<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 0-19728
GRANITE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 13-3458782
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
767 Third Avenue
34th Floor
New York, New York 10017
Telephone number: (212) 826-2530
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________
-------
(APPLICABLE ONLY TO CORPORATE ISSUERS:)
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class A Voting Common Stock, par value $.01 per share - 178,500 shares
outstanding at August 10, 1999; Common Stock (Nonvoting), par value $.01 per
share - 11,864,355 shares outstanding at August 10, 1999.
<PAGE>
PART I. FINANCIAL INFORMATION
GRANITE BROADCASTING CORPORATION
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1999 1998
- ------ ---------------- ---------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,507,986 $ 762,392
Accounts receivable, net 34,599,402 32,830,227
Film contract rights 4,568,711 9,671,443
Other assets 10,068,384 9,627,807
Net assets held for sale (Note 2) 53,317,458 ---
----------------- ------------------
Total current assets 105,061,941 52,891,869
Property and equipment, net 31,560,000 33,040,152
Film contract rights and other noncurrent assets 5,535,941 7,286,039
Deferred financing fees, net 10,661,098 11,086,733
Intangible assets, net 616,657,334 677,669,324
----------------- ------------------
$ 769,476,314 $ 781,974,117
================= ==================
LIABILITIES AND STOCKHOLDERS' DEFICIT
- -------------------------------------
Current liabilities:
Accounts payable $ 5,441,036 $ 4,031,837
Accrued interest 5,139,769 5,107,551
Other accrued liabilities 8,574,622 9,908,091
Film contract rights 7,326,993 13,648,629
Other current liabilities 6,246,076 5,763,882
----------------- ------------------
Total current liabilities 32,728,496 38,459,990
Long-term debt 433,937,145 426,399,159
Film contract rights payable 4,319,113 5,920,122
Deferred tax liability 74,693,655 78,308,597
Other noncurrent liabilities 16,905,934 18,005,696
Commitments
Cumulative Exchangeable Preferred Stock, net of offering costs 197,551,275 185,167,313
Cumulative Convertible Exchangeable Preferred Stock 30,610,975 31,183,400
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
11,828,680 shares of Common Stock (Nonvoting) (11,608,032
shares at December 31,1998) issued and outstanding 120,071 117,865
Additional paid-in capital 1,565,370 14,233,125
Accumulated deficit (19,381,970) (12,006,267)
Less: Unearned compensation (2,639,875) (2,881,008)
Treasury stock (47,000) (47,000)
Note receivable from officer (886,875) (886,875)
----------------- ------------------
Total stockholders' deficit (21,270,279) (1,470,160)
----------------- ------------------
$ 769,476,314 $ 781,974,117
================= ==================
</TABLE>
See accompanying notes.
-1-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
------------------------------------ -------------------------------------
1999 1998 1999 1998
------------------ ----------------- ------------------- -----------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net revenues $ 40,925,410 $ 43,735,105 $ 74,800,227 $ 80,459,141
Station operating expenses 22,633,953 22,372,096 45,158,937 44,687,464
Time brokerage agreement fees --- 166,686 --- 316,686
Depreciation expense 1,412,958 1,381,218 2,800,215 2,745,837
Amortization expense 6,434,383 3,594,790 12,842,898 7,178,512
Corporate expense 2,734,886 1,934,569 4,707,024 3,951,632
Non-cash compensation expense 259,610 216,708 523,708 549,228
------------------ ------------------ ----------------- ------------------
