shares of Common Stock (Nonvoting)
become exercisable one year (or immediately for Automatic Committee Awards
granted on or after February 25, 1997) from the date of attendance, in person,
at each regularly scheduled Committee meeting.
-47-
<PAGE>
In addition, under the Non-Employee Directors Stock Plan (as defined),
non-employee directors of the Company shall receive a number of shares of Common
Stock (Nonvoting) equal to $20,000 divided by the fair market value per share on
the date of grant. As of December 31, 1997, 16,716 shares had been granted under
the Non-Employee Directors Stock Plan.
Directors are separately reimbursed by the Company for their travel
expenses incurred in attending Board or committee meetings.
Section 16(a) Beneficial Ownership Reporting Compliance
Each director and officer of the Company who is subject to Section 16 of
the Securities Exchange Act of 1934, as amended, is required to report to the
Securities and Exchange Commission, by a specified date, his or her beneficial
ownership of, or certain transactions in, the Company's securities. Except as
noted below, based solely upon a review of such reports, the Company believes
that all filing requirements under Section 16 were complied with on a timely
basis.
For fiscal year 1997, Mr. Cornwell did not report, on a timely basis, four
transactions on two Form 4s. Mr. Selwyn did not report, on a timely basis, three
transactions on two Form 4s. Mr. Martin Beck did not report, on a timely basis,
two transactions on one Form 4. All of the reports referred to above have been
filed.
-48-
<PAGE>
Item 11. 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 $100,000 during the fiscal year
ended December 31, 1997, for each of the three years in the period ended
December 31, 1997:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term Compensation
Annual Compensation Awards
------------------------------- -----------------------
Securities
Restricted Underlying All Other
Name and Stock Options/ Compensation
Principal Position Year Salary ($) Bonus ($) Awards SARs (#) ($)(1)
- ------------------ ---- ------------ --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
W. Don Cornwell 1997 $500,000 $100,000 -- 166,000 $4,750
Chief Executive 1996 483,000 46,000 -- 484,000 4,750
Officer 1995 460,000 -- -- 165,000 4,620
Stuart J. Beck 1997 $500,000 $100,000 -- 135,000 $4,750
President 1996 483,000 46,000 -- 395,000 4,750
1995 460,000 -- -- 135,000 4,620
Robert E. Selwyn, Jr. 1997 $350,000 $ 70,000 -- -- $4,750
Chief Operating 1996 102,083(2) -- 373,140(3) 150,000 --
Officer 1995 -- -- -- -- --
Lawrence I. Wills 1997 $130,000 $ 26,000 -- -- $3,250
Vice President - 1996 125,000 25,000 150,438(4) -- 3,125
Finance and Controller 1995 115,000 28,000 -- -- 2,875
Ellen McClain 1997 $130,000 $ 26,000 -- -- $3,250
Vice President - Corporate 1996 125,000 25,000 155,625(5) -- 3,125
Development and Treasurer 1995 85,000 45,000 41,438(6) -- 2,125
</TABLE>
- ----------
(1) Represents matching Company contributions under the Company's Employees'
Profit Sharing and Savings (401(k)) Plan.
(2) 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.
(3) Represents the market value on the date of award of 30,000 Bonus Shares
awarded under the Company's Management Stock Plan on October 22, 1996. On
December 31, 1997, 10,000 shares vested. An additional 10,000 shares will
vest on December 31, 1998 and 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 the Bonus Shares vest.
(4) 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 and 1997, 1,500 Bonus Shares vested. An additional 1,500
Bonus Shares will vest on December 31, 1998, and 5,000 Bonus Shares will
vest on
-49-
<PAGE>
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.
(5) 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 and 1997, 2,500 Bonus Shares vested. An additional 2,500
Bonus Shares will vest on December 31, 1998 and 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.
(6) 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, 1996 and 1997, 1,000 Bonus Shares vested. An
additional 1,000 Bonus Shares will vest on 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.
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 1997, expires September 19, 1999). The base salary determined by the
Compensation Committee of the Board of Directors was $460,000 for 1995, $483,000
for 1996 and $500,000 for 1997. The agreements stipulate that Mr. Cornwell and
Mr. Beck will devote their full time and efforts to the Company and will not
engage in any business activities outside the scope of their employment with the
Company unless approved by a majority of the Company's independent directors.
Under the agreements, Mr. Cornwell and Mr. Beck are permitted to exchange any or
all of their shares of Voting Common Stock for shares of Common Stock
(Nonvoting), provided that such exchange does not jeopardize the Company's
status as a minority-controlled entity under FCC regulations and that, after
such exchange is effected, there will continue to be shares of voting stock of
the Company outstanding. In addition to the compensation set forth in the
employment agreements, Mr. Cornwell and Mr. Beck are eligible to receive
incentive bonus payments under the Company's incentive bonus plan and stock
options under certain of the Company's stock option plans. See "--Stock Option
Plan," "--Management Stock Plan" and "--Target Cash Flow Stock Option Plan."
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 was $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 1997 base salary was fixed at $130,000.
-50-
<PAGE>
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 1997 base salary was fixed at $130,000.
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 $718,000 was charged to expense for 1997.
Employee Stock Purchase Plan
On February 28, 1995, the Company adopted the Granite Broadcasting
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") for the
purpose of enabling its employees to acquire ownership of Common Stock
(Nonvoting) at a discount, thereby providing an additional incentive to promote
the growth and profitability of the Company. The Stock Purchase Plan enables
employees of the Company to purchase up to an aggregate of 1,000,000 shares of
Common Stock (Nonvoting) at 85% of the then current market price through
application of regularly made payroll deductions. The Stock Purchase Plan is
administered by a Committee consisting of not less than two directors who are
ineligible to participate in the Stock Purchase Plan. The members of the
Committee are currently Mr. Cornwell and Mr. Stuart J. Beck. At the discretion
of the Committee, purchases under the Stock Purchase Plan may be effected
through issuance of authorized but previously unissued shares, treasury shares
or through open market purchases. The Committee has engaged a brokerage company
to administer the day-to-day functions of the Stock Purchase Plan. Purchases
under the Stock Purchase Plan commenced on June 1, 1995.
Stock Option Plan
In April 1990, the Company adopted a Stock Option Plan (the "Stock Option
Plan") providing for the grant, from time to time, of Options to key employees,
officers and directors of the Company or its affiliates (collectively, the
"Participating Persons") to purchase shares of Common Stock (Nonvoting). On
April 25, 1995, 165,000 Options were granted to Mr. Cornwell and 135,000 Options
were granted to Mr. Stuart Beck. 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. On April 29, 1997, the Stock Option Plan was amended to increase
the shares of Common Stock (Nonvoting) subject to Options available for grant
under the Plan to 3,000,000 from 2,000,000. On April 29, 1997, 166,000 Options
were granted to Mr. Cornwell and 135,000 Options were granted to Mr. Stuart
Beck. As of December 31, 1997, Options granted under the Plan were outstanding
for the purchase of 2,071,750 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.
-51-
<PAGE>
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 April 1997
will vest as follows: (i) 40% of the Options granted will become exercisable on
April 29, 1998; (ii) 30% will become exercisable on April 29, 1999; and (iii)
10% will become exercisable on each of April 29, 2000, 2001 and 2002. Options
granted to each of Mr. Cornwell and Mr. Stuart Beck in 1996 vest as follows: (i)
of the Options granted on April 23, 1996, approximately 6% became exercisable on
December 1, 1996, approximately 27% became exercisable on April 23, 1997,
approximately 6% became exercisable on December 1, 1997 and the remainder become
exercisable in varying percentages on various dates from April 23, 1998 through
April 23, 2001; (ii) of the Options granted on April 25, 1996, 50% became
exercisable on October 23, 1997 and the remaining 50% of such Options become
exercisable on April 23, 1998. Of the Options granted to Mr. Selwyn in 1996,
approximately 5% became exercisable on December 30, 1996, approximately 47%
became exercisable on December 30, 1997 and the remaining options become
exercisable in varying percentages from December 31, 1998 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
-52-
<PAGE>
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, 1997, the Company has allocated a total of 694,150
Bonus Shares pursuant to the Management Stock Plan, 437,600 of which had vested
through December 31, 1997. Each allocation provides for the vesting of a
percentage of the award on each December 31 after the date of the allocation.
Target Cash Flow Option Plan
On October 31, 1988, the Company entered into a Target Cash Flow Option
Plan and Agreement (the "Target Cash Flow Option Plan") with W. Don Cornwell and
Stuart J. Beck (collectively, the "Recipients"). The Target Cash Flow Option
Plan granted to the Recipients non-qualified options ("Options") to purchase an
aggregate of not more than 150,000 shares of Common Stock (Nonvoting) at an
exercise price of $.01 per share. The Options vested and became exercisable upon
certain cash flow targets being met by the Company during each fiscal year
through 1992. Options have vested for the purchase of 150,000 shares of Common
Stock (Nonvoting), and on April 19, 1995, were exercised as follows: Mr.