Operating income 7,449,620 14,069,038 8,767,445 21,029,782
Other expenses:
Equity in net loss of investee --- 486,719 133,603 973,439
Interest expense, net 10,000,997 9,586,521 19,998,773 18,795,259
Non-cash interest expense 753,239 434,134 1,460,466 908,923
Gain from insurance settlement (2,655,408) --- (2,655,408) ---
Other 327,064 275,090 670,704 516,615
------------------ ------------------ ----------------- ------------------
Income (loss) before income taxes and extraordinary
item (976,272) 3,286,574 (10,840,693) (164,454)
Provision (benefit) for income taxes (23,990) 2,675,000 (3,464,990) 3,171,000
------------------ ------------------ ----------------- ------------------
Income (loss) before extraordinary item (952,282) 611,574 (7,375,703) (3,335,454)
Extraordinary loss on early extinguishment
of debt, net of tax --- (2,739,738) --- (2,739,738)
------------------ ------------------ ----------------- ------------------
Net loss $ (952,282) $ (2,128,164) $ (7,375,703) $ (6,075,192)
================== ================== ================= ==================
Net loss attributable to common shareholders $ (7,924,234) $ (8,551,527) $ (20,945,944) $ (18,611,990)
================== ================== ================= ==================
Per common share:
Basic and diluted loss before extraordinary item $ (0.66) $ (0.59) $ (1.75) $ (1.63)
Basic and diluted extraordinary loss --- (0.28) --- (0.28)
================== ================== ================= ==================
Basic and diluted net loss $ (0.66) $ (0.87) $ (1.75) $ (1.91)
================== ================== ================= ==================
Basic and diluted weighted average common shares
outstanding 11,997,847 9,959,021 11,944,296 9,717,311
</TABLE>
See accompanying notes.
-2-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
Six Months Ended June 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Class A Common Additional
Common Stock Paid-in Accumulated
Stock (Nonvoting) Capital Deficit
---------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $1,785 $116,080 $14,233,125 $(12,006,267)
Dividends on redeemable
preferred stock (13,320,167)
Accretion of offering costs
related to Cumulative
Exchangeable Preferred Stock (250,074)
Exercise of stock options 168 77,232
Conversion of Convertible
Preferred Stock into Common
Stock (Nonvoting) 1,145 571,280
Issuance of Common Stock
(Nonvoting) 893 (893)
Grant of stock award under
stock plans 282,575
Stock expense related to
stock plans (27,708)
Net loss (7,375,703)
------------ ----------------- ------------------ -------------------
Balance at June 30, 1999 $1,785 $118,286 $1,565,370 $(19,381,970)
============ ================= ================== ===================
<CAPTION>
Total
Unearned Note Receivable Treasury Stockholders'
Compensation from Officer Stock Deficit
---------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998 $(2,881,008) $(886,875) $(47,000) $(1,470,160)
Dividends on redeemable
preferred stock (13,320,167)
Accretion of offering costs
related to Cumulative
Exchangeable Preferred Stock (250,074)
Exercise of stock options 77,400
Conversion of Convertible
Preferred Stock into Common
Stock (Nonvoting) 572,425
Issuance of Common Stock
(Nonvoting) -
Grant of stock award under
stock plans (282,575) -
Stock expense related to
stock plans 523,708 496,000
Net loss (7,375,703)
-------------- --------------- ------------------ -------------------
Balance at June 30, 1999 $(2,639,875) $(886,875) $(47,000) $(21,270,279)
============== =============== =================== ====================
</TABLE>
See accompanying notes.
-3-
<PAGE>
GRANITE BROADCASTING CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1999 1998
---- ----
Cash flows from operating activities: (Unaudited)
<S> <C> <C>
Net loss $ (7,375,703) $ (6,075,192)
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Amortization of intangible assets 12,842,898 7,178,512
Depreciation 2,800,215 2,745,837
Non-cash compensation expense 523,708 549,228
Non-cash interest expense 1,460,466 908,923
Equity in net loss of investee 133,603 973,439
Deferred taxes (3,614,942) ---
Gain from insurance proceeds (2,655,408) ---
Extraordinary loss --- 4,214,738
Change in assets and liabilities:
(Increase) decrease in accounts receivable, net (1,769,175) 884,881
Increase in accounts payable and accrued liabilities 107,948 1,355,675
Decrease in film contract rights and other current assets 6,045,726 4,470,668
Decrease in film contract rights payable and other liabilities (7,025,860) (4,938,876)
Decrease in other noncurrent liabilities (1,099,762) (113,898)
Increase in other assets (3,551,759) (3,894,594)
---------------- -----------------
Net cash (used in) provided by operating activities (3,178,045) 8,259,341
Cash flows from investing activities:
Insurance proceeds received 5,868,363 ---
WB affiliation payment (709,908) ---
Investment in Datacast (133,603) (500,000)
Capital expenditures (5,958,642) (2,443,328)
---------------- -----------------
Net cash used in investing activities (933,790) (2,943,328)
Cash flows from financing activities:
Proceeds from bank loan 20,500,000 ---
Repayment of bank debt (13,000,000) (143,000,000)
Retirement of senior subordinated notes --- (24,280,200)
Proceeds from senior subordinated notes, net --- 174,482,000
Dividends paid (1,188,112) (1,587,267)
Payment of deferred financing fees (503,965) (6,625,181)
Other financing activities 49,506 228,987
--------------- ----------------
Net cash provided by (used in) financing activities 5,857,429 (781,661)
--------------- -----------------
Net increase in cash and cash equivalents 1,745,594 4,534,352
Cash and cash equivalents, beginning of period 762,392 2,170,927
--------------- ----------------
Cash and cash equivalents, end of period $ 2,507,986 $ 6,705,279
=============== ================
Supplemental information:
Cash paid for interest $ 20,061,000 $ 18,739,000
Income taxes paid 1,659,000 102,000
Non-cash capital expenditures 46,000 343,000
Non-cash dividend 11,759,000 10,392,000
</TABLE>
See accompanying notes.
-4-
<PAGE>
GRANITE BROADCASTING CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1 - Basis of presentation
- ------------------------------
The accompanying unaudited consolidated financial statements include the
accounts of Granite Broadcasting Corporation and its subsidiaries (the
"Company"), have been prepared in accordance with the instructions to Form 10-Q
and do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. Operating
results for the three and six month periods ended June 30, 1999 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1999. For further information, refer to the Company's consolidated
financial statements and notes thereto for the year ended December 31, 1998
which were included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998. All significant intercompany accounts and transactions
have been eliminated. Certain amounts in the prior year have been reclassified
to conform to 1998 presentation. Data at and for the year ended December 31,
1998 are derived from the Company's audited consolidated financial statements.
In the opinion of management, all adjustments of a normal recurring nature which
are necessary for a fair presentation of the results for the interim periods
have been made.
Note 2 - Dispositions
- ---------------------
On April 29, 1999 the Company entered into a definitive agreement with CBS
Corporation ("CBS") whereby CBS will acquire from the Company substantially all
of the assets of KEYE-TV, the CBS affiliate serving Austin, Texas, for
$160,000,000 in cash, subject to certain adjustments. Consummation of the
transaction is contingent upon approval by the Federal Communications Commission
and satisfaction of other customary closing conditions. The sale is expected to
be consummated during the fourth quarter of 1999. For finanacial reporting
purposes, the assets and liabilities of KEYE-TV have been classified on the
accompanying consolidated balance sheet as of June 30 1999 as net assets held
for sale. The Company anticipates recognizing a gain for financial reporting
purposes of approximately $103,000,000. It is anticipated that the proceeds from
the sale will be used to reduce indebtedness, thus providing the Company with
the flexibility necessary to improve its capital structure and lower its cost of
capital.
Note 3 - Long Term Debt
- -----------------------
On July 7, 1999, the Company repurchased $2,000,000 principal amount of its 10
3/8% Senior Subordinated Notes, due May 15, 2005 (the "10 3/8% Notes") and
$9,635,000 principal amount of its 8 7/8% Senior Subordinated Notes, due May 15,
2008 (the "8 7/8% Notes"). As a result, the Company will recognize an
extraordinary loss, after the write-off of a portion of related deferred
financing fees, of $174,000 during the third quarter of 1999.