Cornwell: 82,500; Mr. Beck: 67,500.
Director Stock Option Plan
On March 1, 1994, the Company adopted a Director Stock Option Plan (the
"Director Option Plan") providing for the grant, from time to time, of Options
to non-employee directors of the Company ("Director Participants") to purchase
Common Stock (Nonvoting). The number of shares of Common Stock (Nonvoting)
allocated for grant under the Director Option Plan is 300,000. As of December
31, 1997, Options granted under the Director Option Plan were outstanding for
the purchase of 265,100 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
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<PAGE>
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.
Non-Employee Directors Stock Plan
On April 29, 1997, the Company adopted a Non-Employee Directors Stock Plan
(the "Non-Employee Directors Stock Plan") for the purpose of providing a means
to attract and retain highly qualified persons to serve as non-employee
directors of the Company and to enable such persons to acquire or increase a
proprietary interest in the Company. The Non-Employee Directors Stock Plan
provides that on April 29, 1997, and on the date of the second quarterly meeting
of the Board of Directors of each subsequent calendar year during the term of
the Non-Employee Directors Stock Plan, non-employee directors of the Company
("Directors Stock Plan Participants") shall receive a number of shares of Common
Stock (Nonvoting) equal to $20,000 divided by the fair market value per share on
the date of grant. The number of shares of Common Stock (Nonvoting) available
for issuance under the Non-Employee Directors Stock Plan is 100,000. Each
Directors Stock Plan Participant may elect to defer the payment of shares of
Common Stock (Nonvoting) by filing an irrevocable written election with the
Secretary of the Company.
The Non-Employee Directors Stock Plan, unless earlier terminated by action
of the Board of Directors, will terminate at such time as no shares remain
available for issuance under the Non-Employee Directors Stock Plan and the
Company and the Directors Stock Plan Participants have no further rights or
obligations under the Non-Employee Directors Stock Plan.
As of February 1, 1998, 16,716 shares had been granted under the
Non-Employee Directors Stock Plan.
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<PAGE>
The following table sets forth information with respect to Options granted
to the executive officers of the Company during 1997.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Potential Realizable Value
at assumed Annual Rates of
Stock Price Appreciation
Individual Grants for Option Term
----------------------------------------------------- --------------------------
Number of % of Total
Securities Options/SARs
Underlying Granted to
Options/SARs Employees in Exercise or
Granted Fiscal Base Price Expiration
Name (#) Year ($ Per Share) Date 5%($) 10%($)
- --------------- ------------ ------------ ------------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
W. Don Cornwell 166,000 55.1% $8.375 4/29/2007 $874,321 $2,215,700
Stuart J. Beck 135,000 44.9% 8.375 4/29/2007 711,044 1,801,925
</TABLE>
The following table sets forth, as of December 31, 1997, the number of
options and the value of unexercised options held by the Company's executive
officers who held options as of that date, and the options exercised and the
consideration received therefor by such persons during fiscal 1997.
Aggregated Option/SAR Exercises
In Last Fiscal Year And
FY-End Option/SAR Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised
Unexercised Options in-the-Money Options
at December 31, 1997 at December 31, 1997($)
------------------------- -------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ --------------- ------------ ------------------------- -------------------------
<S> <C> <C> <C> <C>
W. Don Cornwell -- -- 460,900/474,100 $965,130/$215,680
Stuart J. Beck -- -- 541,000/386,500 1,549,170/83,430
Robert E. Selwyn, Jr. -- -- 79,000/71,000 --/--
Lawrence I. Wills -- -- 3,750/-- 14,288/--
Ellen McClain -- -- --/-- --/--
</TABLE>
Compensation Committee Interlocks and Insider Participation
During 1997, Thomas R. Settle, Charles J. Hamilton, Jr. and Mikael
Salovaara served as members of the Compensation Committee of the Board of
Directors of the Company.
-55-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information, as of February 1,
1998, 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 its 12 3/4% Cumulative Exchangeable
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 Number of Shares Beneficially Owned Beneficially Owned
Number Percent Beneficially Owned Actual(1) Fully Diluted(2) Number Percent
------ ------- ------------------ --------- ---------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
W. Don Cornwell....... 98,250 55.0% 821,500 (3) 8.3% 4.3% 3,500 *
Stuart J. Beck........ 80,250 45.0% 758,462 (4) 7.6% 4.0% 10,000 *
Robert E. Selwyn,
Jr. .................. 118,578 (5) 1.3% * -- *
Lawrence I. Wills..... 14,086 (6) * * -- *
Ellen McClain......... 8,951 * * -- *
Martin F. Beck........ 106,202 (7) 1.1% * 3,950 *
James J. Greenwald.... 111,815 (8) 1.2% * 1,000 *
Vickee Jordan Adams... 16,425 (9) * * -- *
Edward Dugger III..... 8,388 (10) * * -- *
Thomas R. Settle...... 84,700 (11) * * 3,000 *
Charles J. Hamilton,
Jr. .................. 30,338 (12) * * -- *
Mikael Salovaara...... 123,038 (13) 1.3% * 14,950 *
All directors and
officers as a
group(12) .......... 178,500 100.0% 2,202,483 20.4% 11.5% 36,400 2.2%
</TABLE>
- ----------
* Less than 1%.
(1) Actual percentage figures assume the conversion of such shareholder's
preferred stock into Common Stock (Nonvoting) and the exercise of options
for the purchase of Common Stock (Nonvoting) held by such shareholder,
which conversion or exercise is at the option of the holder within sixty
(60) days.
-56-
<PAGE>
(2) Fully diluted percentage figures assume conversion of all outstanding
shares of preferred stock into Common Stock (Nonvoting), and exercise of
all options for the purchase of Common Stock (Nonvoting), which are
convertible or exercisable at the option of the holder within sixty (60)
days.
(3) Includes 460,900 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, 17,500 shares issuable upon the
conversion of 3,500 shares of Cumulative Convertible Exchangeable
Preferred Stock which are convertible at the option of the holder within
sixty (60) days, and a total of 3,900 shares held by Mr. Cornwell's
immediate family. Mr. Cornwell disclaims beneficial ownership with respect
to such 3,900 shares. The business address of Mr. Cornwell is Granite
Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York, New
York, 10017.
(4) Includes 541,000 shares issuable upon exercise of options granted to
Stuart J. Beck under the Stock Option Plan which are exercisable at the
option of the holder within sixty (60) days, and 50,000 shares issuable
upon the conversion of 10,000 shares of Cumulative Convertible
Exchangeable Preferred Stock which are convertible at the option of the
holder within sixty (60) days. The business address of Mr. Stuart Beck is
Granite Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York,
New York, 10017.
(5) Includes 79,000 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.
(6) 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.
(7) 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 18,600 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.
(8) 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 28,900 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.
(9) Includes 11,700 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.
(10) Includes 6,000 shares issuable upon exercise of Options granted under the
Directors' Stock Option Plan which are exercisable at the option of the
holder within sixty (60) days.
(11) 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 28,800 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.
(12) Includes 27,700 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.
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<PAGE>
(13) Includes: (i) 3,500 shares, and 5,000 shares issuable upon the conversion
of 1,000 shares of Cumulative Convertible Exchangeable Preferred Stock,
which are convertible at the option of the holder within sixty (60) days,
held in Trust for the benefit of one of Mr. Salovaara's children for which
Mr. Salovaara is the Trustee; (ii) 3,500 shares, and 5,000 shares issuable
upon the conversion of 1,000 shares of Cumulative Convertible Exchangeable
Preferred Stock, which are convertible at the option of the holder within
sixty (60) days, held in Trust for the benefit of one of Mr. Salovaara's
children for which Mr. Salovaara's wife is the Trustee; (iii) 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) 23,400 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;
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.
Item 13. Certain Relationships and Related Transactions
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 annually on April 1 of each
year, with all principal and remaining interest due on December 29, 2004. As of
March 10, 1998, the amount outstanding on such loans, including accrued
interest, to Messrs. Cornwell and Beck was $386,139 and $244,980, respectively.
Up to that date, the largest amount outstanding on such loans, including accrued
interest, to Messrs. Cornwell and Beck was $387,882 and $246,086, respectively,
as of March 31, 1997.
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 on
April 23 and December 31, 2001, respectively. In April 1997, the Company made a
loan to Mr. Cornwell in the amount of $441,530 to pay certain personal taxes.
The loan is a term loan which provides for an annual interest rate of 8%,
payable annually, with all principal and remaining interest due on April 16,
2001. As of March 10, 1998 (i) the amount outstanding under the April 1996 loan,
including accrued interest, was $971,621, which amount represented the largest
amount outstanding thereunder up to that date, (ii) the amount outstanding under
the December 1996 loan, including accrued interest, was $448,174, which amount
represented the largest amount outstanding thereunder up to that date and (iii)
the amount outstanding under the April 1997 loan, including accrued interest,
was $470,475, which amount represented the largest amount outstanding thereunder
up to that date.
Mr. Hamilton, a director of the Company since July 1992, is a partner in
the New York law firm of Battle Fowler LLP, which provided legal services to
the Company during 1997.
-58-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K
(a)1 Financial Statements
GRANITE BROADCASTING CORPORATION
Report of Independent Auditors
Consolidated Statements of Operations for the Years
Ended December 31, 1995, 1996 and 1997
Consolidated Balance Sheets as of December 31, 1996 and 1997
Consolidated Statements of Stockholders' Equity (Deficit)
for the Years Ended December 31, 1995, 1996 and 1997
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1996 and 1997
Notes to Consolidated Financial Statements
(a)2 Financial Statement Schedule
Schedule II -- Granite Broadcasting Corporation:
Valuation and Qualifying Accounts
(a)3 Exhibits
2.1(m) Stock Purchase Agreement, dated as of October 3, 1997, by and among
Granite Broadcasting Corporation, Pacific FM Incorporated, James J.
Gabbert and Michael P. Lincoln.
2.2(n) Purchase and Sale Agreement, dated as of February 18, 1998, among
Granite Broadcasting Corporation, Freedom Communications, Inc., WWMT-TV,
Inc., WLAJ, Inc. and WWMT License, Inc.
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.
-59-
<PAGE>
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.
4.38(5) Form of 10-3/8% Senior Subordinated Note due May 15, 2005.
4.39(g) Exchange and Registration Rights Agreement, dated as of February 22,
1996, by and between Granite Broadcasting Corporation and Goldman Sachs
& Co., BT Securities Corporation and Lazard Freres & Co. LLC.
4.41(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% Series A 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 (included in the
Exhibit 4.4 Indenture filed herewith).
4.46(l) First Amendment, dated June 6, 1997, to the Third Amended and Restated
Credit Agreement, dated as of September 4, 1996, and amended on June 6,
1997, 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.
4.47 Second Amendment, dated February 17, 1998, to the 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.
10.1 Granite Broadcasting Corporation Stock Option Plan, as amended on April
29, 1997.
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).
-60-
<PAGE>
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 Directors' 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.
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 WBWB-TV, Inc.
10.30(k) Employment Agreement dated as of September 19, 1996 between Granite
Broadcasting Corporation and Robert E. Selwyn, Jr.
-61-
<PAGE>
10.31(6) Non-Employee Directors Stock Plan of Granite Broadcasting Corporation
dated April 29, 1997.
11. Statement of Computation of Per Share Earnings.
21.(k) Subsidiaries of the Company.
23. Consent of Independent Auditors (Ernst & Young LLP).
27.1 Financial Data Schedule.
27.2 Restated Financial Data Schedule.
- ----------
(1) Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-43770 filed on November 5,
1991.
(2) Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-52988 filed on October 6, 1992.
(3) Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-71172 filed December
16, 1993.
(4) Incorporated by reference to the similarly numbered exhibits to the
Company's Registration Statement No. 33-94862 filed on July 21, 1995.
(5) Incorporated by reference to the similarly numbered exhibits to
Amendment No. 2 to Registration Statement No. 33-94862 filed on October
6, 1995.
(6) Incorporated by reference to the similarly numbered exhibit to the
Company's Amendment No. 1 to the Registration Statement on Form S-4
(Registration No. 333-24907) filed on June 10, 1997.
(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 Current
Report on Form 8-K, filed on May 19, 1995.
(f) Incorporated by reference to the similarly numbered exhibit to the
Company's Current Report on Form 8-K filed on July 14, 1995.
-62-
<PAGE>
(g) 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, 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 exhibit to the
Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, filed on March 21, 1997.
(l) Incorporated by reference to Exhibit 3.4 to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, filed on
August 8, 1997.
(m) Incorporated by reference to Exhibit Number 1 to the Company's Current
Report on Form 8-K, filed on October 17, 1997.
(n) Incorporated by reference to Exhibit Number 1 to the Company's Current
Report on Form 8-K, filed on March 2, 1998.
-63-
<PAGE>
(b) Reports on Form 8-K.
1. Current Report on Form 8-K filed October 17, 1997,
reporting a definitive agreement entered into by and
between the Company and Pacific FM Incorporated, a
California corporation ("Pacific"), James J. Gabbert and
Michael P. Lincoln, whereby the Company would acquire
51% of the outstanding stock of Pacific, the owner of
KOFY-TV, the WB Network affiliated station serving the
San Francisco-Oakland-San Jose, California television
market. At the closing of this purchase, it is
contemplated that the company will acquire the remaining
49% of the stock of Pacific. The total purchase price
for all the stock of Pacific will be $143.75 million in
cash, subject to certain adjustments. In addition,
Granite will pay $30 million to the principal
shareholders of Pacific for a covenant not to compete in
the San Francisco-San Jose television market for a
period of five years from the closing of Granite's
acquisition. No financial statements were filed at such
time.
2. Current Report on Form 8-K filed January 26, 1998,
reporting an agreement in principle entered into by and
between the Company and Freedom Communications, Inc., a
California corporation ("Freedom"), whereby Freedom
would acquire the assets of WWMT-TV ("WWMT"), the CBS
affiliate serving the Grand Rapids-Kalamazoo-Battle
Creek, Michigan television market and WLAJ-TV ("WLAJ"),
the ABC affiliate serving the Lansing, Michigan
television market, for a total purchase price of $170
million in cash. No financial statements were filed at
such time.
3. Current Report on Form 8-K filed March 2, 1998,
reporting a definitive agreement entered into by and
between the Company and Freedom, whereby Freedom would
acquire the assets of WWMT and WLAJ, for a total
purchase price of $170 million in cash. No financial
statements were filed at such time.
-64-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 26th day of March, 1998.
GRANITE BROADCASTING CORPORATION
By: /s/ W. DON CORNWELL
-------------------------------------
W. Don Cornwell
Chief Executive Officer and Chairman
of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ W. DON CORNWELL Chief Executive Officer March 26, 1998
- ------------------------------ (Principal Executive Officer)
(W. Don Cornwell) and Chairman of the Board of
Directors
/s/ STUART J. BECK President and Secretary March 26, 1998
- ------------------------------ (Principal Financial Officer)
(Stuart J. Beck) and Director
/s/ LAWRENCE I. WILLS Vice President - Finance and March 26, 1998
- ------------------------------ Controller (Principal Accounting
(Lawrence I. Wills) Officer)
/s/ MARTIN F. BECK Director March 26, 1998
- ------------------------------
(Martin F. Beck)
/s/ JAMES L. GREENWALD Director March 26, 1998
- ------------------------------
(James L. Greenwald)
/s/ VICKEE JORDAN ADAMS Director March 26, 1998
- ------------------------------
(Vickee Jordan Adams)
/s/ EDWARD DUGGER III Director March 26, 1998
- ------------------------------
(Edward Dugger III)
/s/ THOMAS R. SETTLE Director March 26, 1998
- ------------------------------
(Thomas R. Settle)
/s/ CHARLES J. HAMILTON, JR. Director March 26, 1998
- ------------------------------
(Charles J. Hamilton, Jr.)
/s/ MIKAEL SALOVAARA Director March 26, 1998
- ------------------------------
(Mikael Salovaara)
<PAGE>
GRANITE BROADCASTING CORPORATION
SECOND AMENDMENT AND LIMITED WAIVER
TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
This SECOND AMENDMENT AND LIMITED WAIVER TO THIRD AMENDED AND RESTATED
CREDIT AGREEMENT (this "Amendment") is dated as of February 17, 1998 and
entered into by and among Granite Broadcasting Corporation, a Delaware
corporation ("Company"), the Guarantors listed on the signature pages hereof
(the "Guarantors"), the financial institutions listed on the signature pages
hereof ("Lenders"), Bankers Trust Company, as agent for Lenders (in such
capacity, "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,
N.A., as co-agents (in such capacity, "Co-Agents"), and is made with reference
to that certain Third Amended and Restated Credit Agreement dated as of
September 4, 1996, as amended by that certain First Amendment to Third Amended
and Restated Credit Agreement dated as of June 6, 1997 (as so amended, the
"Credit Agreement"), by and among Company, Lenders, Agent and Co-Agents.
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
RECITALS
WHEREAS, Company and Lenders desire to amend the Credit Agreement to
make certain amendments as set forth below.