-5-
<PAGE>
Note 4 - Stock Option Grants
- ----------------------------
In a continuing effort to align the interests of the Company's officers and
certain key corporate and station employees with that of its shareholders, on
January 8, 1999 and February 28, 1999, the Board of Directors granted certain
options to purchase shares of the Company's Common Stock (Nonvoting). The Board
of Directors granted 1,110,000 options, exercisable at $10, which vest as
follows: (i) half when the closing price of the Company's Common Stock
(Nonvoting) averages $15 or more for 10 consecutive business days and (ii) half
when the closing price of the Company's Common Stock (Nonvoting) averages $20 or
more for 10 consecutive business days. The fair market value of the Company's
Common Stock (Nonvoting) on the date of the grant was $6.125. The Board of
Directors also granted 1,132,000 options exercisable at $6.875 and 727,000
options exercisable at $6.125. The exercise price was the fair market value of
the Company's Common Stock (Nonvoting) on the date of grant and the options vest
over four or five years.
Note 5 - Recent Developments
- ----------------------------
On August 5, 1999, the Federal Communications Commission announced the
relaxation of certain television ownership rules, thus enabling the Company to
continue to own and operate KNTV, the ABC affiliate serving San Jose-Salinas-
Monterey, California, in addition to operating KBWB-TV, the WB affiliate serving
San Francisco-Oakland-San Jose California.
-6-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain sections of this Form 10-Q 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 Company's ability to
meet its future liquidity needs and its disclosure concerning Year 2000 issues.
The Company cautions that these forward-looking 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.
Introduction
- ------------
The Company is a group broadcaster that operates ten network-affiliated
television stations. The Company's revenues are derived principally from local
and national advertising and, to a lesser extent, from network compensation for
the broadcast of programming and revenues from studio rental and commercial
production activities. The primary operating expenses involved in owning and
operating television stations are employee salaries, depreciation and
amortization, programming and advertising and promotion expenses. Comparisons of
the Company's consolidated financial statements for the three and six months
ended June 30, 1999 against prior periods have been affected by the acquisition
of KBWB-TV, the WB affiliate serving San Francisco-Oakland-San Jose California,
which occurred on July 20, 1998, the sale of WWMT-TV, the CBS affiliate serving
Grand Rapids-Kalamazoo-Battle Creek, Michigan, which occurred on July 15, 1998
and the sale of WLAJ-TV, the ABC affiliate serving Lansing, Michigan, which
occurred on August 17, 1998. It is anticipated that comparisons of the Company's
consolidated financial statements for the year ended December 31, 1999 against
prior periods will also be affected by the aforementioned transactions. Numbers
referred to in the following discussion have been rounded to the nearest
thousand.
-7-
<PAGE>
The following table sets forth certain operating data for the three and six
months ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating income $ 7,449,000 $ 14,068,000 $ 8,767,000 $21,029,000
Add:
Time brokerage agreement fees --- 167,000 --- 317,000
Depreciation and amortization 7,847,000 4,976,000 15,643,000 9,925,000
Corporate expense 2,735,000 1,935,000 4,707,000 3,952,000
Non-cash compensation 260,000 217,000 524,000 549,000
----------- ------------ ------------ -----------
Broadcast cash flow $18,291,000 $ 21,363,000 $ 29,641,000 $35,772,000
=========== ============ ============ ===========
</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 income or cash flow as reflected in the consolidated financial statements,
is not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.
Three months ended June 30, 1999 and 1998
- -----------------------------------------
Net revenue totaled $40,925,000, a decrease of $2,810,000 or 6 percent compared
to $43,735,000 for the three months ended June 30, 1998. The decrease was
primarily due to the loss of political advertising revenue in a non-election
year. The decrease was also due to the loss of revenue from the disposition of
the Kalamazoo and Lansing stations, offset, in part, by the added revenues from
the acquisition of the San Francisco station.
Station operating expenses totaled $22,634,000, an increase of $262,000 or 1
percent compared to $22,372,000 for the three months ended June 30, 1998. The
slight increase was primarily due to increases in programming and promotion
expenses, offset, in part, by an overall reduction in expenses resulting from
the acquisition and dispositions.