WHEREAS, Company and Lenders desire to waive compliance with the
provisions of subsection 7.6A in the manner and to the limited extent described
below.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, and pursuant to subsection 10.6 of
the Credit Agreement, the parties hereto agree as follows:
<PAGE>
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
Amendments to Section 1: Definitions
Subsection 1.1 of the Credit Agreement is hereby amended by deleting
the definition of "Consolidated Adjusted EBITDA" therefrom in its entirety
and substituting the following therefor:
" "Consolidated Adjusted EBITDA" means, for any period, the sum of the
amounts for such period of (i) Consolidated Net Income, (ii) Consolidated
Interest Expense, (iii) provisions for taxes based on income and provisions
for franchise taxes (but, with respect to franchise taxes an amount not to
exceed $150,000 for such period), (iv) total depreciation expense,
(v) total amortization expense (including, without duplication, Programming
Amortization Expense), (vi) to the extent it was included in the
determination of Consolidated Net Income, any cash premium paid in
redeeming the remaining outstanding principal amount of the Subordinated
Notes on September 1, 1997 at a redemption price of 106.38% of their
principal amount and (vii) other non-cash items reducing Consolidated Net
Income less other non-cash items increasing Consolidated Net Income, all of
the foregoing as determined on a consolidated basis for Company and its
Subsidiaries in conformity with GAAP; provided that the income of Company
and its Subsidiaries from any LMA shall only be included in Consolidated
Adjusted EBITDA to the extent that it does not exceed 10% thereof."
SECTION 2. LIMITED WAIVER
Subject to the terms and conditions set forth herein and in reliance
on the representations and warranties of Company herein contained, Lenders
hereby waive compliance with the provisions of subsection 7.6A for the fiscal
quarters ending September 30, 1997 and December 31, 1997.
SECTION 3. LIMITATION OF WAIVER
Without limiting the generality of the provisions of subsection 10.6
of the Credit Agreement, the waiver set forth above shall be limited precisely
as written and relates solely to the noncompliance by Company with the
provisions of subsection 7.6A of the Credit Agreement in the manner and to the
extent described above, and nothing in this Waiver shall be deemed to:
(a) constitute a waiver of compliance by Company with respect to
(i) subsection 7.6A of the Credit Agreement in any other instance or
(ii) any other term, provision or condition of the Credit Agreement or any
other instrument or agreement referred to therein; or
<PAGE>
(b) prejudice any right or remedy that Agent or any Lender may now
have (except to the extent such right or remedy was based upon existing
defaults that will not exist after giving effect to this Waiver) or may
have in the future under or in connection with the Credit Agreement or any
other instrument or agreement referred to therein.
Except as expressly set forth herein, the terms, provisions and
conditions of the Credit Agreement and the other Loan Documents shall remain in
full force and effect and in all other respects are hereby ratified and
confirmed.
SECTION 4. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective (the "Second Amendment
Effective Date") only upon receipt by Agent of counterparts hereof duly
executed by Company, Guarantors and Requisite Lenders or, in the case of any
Lender, telecopy or telephone confirmation from such Lender of its execution
hereof.
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Requisite Lenders to enter into this Amendment and
to amend the Credit Agreement in the manner provided herein, Company represents
and warrants to each Lender that the following statements are true, correct and
complete:
A. Authorization; Binding Obligations. Company has all requisite
corporate power and authority to enter into this Amendment. The execution,
delivery and performance of this Amendment have been duly authorized by all
necessary corporate action by Company. This Amendment has been duly
executed and delivered by Company and is the legally valid and binding
obligation of Company, enforceable against Company in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or limiting
creditors' rights generally and by equitable principles relating to
enforceability.
B. No Conflict. The execution and delivery by Company of this
Amendment do not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Company or any of its
Subsidiaries, the Certificate or Articles of Incorporation or Bylaws of
Company or any of its Subsidiaries or any order, judgment or decree of any
court or other agency of government binding on Company or any of its
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any Contractual
Obligation of Company or any of its Subsidiaries, (iii) result in or
require the creation or imposition of any Lien upon any of the properties
or assets of Company or any of its Subsidiaries
<PAGE>
(other than any Liens created under any of the Loan Documents in favor of
Agent on behalf of Lenders), or (iv) require any approval of stockholders
or any approval or consent of any Person under any Contractual Obligation
of Company or any of its Subsidiaries.
C. Governmental Consents. The execution and delivery by Company of
this Amendment do not and will not require any registration with, consent
or approval of, or notice to, or other action to, with or by, any federal,
state or other governmental authority or regulatory body, except to the
extent that Company is required to file this Amendment with the FCC.
D. Incorporation of Representations. Each representation and
warranty of Company contained in each of the Loan Documents is true,
correct and complete in all material respects on and as of the Second
Amendment Effective Date to the same extent as though made on and as of the
Second Amendment Effective Date except to the extent such representations
and warranties relate to an earlier date, in which case they were true,
correct and complete in all material respects as of such earlier date.
E. Absence of Default. No event has occurred and is continuing or
would result from the execution, delivery or performance of this Amendment
that constitutes or would constitute an Event of Default or a Potential
Event of Default after giving effect to this Amendment.
SECTION 6. ACKNOWLEDGEMENT AND CONSENT
Each Guarantor hereby acknowledges that it has read this Amendment and
consents to the terms thereof and further hereby confirms and agrees that,
notwithstanding the effectiveness of this Amendment, the obligations of such
Guarantor under the Subsidiary Guaranty shall not be impaired or affected and
the Subsidiary Guaranty is, and shall continue to be, in full force and effect
and is hereby confirmed and ratified in all respects.
SECTION 7. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the Other
Loan Documents.
(i) On and after the Second Amendment Effective Date, each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof",
"herein" or words of like import referring to the Credit Agreement, and
each reference in the other Loan Documents to the "Credit Agreement",
"thereunder", "thereof" or words of like import referring to the Credit
<PAGE>
Agreement shall mean and be a reference to the Credit Agreement, as amended
by this Amendment.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of Agent
or any Lender under, the Credit Agreement or any of the other Loan
Documents.
B. Fees and Expenses. Company acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Agent and its counsel with respect to this Amendment and the documents and
transactions contemplated hereby shall be for the account of Company.
C. Headings. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. Applicable Law. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED
IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING
WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF
NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E. Counterparts. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[Remainder of page intentionally left blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY: GRANITE BROADCASTING CORPORATION
By: /s/ Ellen McClain
-------------------------
Ellen McClain
Vice President
S-1
<PAGE>
SUBSIDIARIES: GRANITE RESPONSE TELEVISION, INC.
KBVO, INC.
KBVO LICENSE, INC.
KNTV, INC.
KNTV LICENSE, INC.
RJR COMMUNICATIONS, INC.
KBJR LICENSE, INC.
SAN JOAQUIN COMMUNICATIONS
CORPORATION
KSEE LICENSE, INC.
WPTA-TV, INC.
WPTA-TV LICENSE, INC.
WTVH, INC.
WTVH LICENSE, INC.
WWMT-TV, INC.
WWMT-TV LICENSE, INC.
WKBW-TV, INC.
WKBW-TV LICENSE, INC.
QUEEN CITY BROADCASTING, INC.
QUEEN CITY BROADCASTING
OF NEW YORK, INC.
WXON, INC.
WXON LICENSE, INC.
By: /s/ Ellen McClain
------------------------
Ellen McClain
QUEEN CITY III LIMITED PARTNERSHIP
By: WKBW-TV, INC.,
its General Partner
By: /s/ Ellen McClain
------------------------
Ellen McClain
S-2
<PAGE>
LENDERS: BANKERS TRUST COMPANY,
individually and as Agent
By: /s/ Patricia Hogan
------------------------
Name: Patricia Hogan
Title: Principal
S-3
<PAGE>
GOLDMAN SACHS CREDIT PARTNERS L.P.,
as a Co-Agent and a Lender
By: /s/ Stephen B. King
------------------------
Name: Stephen B. King
Title: Authorized Signatory
S-4
<PAGE>
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA,
as a Co-Agent and a Lender
By: /s/ Jim F. Redman
----------------------------
Name: Jim F. Redman
Title: Senior Vice President
S-5
<PAGE>
THE BANK OF NEW YORK,
as a Co-Agent and a Lender
By: /s/ Brian C. Weddington
------------------------
Name: Brian C. Weddington
Title: AVP
S-6
<PAGE>
UNION BANK OF CALIFORNIA, N.A.,
as a Co-Agent and a Lender
By: /s/ Kristina M. Mouzakis
-------------------------------
Name: Kristina M. Mouzakis
Title: Assistant Vice President
S-7
<PAGE>
THE BANK OF TOKYO-MITSUBISHI TRUST COMPANY,
as a Lender
By: /s/ Glenn B. Eckert
------------------------
Name: Glenn B. Eckert
Title: Vice President
S-8
<PAGE>
BANQUE FRANCAISE DU COMMERCE
EXTRIEUR,
as a Lender
By: /s/ William C. Maier
-------------------------
Name: William C. Maier
Title: VP-Group Manager
By: /s/ Kevin McOwen
-------------------------
Name: Kevin McOwen
Title: Assistant Treasurer
S-9
<PAGE>
THE SUMITOMO BANK, LIMITED,
as a Lender
By: /s/ Ronald W. Gale
-------------------------------
Name: Ronald W. Gale
Title: VP
By: /s/ William N. Paty
-------------------------------
Name: William N. Paty
Title: Vice President & Manager
S-10
<PAGE>
DRESDNER BANK AG, NEW YORK AND GRAND
CAYMAN BRANCHES,
as a Lender
By: /s/ William E. Lambert
-------------------------------
Name: William E. Lambert
Title: Assistant Vice President
By: /s/ Jane A. Majeski
-------------------------------
Name: Jane A. Janeski
Title: Vice President
S-11
<PAGE>
ABN AMRO BANK N.V., NEW YORK BRANCH,
as a Lender
By: /s/ David C. Carrington
--------------------------
Name: David C. Carrington
Title: Vice President
By: /s/ Frances OR. Logan
--------------------------
Name: Frances OR. Logan
Title: Group Vice President
S-12
<PAGE>
HELLER FINANCIAL, INC.,
as a Lender
By: /s/ Patrick Hayes
-------------------------
Name: Patrick Hayes
Title: Vice President
S-13
<PAGE>
MICHIGAN NATIONAL BANK,
as a Lender
By: /s/ Stephane Lubin
---------------------------
Name: Stephane Lubin
Title: Relationship Manager
S-14
<PAGE>
BANQUE PARIBAS,
as a Lender
By:
-------------------------
Name:
Title:
By:
-------------------------
Name:
Title:
S-15
<PAGE>
THE BANK OF NOVA SCOTIA,
as a Lender
By: /s/ Vincent J. Fitzgerald, Jr.
--------------------------------
Name: Vincent J. Fizgerald, Jr.
Title: Authorized Signatory
S-16
<PAGE>
BANQUE NATIONALE DE PARIS,
as a Lender
By: /s/ Marcus C. Jones
-------------------------------
Name: Marcus C. Jones
Title: Vice President
By: /s/ Pamela Lucash
-------------------------------
Name: Pamela Lucash
Title: Assistant Vice President
S-17
<PAGE>
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE,
as a Lender
By: /s/ Marcus Edward
-------------------------
Name: Marcus Edward
Title: Vice President
By: /s/ Anthony Rock
-------------------------
Name: Anthony Rock
Title: Vice President
S-18
<PAGE>
GRANITE BROADCASTING CORPORATION
STOCK OPTION PLAN
As amended through April 29, 1997
1. Purpose. The purpose of this Stock Option Plan (the "Plan"),
adopted by the Board of Directors of Granite Broadcasting Corporation (the
"Company") on April 17, 1990 and amended on May 10, 1990, November 8, 1990,
September 20, 1991, April 27, 1993, July 25, 1995 and July 24, 1996, is to
provide a means by which certain employees and officers of the Company and
its Affiliates (as defined below) may be given an opportunity to purchase
non-voting common stock of the Company. Options that may be granted under
this Plan include (a) Incentive Stock Options as such term is defined in
Section 422A of the Internal Revenue Code of 1986, as amended (hereinafter
the "Code"), and (b) Nonqualified Stock Options, which would not constitute
Incentive Stock Options. The Plan is intended to advance the interests of
the Company by encouraging stock ownership on the part of certain employees
and officers, by enabling the Company (and its Affiliates) to secure and
retain the services of highly qualified persons, and by providing employees
and officers with an additional incentive to advance the success of the
Company (and its Affiliates). For purposes of this Plan, Affiliate shall
mean any parent or subsidiary corporation of the Company. The term "parent
corporation" shall mean any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, on the date of
grant of the option in question, each of the corporations other than the
Company owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain. The term "subsidiary corporation" shall mean any
corporation in an unbroken chain of corporations beginning with the Company
if, on the date of grant of the option in question, each of the corporations
other than the last corporation in the chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. Affiliation shall
refer to a group of Affiliates.
2. Stock Subject to Option. Subject to adjustment as provided in
Sections 4(i) and (j) hereof, options may be granted by the Company from time
to time to purchase up to an aggregate of 3,000,000 shares of the Company's
authorized but unissued Class B Nonvoting Common Stock, par value $0.01 per
share (the "Common Stock"). Shares that by reason of the expiration of an
option or otherwise are no longer subject to purchase pursuant to an option
granted under the Plan may be again available for issuance pursuant to
options under the Plan.
<PAGE>
3. Participants. Persons eligible to be granted Incentive Stock
Options or Nonqualified Stock Options under the Plan shall be limited to key
employees of the Company (or its Affiliates) (including employees who are
also officers or directors, but not including directors who are not also
employees) who have substantial responsibility in the direction and
management of the Company or an Affiliate, as indicated by the action of the
Stock Option Committee or the Compensation Committee (as such terms are
defined in Section 5) in granting an option to such employee.
4. Terms and Conditions of Options. The Stock Option Committee may
grant options from time to time pursuant to the Plan. Such options shall be
evidenced by written stock option agreements signed by the Optionee and by
the President of the Company or by any member of the Stock Option Committee
(the "Stock Option Agreements"). The Stock Option Agreements shall be
subject to the terms and conditions of the Plan, shall specify whether the
options are Incentive Stock Options or Nonqualified Stock Options and shall
contain such other provisions as the Stock Option Committee in its discretion
shall deem appropriate. Shares of Common Stock that may be purchased under
an option granted pursuant to this Plan shall sometimes hereinafter be
referred to as "Option Shares," and an employee of the Company to whom
options are granted shall sometimes hereinafter be referred to as an
"Optionee."
(a) Option Price. The option price for each Incentive Stock Option
share shall not be less than the fair market value of a share of the Common
Stock on the date the option is granted. The option price for each
Nonqualified Stock Option share shall be specified by the Stock Option
Committee at the time such option is granted, and may be less than, equal
to or greater than the fair market value of the shares of Common Stock on
the date such option is granted. The option price may include amounts that
are required to be paid by the Optionee, as a down payment of the option
price, prior to his or her exercise of the option. In its sole discretion,
the Stock Option Committee may provide that the price at which shares may
be so purchased shall be more than such fair market value on the date of
grant. However, notwithstanding the foregoing, the option price for
Incentive Stock Options granted to any employee owning stock (including any
attribution of stock ownership under Section 425(d) of the Code) possessing
more than 10% of the total combined voting power of all classes of stock of
the Company or any of its Affiliates on the date such option is granted
(hereinafter a "10% Shareholder"), shall be at least 110% of the fair
market value of the Common Stock on the date the option is granted. The
Stock Option Committee shall, in good faith, determine the fair market
value of the Common Stock on the date the option is granted, and the fair
market value may be more or less than the book value of the Common Stock.
2
<PAGE>
(b) Term of Option. Unless otherwise specifically provided in an
Optionee's Stock Option Agreement, each option granted under this Plan
shall expire no later than ten years after the date the option is granted
except under the circumstances described in Sections 4(g), 4(j)(2), 4(j)(3)
and 4(k), options may expire and terminate at an earlier date than provided
in this paragraph. If an Incentive Stock Option is granted to an employee
who is a 10% Shareholder, then, for purposes of such Incentive Stock Option
the word "five" shall be substituted for the word "ten" in the immediately
preceding sentence. The term of Nonqualified Stock Options granted
hereunder shall be determined by the Stock Option Committee in its
discretion.
(c) Exercise of Option. Except as otherwise specifically provided in
this Plan, each option will be exercisable according to the provisions of
an Optionee's Stock Option Agreement. All options (whenever granted) of an
Optionee shall become immediately exercisable upon the (i) death or
disability (as defined in Section 4(g)(2) below) of such Optionee; and (ii)
the occurrence of a "Change of Control"; for purposes hereof, a "Change of
Control" shall occur on the date on which W. Don Cornwell no longer owns,
beneficially, in excess of 50% of the issued and outstanding Class A Common
Stock of the Company.