Broadcast cash flow (net revenue less station operating expenses) totaled
$18,291,000, a decrease of $3,072,000 or 14 percent compared to $21,363,000 for
the three months ended June 30, 1998. The decrease was primarily due to the
changes in net revenue and station operating expenses discussed above.
-8-
<PAGE>
Amortization expense increased $2,839,000 or 79 percent due to additional
intangible amortization expense associated with the acquisition of the San
Francisco station. Corporate expense increased $800,000 or 41 percent primarily
due to the earlier incurrence of certain expenses. It is anticipated that
corporate expense will decrease during the second half of 1999 as compared to
the same period a year earlier, resulting in a slight increase for the full
year.
Net interest expense increased $415,000 during the three months ended June 30,
1999 as compared to the same period a year earlier. The increase was primarily
due to higher levels of outstanding indebtedness as a result of the acquisition
of the San Francisco station, offset in part, by the results of the Company's
strategic plan to reduce its cost of borrowing. The Company has periodically
repurchased portions of its subordinated debentures using borrowings under its
bank facility, which bear interest at a lower rate.
Non-cash interest expense increased $319,000 or 74% during the three months
ended June 30, 1999 as compared to the same period a year earlier, reflecting
the imputing of interest on a non-interest bearing obligation in connection with
the San Francisco acquisition. The gain on insurance proceeds of $2,655,000
resulted from insurance proceeds that the Company received in excess of the net
book value of assets that were destroyed in a fire at the Company's Duluth
station.
Six months ended June 30, 1999 and 1998
- ---------------------------------------
Net revenue totaled $74,800,000 a decrease of $5,659,000 or 7 percent compared
to $80,459,000 for the six months ended June 30, 1998. The decrease was
primarily due to the loss of Olympic-related advertising revenue at the
Company's CBS affiliated stations and the loss of political advertising in a
non-election year. The decrease was also due to the loss of revenue from the
disposition of the Kalamazoo and Lansing stations, offset, in part, by the added
revenues from the acquisition of the San Francisco station.
Station operating expenses totaled $45,159,000; an increase of $472,000 or 1
percent compared to $44,687,000 for the six months ended June 30, 1998. The
increase was primarily due to increases in programming and promotion expenses,
offset, in part, by an overall reduction in expenses resulting from the
acquisition and dispositions.
Broadcast cash flow (net revenue less station operating expenses) totaled
$29,641,000, a decrease of $6,131,000 or 17 percent compared to $35,772,000 for
the six months ended June 30, 1998. The decrease was primarily due to the
changes in net revenue and station operating expenses discussed above.
-9-
<PAGE>
Amortization expense increased $5,664,000 or 79 percent due to additional
intangible amortization expense at San Francisco. Corporate expense increased
$755,000 or 19 percent primarily due to the earlier incurrence of certain
expenses. It is anticipated that corporate expense will decrease during the
second half of 1999 as compared to the same period a year earlier, resulting in
a slight increase for the full year. Net interest expense increased $1,204,000
or 6 percent during the six months ended June 30, 1999 as compared to the same
period a year earlier. The increase was primarily due to higher levels of
outstanding indebtedness as a result of the acquisition of the San Francisco
station, offset in part, by the results of the Company's strategic plan to
reduce its cost of borrowing. The Company has periodically repurchased portions
of its subordinated debentures using borrowings under its bank facility, which
bears interest at a lower rate.
Non-cash interest expense increased $552,000 or 61% during the six months ended
June 30, 1999 as compared to the same period a year earlier, reflecting the
imputing of interest on a non-interest bearing obligation in connection with the
San Francisco acquisition. The gain on insurance proceeds of $2,655,000 resulted
from insurance proceeds that the Company received in excess of the net book
value of assets that were destroyed in a fire at the Company's Duluth station.