(d) Manner of Exercise. Shares of Common Stock purchased upon
exercise of options shall at the time of purchase be paid for in full. To
the extent that an option is exercisable, options may be exercised from
time to time by written notice to the Company stating the full number of
shares with respect to which the option is being exercised, accompanied by
full payment (or the balance due) of the exercise price, for the shares
being purchased, by certified or official bank check or the equivalent
thereof acceptable to the Company. When and if shares of the Company's
Common Stock are traded on either the New York or American Stock Exchanges
or in the NASDAQ/National Market System, the payment of the exercise price
may be in the form of Common Stock, the value of which shall be deemed to
be the closing price on the last trading date prior to date on which the
shares are tendered for payment of the exercise price. The notice required
by this paragraph shall be delivered in person to the President of the
Company, or shall be sent by registered or certified mail, return receipt
requested, to the President of the Company, in which case delivery shall be
deemed made on the date such notice is deposited in the mail. The Company
shall, without charge of any transfer or issue tax to the Optionee (or
other person entitled to exercise the option), deliver to the Optionee (or
to such other person) at the principal office of the Company, or such other
place as shall be mutually
3
<PAGE>
agreed upon, a certificate or certificates for the shares being purchased;
provided, however, that the time of delivery may be postponed by the
Company for such period as may be required for it with reasonable diligence
to comply with any requirements of law. Pursuant to Section 6 hereof, the
Company may require that, at the time of exercise, each Optionee:
(i) deliver an investment representation in form acceptable to the Company
and its counsel that the shares are being acquired for investment and not
with a view to their distribution, and (ii) enter into any applicable
stockholders' agreement with the Company and other stockholders of the
Company, as deemed necessary by the Stock Option Committee.
(e) Limitation on Amount. No employee shall be granted Incentive
Stock Options which, when first exercisable during any calendar year
(combined with all other incentive stock option plans of the Company and
its Affiliates), will permit such employee to purchase stock that has an
aggregate fair market value (determined as of the time the option is
granted) of more than $100,000.
(f) Non-Assignability of Option Rights. Options under the Plan will
not be transferable by an Optionee except by will or the laws of descent
and distribution. During the lifetime of the Optionee, the Option is
exercisable only by the Optionee or, in the event of the Optionee's
incapacity, by his duly authorized legal representative. Notwithstanding
the foregoing, the Committee may, in its discretion, authorize all or a
portion of the Option (other than Incentive Stock Options) granted to a
Optionee to be on terms which permit transfer by such Optionee to (i) the
spouse, children or grandchildren of such Optionee ("Immediate Family
Members"), (ii) a trust or trusts for exclusive benefit of such Immediate
Family Members, or (iii) a partnership or limited liability company in
which such Immediate Family Members are the only partners or members, as
applicable; provided, that (x) there may be no consideration for any such
transfer, (y) the Option agreement pursuant to which such Options are
granted must be approved by the Committee and must expressly provide for
transferability in a manner consistent with this Section, and (z)
subsequent transfers of transferred Options shall be prohibited except
those occurring by laws of descent and distribution. Following transfer,
any such Options shall continue to be subject to the same terms and
conditions as were applicable immediately prior to transfer; provided, that
for purposes of the Plan, the term Optionee shall be deemed to refer to the
transferee; provided, however, that, the Option shall continue to be
exercisable and shall terminate in
4
<PAGE>
accordance with its terms as if the transferor (Non-Employee Director)
remained the holder of the Option. Options under the Plan may not be
pledged, mortgaged, hypothecated or otherwise encumbered, and shall not be
subject to the claims of creditors.
(g) Termination of Employment.
(1) In the event that Optionee's employment by the Company and
its Affiliates shall terminate for any reason, with or without cause, and
the provisions of Sections 4(g)(2), 4(g)(3), 4(j) and 4(k) do not apply,
(i) the option for those shares for which such option was exercisable
pursuant to this plan immediately prior to such termination of employment
shall terminate thirty (30) days following such termination of employment,
unless specifically provided otherwise in such Optionee's Stock Option
Agreement, and (ii) the option for those shares for which the option was
not exercisable immediately prior to such termination of employment shall
terminate on the date of termination of employment. In the event that an
option terminates pursuant to the preceding sentence, any amounts paid as a
down payment on the exercise of such option (as provided in Section 4(a))
shall be returned to the Optionee with respect to shares for which the
option was not exercisable on the date of termination of employment and
shall not be returned to the Optionee with respect to shares for which the
option was exercisable on the date of termination. For purposes of this
Section, whether an authorized leave of absence or absence on military or
government service shall constitute severance of the employment
relationship between the Company (or an Affiliate) and the Optionee shall
be determined by the Stock Option Committee in its sole discretion at the
time thereof.
(2) In the event that Optionee shall die while in the employment
of the Company (or an Affiliate) or if Optionee's employment by the Company
(or an Affiliate) is terminated because Optionee has become disabled within
the meaning of Section 22(e)(3) of the Code, the Optionee, his personal
representative, estate or beneficiary shall have the right at any time
within twelve months after such date of death or termination due to
disability to exercise such Optionee's options. Notwithstanding the
foregoing, the provisions of this Section 4(g)(2) shall be subject to the
provisions of Sections 4(b), 4(j)(3) and 4(k), which may terminate the
option earlier.
(3) In the event that any termination of employment by an
Optionee is due to retirement with the consent of his employer, the
Optionee shall have the right to exercise his option at any time within
three months after such retirement to the extent the option was exercisable
5
<PAGE>
immediately prior to retirement. Notwithstanding the foregoing, the
provisions of this Section 4(g)(3) shall be subject to the provisions of
Sections 4(b), 4(j)(3) and 4(k), which may terminate the option earlier.
(h) Changes to Capital Structure; Need for Adjustment. The existence
of outstanding options shall not affect in any way the right or power of
the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation
of the Company, or any issue of bonds, debentures, preferred or prior
preference stock ahead of or affecting the Stock or the rights thereof, or
the dissolution or liquidation of the Company, or any sale or transfer of
all or any part of its assets or business, or any other corporate act or
proceeding, whether of a similar character or otherwise.
Except as otherwise expressly provided in Sections 4(i) and 4(j), the
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, for cash or property, or for
labor or services either upon direct sale or upon the exercise of rights or
warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect or necessitate any adjustment to the number, class or price of
shares of stock then subject to outstanding options.
(i) Adjustment of Options on Recapitalization. The aggregate number
of shares of Common Stock for which options may be granted to persons
participating under the Plan, the number of shares covered by each
outstanding option, and the exercise price per share for each such option
shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock of the Company resulting from the
subdivision or consolidation of shares, or the payment of a stock dividend
after the effective date of this Plan, or other increase (excluding any
increase due to conversion of any other outstanding securities of the
Company) or decrease in such shares effected without receipt of
consideration by the Company, such that each Optionee remains entitled upon
exercise of his option(s) to the same total number and class of shares as
he would have received for the same aggregate consideration had he
exercised his options in full immediately prior to the event requiring the
adjustment; provided, however, that any options to purchase fractional
shares resulting from any such adjustment shall be eliminated; and
provided, further, that any such adjustment shall be made in a manner so as
not to constitute a "modification" as defined in Section 425(h)(3) of the
Code.
6
<PAGE>
(j) Adjustment of Options Upon Reorganization.
(1) If the Company shall at any time merge or consolidate with
or into another corporation and (A) the Company is not the surviving
entity, or (B) the Company is the surviving entity and the shareholders of
Company Common Stock are required to exchange their shares for property
and/or securities, the holder of each option will thereafter receive, upon
the exercise thereof, the securities and/or property to which a holder of
the number of shares of Common Stock then deliverable upon the exercise of
such option would have been entitled upon such merger or consolidation, and
the Company shall take such steps in connection with such merger or
consolidation as may be necessary to assure that the provisions of this
Plan shall thereafter be applicable, as nearly as reasonably may be, in
relation to any securities or property thereafter deliverable upon the
exercise of such option; provided, however, that, except as provided in the
following sentence, no option exercise date shall be accelerated in
contemplation of such action. In the event of an Optionee's termination of
employment without cause within twelve (12) months after the date of a
merger or consolidation described in this paragraph, the Optionee shall
have the right to exercise all his then outstanding options, whether or not
then otherwise exercisable, within the thirty (30) day period following his
termination of employment. For purposes of this paragraph, termination
without cause shall mean (a) termination other than for (i) the Optionee's
material failure to observe or perform any of the requirements of his
position with the Company, or it Affiliate (or successor by merger or
consolidation), or (ii) the Optionee's grossly negligent or willful and
continued misconduct or action on the part of the Optionee that is damaging
or detrimental to the operations of the Company or its Affiliate (or
successor by merger or consolidation), or (b) resignation by the Optionee
within thirty (30) days after a material diminution in duties or
compensation of the Optionee. A sale of all or substantially all of the
assets of the Company for a consideration (apart from the assumption of
obligations) consisting primarily of securities shall be deemed a merger or
consolidation for the foregoing purposes. Notwithstanding the foregoing,
the provisions of this Section 4(j)(1) shall be subject to Section 4(b).
(2) The resulting Affiliation following any reorganization may
at any time, in its sole discretion, tender substitute options as it may
deem appropriate. However, in no event may the substitute options entitle
an Optionee under the Plan to any fewer shares (or at any greater aggregate
price) or any less other property than the Optionee would be entitled to
under the immediately preceding paragraph upon an exercise of the options
held prior to the substitution of the new
7
<PAGE>
option. Any substitution made under this Section 4(j)(2) shall be made in
a manner so as not to constitute a "modification" as defined in Section
425(h)(3) of the Code.