Liquidity and Capital Resources
- -------------------------------
The Company's bank credit agreement (the "Credit Agreement") provides for
revolving credit borrowings of $260,000,000 and permits borrowings of up to an
additional $240,000,000 on an uncommitted basis. The Credit Agreement can be
used to fund future acquisitions of broadcast stations and for general working
capital purposes, subject to certain limitations of the financial covenants
thereunder. As of March 23, 1999, the Company amended the Credit Agreement to
revise the maximum consolidated total debt to consolidated cash flow ratio
covenant contained therein. As of August 10, 1999, the Company had $96,000,000
of borrowings outstanding under the Credit Agreement.
On April 29, 1999, the Company entered into a definitive agreement with CBS
Corporation ("CBS") whereby CBS will acquire from the Company substantially all
of the assets of KEYE-TV, the CBS affiliate serving Austin, Texas, for
$160,000,000 in cash, subject to certain adjustments. Consummation of the
transaction is contingent upon final approval by the Federal Communications
Commission and satisfaction of other customary closing conditions. The sale is
expected to be consummated during the fourth quarter of 1999. The Company
anticipates recognizing a gain for financial reporting purposes of $106,000,000.
It is anticipated that the proceeds from the sale will be used to reduce
indebtedness, thus providing the Company with the flexibility necessary to
improve its capital structure and lower its cost of capital.
The Company anticipates paying 1999 federal and state income taxes of
approximately $29,000,000 during the first quarter of 2000. Such taxes relate
primarily to the gain on the sale of KEYE-TV.
-10-
<PAGE>
Net cash used in operating activities was $3,178,000 during the six months ended
June 30, 1999 compared to net cash provided by operating activities of
$8,259,000 during the six months ended June 30, 1998, a decrease of $11,437,000
or 138 percent. The decrease was primarily due to lower operating cash flow and
a increase in cash used as a result of changes in net operating assets.
Net cash used in investing activities was $934,000 during the six months ended
June 30, 1999 compared to $2,943,000 during the six months ended June 30, 1998.
The decrease was primarily due to insurance proceeds received as reimbursement
for the replacement cost of capital lost in a fire at the Company's Duluth
station. The Company anticipates that future requirements for capital
expenditures will include those incurred during the ordinary course of business,
which include costs associated with the implementation of digital television
technology and Year 2000 issues.
Net cash provided by financing activities was $5,857,000 during the six months
ended June 30, 1999 compared to net cash used in financing activities of
$782,000 during the six months ended June 30, 1998. The increase resulted
primarily from a net decrease in bank borrowings and a decrease in payments for
financing fees, offset, in part, by the issuance of subordinated notes during
the six months ended June 30, 1998.
The Company believes that internally generated funds from operations and
borrowings under the Credit Agreement 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. The Company expects that any
future acquisitions of television stations would be financed through funds
generated from operations and additional debt and equity financings
Year 2000
- ---------
The Company is preparing for the impact of the Year 2000 on its business, as
well as on the businesses of its customers, suppliers and business partners. The
"Year 2000 Issue" is the result of computer programs that were written using two
digits rather than four to define the applicable year. Any of the computer
programs and/or hardware used by the Company that have date-sensitive software
or embedded chips may recognize a date using "00" as the year 1900 rather than
the year 2000. The Year 2000 Issue could result in system failure or
miscalculations in the operations at the Company's broadcast and corporate
locations. The disruption of operations could include, among other things, a
temporary inability to originate and transmit broadcast programming and
commercials, process financial information or engage in other normal business
activity. The Company may also be exposed to risks from third parties with which
the Company interacts who fail to adequately address their own Year 2000 Issues.
-11-
<PAGE>
State of Readiness
- ------------------
The Company has developed a multiple phase approach to identify and evaluate its
state of Year 2000 readiness for both its information technology (IT) and non-IT
systems. The first phase was to develop a Company-wide, uniform strategy for
addressing the Year 2000 Issue and to assess the Company's current state of Year
2000 readiness. This included an internal review at each location of all IT and
non-IT systems for potential Year 2000 Issues. The Company has completed this
review and has identified the systems that need to be updated or replaced to
ensure Year 2000 compliance. Based on these system evaluations, the Company has
determined that it will be required to modify or replace portions of its
software and certain hardware so that its systems will properly utilize dates
beyond December 31, 1999. The primary systems that are being addressed are the
master control automation systems, IBM AS/400, the computer used to process
sales, traffic, accounts receivable, accounts payable and the general ledger,
and systems with embedded chips, including telephone and security systems.
The next phase was to develop uniform test plans and test methodologies. The
Company has begun to test and update its systems, and expects that all testing
will be completed by the end of August 1999.
Although the Company has not yet completed all necessary phases of its Year 2000
program, it believes that it has an effective program in place to resolve its
critical internal Year 2000 Issues in a timely manner.
Costs to Address the Company's Year 2000 Issues
- -----------------------------------------------
The Company will incur capital expenditures and incremental expenses to bring
current systems into compliance. Total incremental expenses have not had a
material impact on the Company's financial condition to date and are not at
present, based on known facts, expected to have a material impact on the
Company's financial condition. The Company estimates the total cost of upgrading
equipment will be approximately $1,500,000, of which approximately $922,000 has
been incurred through June 30, 1999. All Year 2000 expenditures are made out of
each location's operating budget. There are no IT projects that have been
delayed due to Year 2000 efforts.
-12-
<PAGE>
Risks of the Company's Year 2000 Issues
- ---------------------------------------
While the Company believes its efforts will provide reasonable assurance that
material disruptions will not occur due to internal Year 2000 failures, the
possibility of disruption, especially from third parties, still exists. The
Company's operations are vulnerable to system failures experienced by the
network program providers, certain satellite services, software and hardware
providers, local and long distance telephone providers, power companies,
financial services providers and others upon whom the Company relies for
supporting services. In an effort to determine its vulnerabilities to third-
party Year 2000 failures, the Company has requested Year 2000 compliance data
from all of its suppliers and vendors. The Company will use this information in
an attempt to identify whether any of these parties has a Year 2000 Issue that
may materially impact the Company's operations, liquidity, capital resources or
certain other functions. The Company does not, however, control the systems of
other companies, and cannot assure that these systems will be timely converted
and, if not converted, would not have an adverse effect on the Company's
business operations. In the event that the Company and/or its significant
vendors or suppliers do not complete their Year 2000 compliance efforts, the
Company could experience disruptions in its operations, including a temporary
inability to engage in normal broadcast or business activities. Disruptions in
the economy generally resulting from Year 2000 Issues also could affect the
Company.
Contingency Plan
- ----------------
The Company is developing a contingency plan to address system failures that are
critical to conduct its business. This plan includes, but is not limited to,
increases in overtime salaries and/or increases in personnel to operate systems
that would ordinarily be operated by a computer. The Company expects to have its
contingency plan completed by September 1999.
Year 2000 Forward-Looking Statements
- ------------------------------------
The foregoing Year 2000 discussion contains "forward-looking statements" within
the meaning of Section 21E of the Securities Exchange Act of 1934. Such
statements, including without limitation, anticipated costs and the dates by
which the Company expects to complete certain actions, are based on management's
best current estimates, which were derived utilizing numerous assumptions about
future events, including the continued availability of certain resources,
representations received from third parties and other factors. However, there
can be no guarantee that these estimates will be achieved, and actual results
could differ materially from those anticipated. Specific factors that might
cause such material differences include, but are not limited to, the ability to
identify and remediate all relevant IT and non-IT systems, results of Year 2000
testing, adequate resolution of Year 2000 Issues by businesses and other third
parties who are service providers, suppliers or customers of the Company,
unanticipated system costs, the adequacy of and ability to develop and implement
contingency plans and similar uncertainties. The "forward-looking statements"
made in the foregoing Year 2000 discussion speak only as of the date on which
such statements are made, and the Company undertakes no obligation to update any
forward-looking statement to reflect events or circumstances after the date on
which such statement is made or to reflect the occurrence of unanticipated
events.