(3) With respect to options to acquire stock of an Affiliate of
Optionee's then present employer, if Optionee's then present employer
ceases to be affiliated with the other member(s) of the Affiliation, then
the Affiliation shall give the Optionee written notice of such fact within
thirty (30) days after the date on which Optionee's employer ceases to be
an Affiliate and the option shall expire and terminate thirty (30) days
after the receipt of such notice by Optionee. Notwithstanding the
foregoing, the provisions of this Section 4(j)(3) shall be subject to
Section 4(b) and shall be subject to Section 4(k) if the Optionee receives
notice under Section 4(k) at a time earlier than the notice provided for
herein.
(k) Dissolution of Issuer of Option Stock. In the event of the
proposed dissolution or liquidation of the Company, the options granted
hereunder shall terminate as of a date to be fixed by the Stock Option
Committee; provided, that, not less than thirty (30) days' prior written
notice of the date so fixed shall be given to the Optionee, and the
Optionee shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his option. Notwithstanding the
foregoing, the provisions of this Section shall be subject to Section 4(b)
and shall be subject to Section 4(j)(3) if the Optionee receives notice
under Section 4(j)(3) at a time earlier than the notice provided for
herein.
(l) Substitution Options. Options may be granted under this Plan
from time to time in substitution for stock options held by employees of
other corporations who become employees of the Company or an Affiliate as a
result of a merger or consolidation of the employing corporation with the
Company or an Affiliate, or the acquisition by the Company or an Affiliate
of the assets of the employing corporation, or the acquisition by the
Company or an Affiliate of at least 50% of the issued and outstanding stock
of the employing corporation as the result of which it becomes an Affiliate
of the Company. The terms and conditions of the substitute options so
granted may vary from the terms and conditions set forth in this Plan to
such extent as the Stock Option Committee at the time of grant may deem
appropriate to conform, in whole or in part, to the provisions of the stock
options in substitution for which they are granted, but with respect to
stock options which are Incentive Stock Options, no such variation shall be
such as to affect the status of any such substitute option as an "incentive
stock option" under Section 422A of the Code.
8
<PAGE>
(m) Rights as a Shareholder. The Optionee shall have no rights as a
shareholder with respect to any shares of Common Stock of the Company held
under option until the date of exercise of the option with respect to such
shares. Except as provided in Section 4(h), no adjustment shall be made
for dividends or other rights for which the record date is prior to the
date of exercise.
(n) Time of Granting Options. The grant of an option shall occur
only when a written option agreement shall have been duly executed and
delivered by or on behalf of the Company and the employee to whom such
option shall be granted.
(o) Stock Legend. Certificates evidencing shares of the Company's
Common Stock purchased upon the exercise of Incentive Stock Options issued
under the Plan shall be endorsed with a legend in substantially the
following form:
The shares evidenced by this certificate may not be sold or
transferred prior to ________________, 19___, in the absence
of a written statement from Granite Broadcasting Corporation
(the "Company") to the effect that the Company is aware of
the fact of such sale or transfer.
The blank contained in such legend shall be filled in with the date that is
the later of: (1) one year and one day after the date of exercise of such
Incentive Stock Option or (2) two years and one day after the date of grant
of such Incentive Stock Option. Upon delivery to the Company, at its
principal executive office, of a written statement to the effect that such
shares have been sold or transferred prior to such date, the Company does
hereby agree to promptly deliver to the transfer agent for such shares a
written statement to the effect that the Company is aware of the fact of
such sale or transfer. The Company may also require the inclusion of any
additional legend which may be necessary or appropriate.
5. Administration.
(a) Subject to Section 5(f) hereof, the Plan shall be administered by
a Stock Option Committee (the "Stock Option Committee") consisting of not
less than three (3) members of the Board of Directors, to be appointed by
the Board of Directors of the Company. The Board of Directors may, from
time to time, remove members from or add members to the Stock Option
Committee. Vacancies in the Stock Option Committee, however caused, shall
be filled by the Board of Directors. The Stock Option Committee shall
select one of its members as chairman who shall preside at all of its
meetings, and shall designate a secretary (who may or may not be a Stock
Option
9
<PAGE>
Committee Member) to keep the minutes of the proceedings and all records,
documents, and data pertaining to the administration of the Plan. The
Stock Option Committee shall hold meetings at such times and places as it
may determine. Subject to the provisions of the Plan and to policies
determined by the Board of Directors, the Stock Option Committee may make
such rules and regulations for the conduct of its business as it shall deem
advisable. A majority of the Stock Option Committee shall constitute a
quorum. All actions of the Stock Option Committee shall be taken by a
majority of the members present at such meeting. Any action may be taken
by a written instrument signed by a majority of the members, and action so
taken shall be fully as effective as if it had been taken by a vote of the
majority of the members at a meeting duly called and held. The Stock
Option Committee and Compensation Committee (as defined below) members
shall be eligible to be granted options; provided, that, a Stock Option
Committee member shall abstain from voting with respect to the grant of any
option to such Stock Option Committee member.
(b) Subject to the express terms and conditions of the Plan,
including Section 5(f) hereof, the Stock Option Committee shall have full
power to grant options under the Plan, to construe or interpret the Plan,
to prescribe, amend and rescind rules and regulations relating to it and to
make all other determinations necessary or advisable for its
administration. Any such determinations by a majority of the whole Stock
Option Committee shall be final and binding.
(c) Subject to the provisions of Sections 3, 4 and 5(f) hereof, the
Stock Option Committee may, from time to time, determine which employees of
the Company or its Affiliates shall be granted options under the Plan, the
type of option granted, the number of option shares subject to each option,
the time or times at which options shall be granted and be exercisable, the
exercise price thereof, and the timing of payment of the exercise price,
and the Stock Option Committee may grant such options under the Plan.
(d) The Stock Option Committee or the Compensation Committee, as the
case may be, shall report to the Board of Directors the names of employees
granted options, the number of option shares subject to, and the terms and
conditions of, each option.
(e) No member of the Board of Directors, the Stock Option Committee
or the Compensation Committee shall be liable for any action, determination
or omission of any other member of the Stock Option Committee or for any
action, determination, or omission on his own part, including but not
limited to the exercise of any power or discretion given to him under the
Plan, except those resulting from his gross
10
<PAGE>
negligence or willful misconduct. For this purpose, no action taken in
good faith shall constitute gross negligence or willful misconduct.
(f) Notwithstanding anything herein to the contrary, with respect to
any participants in the Plan who, by virtue of such person's relationship
to the Company, are subject to Section 16(a) and 16(b) of the Securities
Exchange Act of 1934, as amended, in lieu of the Stock Option Committee,
the Compensation Committee of the Board of Directors (the "Compensation
Committee") shall govern all decisions as to such person's rights to
participate, the number of and terms of options granted to them, and all
respects of the administration of the Plan with respect to them and shall
have and exercise all such authority with respect to such persons as is
otherwise granted to the Stock Option Committee hereunder.
6. Requirements of Law. The Company shall not be required to sell or
issue any shares under any option if the issuance of such shares shall
constitute a violation by the Optionee or the Company of any provision of any
law, statute, or regulation of any governmental authority whether it be
Federal or State. Unless a registration statement is in effect under the
Securities Act of 1933, as amended (the "Act") with respect to the shares of
Common Stock covered by an option, the Company shall not be required to issue
shares upon exercise of any option (i) unless the Stock Option Committee has
received evidence satisfactory to it to the effect that the holder of such
option is acquiring such shares for investment and not with a view to the
distribution thereof or (ii) unless an opinion of counsel to the Company has
been received by the Company, in a form and substance which is deemed
acceptable by the Stock Option Committee, to the effect that a registration
statement is not required. Any determination in this connection by the Stock
Option Committee shall be final, binding and conclusive. In the event the
shares issuable on exercise of an option are not registered under the Act,
the Company may imprint the following legend or any other legend which
counsel for the Company considers necessary or advisable to comply with the
Act:
"The shares of stock represented by this certificate have not been
registered under the Securities Act of 1933 or under the securities
laws of any State and may not be sold or transferred except pursuant
to an effective registration statement or upon receipt by the
Corporation of any opinion of counsel satisfactory to the Corporation,
in form and substance satisfactory to the Corporation, that
registration is not required for such sale or transfer."
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<PAGE>
The Company may, but shall in no event be obligated to, register any
securities covered hereby pursuant to the Act and, in the event any shares are
so registered, the Company may remove any legend on certificates representing
such shares. The Company shall not be obligated to take any affirmative action
in order to cause the exercise of an option or the issuance of shares pursuant
thereto to comply with any law or regulation of any governmental authority.
7. Intention of Plan. Incentive Stock Options granted pursuant to this
Plan are intended to qualify as Incentive Stock Options within the meaning of
Section 422A of the Code, and the terms of this Plan and options granted
hereunder shall be so construed; provided, however, that nothing in this Plan
shall be interpreted as a representation, guarantee or other undertaking on the
part of the Company that any options granted pursuant to this Plan are, or will
be, determined to be incentive stock options, within the meaning of the Code.
8. Use of Proceeds. The proceeds from the sale of Common Stock pursuant
to the exercise of options, including any down payments provided in Section
4(a), will be used for the Company's general corporate purposes.
9. Indemnification. Each member of the Stock Option Committee, the
Compensation Committee and the Board of Directors shall be indemnified and held
harmless by the Company for all loss, liabilities, costs and expenses (including
the amount of judgments and the amount of approved settlements made with a view
to the curtailment of costs of litigation, other than amounts paid to the
Company itself) reasonably incurred by him in connection with or arising out of
any action, suit, or proceeding regarding administration of the Plan in which he
may be involved by reason of his being or having been a member of such committee
or the Board of Directors, whether or not he continues to be a member of such
committee or the Board of Directors at the time of incurring such loss,
liabilities, costs and expenses. Notwithstanding any of the foregoing, no
member of such committee or the Board of Directors shall be entitled to such
indemnification from the Company for any loss, liabilities, costs and expenses
incurred by him (a) in respect of matters as to which he shall be finally
adjudged in any such action, suit or proceeding to have been guilty of gross
negligence or willful misconduct in the performance of his duty as a member of
such committee or the Board of Directors, or (b) 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. Moreover, no right of
indemnification under the provisions set forth herein shall be available to or
enforceable against the Company by any member of such committee and the Board of
Directors unless, within sixty (60) days after institution of any such action,
suit or proceeding, he shall have
12
<PAGE>
offered the Company, in writing, the opportunity to handle and defend the same
at its own expense. The foregoing right of indemnification shall inure to the
benefit of the heirs, executors or administrators of each such member of such
committee and the Board of Directors and shall be in addition to all other
rights to which the member of such committee and the Board of Directors may be
entitled as a matter of law, contract or otherwise.
10. Withholding. The Company's obligation to deliver shares upon the
exercise of any option hereunder shall be subject to applicable federal, state
and local tax withholding requirements.
11. No Obligation of Employment. Nothing in this Plan or contained in an
option granted hereunder or in any Stock Option Agreement shall govern the
employment rights and duties between the Optionee and the Company or Affiliate.
Neither this Plan, nor any grant or exercise pursuant thereto, shall constitute
an employment agreement among such parties. The granting of any option
hereunder shall not impose upon the Company or an Affiliate any obligation to
employ or continue to employ any Optionee. The right of the Company to
terminate the employment of any officer or other employee shall not be
diminished or affected by reason of a grant or the existence of an option
hereunder.
12. Effective Date and Termination.
(a) The effective date of the Plan is April 1, 1990; provided, that,
within one year of that date, the Plan shall have been approved by a
majority of the holders of the outstanding voting stock of the Company.
(b) The Plan shall terminate ten years after the effective date of
the Plan and no options shall be granted pursuant to the Plan thereafter.
The Board of Directors may terminate the Plan at any time prior to ten
years after the effective date of the Plan. Termination of the Plan shall
not alter or impair, without the consent of the Optionee, any of the rights
or obligations and any option theretofore granted under the Plan.
13. Amendments. The Board of Directors of the Company may, from time
to time, alter, amend, suspend, or discontinue the Plan, or alter or amend
any and all option agreements granted thereunder; provided, however, that no
such action of the Board of Directors, without the approval of a majority of
the holders of shares of the Company then entitled to vote, may alter the
provisions of the Plan so as to:
(a) Decrease the minimum option price for Incentive Stock Options;
(b) Extend the term of the Plan beyond ten years or the
13
<PAGE>
maximum term of the options granted beyond ten years;
(c) Withdraw the administration of the Plan from the Stock Option
Committee;
(d) Change the class of eligible employees, officers and directors;
or
(e) Increase the aggregate number of shares which may be issued
pursuant to the provisions of the Plan;
Notwithstanding the foregoing, (i) the Board of Directors may amend the
Plan in any respect in order to qualify the Incentive Stock Options granted
pursuant hereto as Incentive Stock Options as defined in Section 422A of the
Code, (ii) no amendment may be made to an outstanding option agreement to the
detriment of the Optionee without the Optionee's consent, and (iii) no amendment
may be made to this Plan (or any option granted hereunder without the consent of
the Optionee) which would constitute a modification of any Incentive Stock
Option outstanding under Section 425(h) of the Code or which would adversely
affect an outstanding Incentive Stock Option's status as an Incentive Stock
Option under Section 422A of the Code.
14
<PAGE>
Exhibit 11
GRANITE BROADCASTING CORPORATION
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------
1996 1997
-------------- -------------
<S> <C> <C>
Basic:
Average shares and equivalents
outstanding.......................... 8,611,606 8,764,705
-------------- -------------
-------------- -------------
Loss before extraordinary item......... $ (5,894,462) $ (3,466,839)
Extraordinary loss..................... (2,891,250) (5,569,119)
-------------- -------------
Net loss............................... $ (8,785,712) $ (9,035,958)
-------------- -------------
-------------- -------------
Net loss attributable to common
shareholders......................... $ (12,310,993) $ (31,207,468)
-------------- -------------
-------------- -------------
Per common share:
Loss before extraordinary item....... $ (1.09) $ (2.93)
Extraordinary loss................... (0.34) (0.64)
-------------- -------------
Net loss............................. $ (1.43) $ (3.57)
-------------- -------------
-------------- -------------
Diluted:
Average shares and equivalents
outstanding.......................... 8,611,606 8,764,705
-------------- -------------
-------------- -------------
Loss before extraordinary item......... $ (5,894,462) $ (3,466,839)
Extraordinary loss..................... (2,891,250) (5,569,119)
-------------- -------------
Net loss............................... $ (8,785,712) $ (9,035,958)
-------------- -------------
-------------- -------------
Net loss attributable to common
shareholders......................... $ (12,310,993) $ (31,207,468)
-------------- -------------
-------------- -------------
Per common share:
Loss before extraordinary item....... $ (1.09) $ (2.93)
Extraordinary loss................... (0.34) (0.64)
-------------- -------------
Net loss............................. $ (1.43) $ (3.57)
-------------- -------------
-------------- -------------
</TABLE>
<PAGE>
Consent Of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-91056) pertaining to the Employee Stock Purchase Plans of
Granite Broadcasting Corporation of our report dated February 6, 1998, with
respect to the consolidated financial statements and the financial statement
schedule of Granite Broadcasting Corporation included in its Form 10-K for
the year ended December 31, 1997, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
New York, New York
March 23, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRANITE
BROADCASTING CORPORATION'S 1997 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 2,170,927
<SECURITIES> 0
<RECEIVABLES> 35,308,464
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 58,535,395
<PP&E> 36,004,876
<DEPRECIATION> 0
<TOTAL-ASSETS> 633,614,013
<CURRENT-LIABILITIES> 27,734,678
<BONDS> 392,779,025
207,699,808
0
<COMMON> 88,546
<OTHER-SE> (33,345,263)
<TOTAL-LIABILITY-AND-EQUITY> (33,256,717)
<SALES> 0
<TOTAL-REVENUES> 153,511,540
<CGS> 0
<TOTAL-COSTS> 111,495,816
<OTHER-EXPENSES> 4,596,458
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39,269,893
<INCOME-PRETAX> (1,850,627)
<INCOME-TAX> 1,616,212
<INCOME-CONTINUING> (3,466,839)
<DISCONTINUED> 0
<EXTRAORDINARY> (5,569,119)
<CHANGES> 0
<NET-INCOME> (9,035,958)
<EPS-PRIMARY> (3.57)
<EPS-DILUTED> (3.57)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRANITE
BROADCASTING CORPORATION'S JUNE 30, 1996 FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,191,735
<SECURITIES> 0
<RECEIVABLES> 27,195,034
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 36,240,626
<PP&E> 33,021,295
<DEPRECIATION> 0
<TOTAL-ASSETS> 448,339,678
<CURRENT-LIABILITIES> 18,482,280
<BONDS> 346,536,300
45,487,500
0
<COMMON> 86,774
<OTHER-SE> 2,712,498
<TOTAL-LIABILITY-AND-EQUITY> 2,799,272
<SALES> 0
<TOTAL-REVENUES> 33,961,195
<CGS> 0
<TOTAL-COSTS> 22,104,488
<OTHER-EXPENSES> 606,275
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,266,076
<INCOME-PRETAX> 1,984,356
<INCOME-TAX> 174,600
<INCOME-CONTINUING> 1,809,756
<DISCONTINUED> 0
<EXTRAORDINARY> 618,902
<CHANGES> 0
<NET-INCOME> 2,428,658
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0.13
</TABLE>