-13-
<PAGE>
PART II
-------
OTHER INFORMATION
-----------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On April 27, 1999, the holders of all of the Company's Voting Common Stock
adopted resolutions by written consent in lieu of an annual meeting appointing
Ernst & Young LLP as independent auditors of the Company and electing W. Don
Cornwell, Stuart J. Beck, James L. Greenwald, Martin F. Beck, Edward Dugger III,
Thomas R. Settle, Charles J. Hamilton, Jr., Robert E. Selwyn, Jr., M. Fred Brown
and Jon E. Barfield as directors of the Company.
On July 27, 1999, the holders of all of the Company's Voting Common Stock,
par value $.01 per share, adopted resolutions by written consent in lieu of a
special meeting amending the Granite Broadcasting Corporation Directors' Stock
Option Plan to increase the number of shares of Common Stock (Nonvoting)
authorized for grant under the plan.
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
10.1 Granite Broadcasting Corporation Stock Option Plan, as amended
through July 27, 1999.
10.19 Granite Broadcasting Corporation Directors' Stock Option Plan,
as amended through July 27, 1999.
27. Financial Data Schedule.
(b) Reports on Form 8-K
Current Report on Form 8-K filed May 11, 1999, reporting an agreement in
principle entered into by and among the Company, certain of the Company's
subsidiaries and CBS Corporation, a Pennsylvania corporation ("CBS"), whereby
CBS would acquire the assets of KEYE-TV, the CBS affiliate serving the Austin,
Texas television market, for a total purchase price of $160 million in cash,
subject to certain adjustments. No financial statements were filed at such time.
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has caused this report to be signed by an officer
and the principal accounting officer on its behalf by the undersigned thereunto
duly authorized.
GRANITE BROADCASTING CORPORATION
Registrant
Date August 13, 1999 /s/ W. DON CORNWELL
--------------------------------------
(W. Don Cornwell)
Chief Executive Officer
Date August 13, 1999 /s/ LAWRENCE I. WILLS
--------------------------------------
(Lawrence I. Wills)
Vice President, Finance and Controller
(Principal Accounting Officer)
<PAGE>
Exhibit 10.1
GRANITE BROADCASTING CORPORATION
STOCK OPTION PLAN
--------------------------------
As amended through July 27, 1999
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, July 24, 1996, April 29, 1997, January 8,
1999, February 23, 1999 and July 27, 1999 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 6,000,000 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 agreed upon, a certificate or certificates for
the shares being purchased; provided, however, that the time of
-3-
<PAGE>
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.
The Stock Option Committee may provide, at or subsequent to the date
of grant of an option, that in the event an Optionee pays the option price
of such option (in whole or in part) by tendering Common Stock owned by the
Optionee, such Optionee shall automatically be granted a reload option for
the number of shares of Common Stock used to pay the exercise price. The
reload option shall be subject to the terms and conditions that the Stock
Option Committee will in its discretion provide, consistent with the terms
of the Plan. Unless the Stock Option Committee explicitly provides
otherwise, if a reload option is granted as set forth above, one or more
successive reload options will be automatically granted to an Optionee who
pays all or part of the exercise price of any such reload option by
tendering Common Stock owned by the Optionee.
(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
-4-
<PAGE>
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 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,
-5-
<PAGE>
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 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
-6-
<PAGE>
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.
(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
-7-
<PAGE>
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
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
-8-
<PAGE>
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.
(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
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<PAGE>
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 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
-10-
<PAGE>
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 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
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<PAGE>
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
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."
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
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<PAGE>
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 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
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<PAGE>
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 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.
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<PAGE>
Exhibit 10.19
GRANITE BROADCASTING CORPORATION
DIRECTORS' STOCK OPTION PLAN
----------------------------
As amended through July 27, 1999
ARTICLE I
GENERAL
-------
1.01. Purpose. The purpose of the Granite Broadcasting Corporation Directors'
-------
Stock Option Plan (the "Plan") is to promote the overall financial objectives of
Granite Broadcasting Corporation (the "Company") and its stockholders by
aligning the interests of the Company's stockholders and its Non-Employee
Directors (as defined in Article IV) through the grant of options to acquire
shares of the Company's Common Stock (Nonvoting), par value $.01 per share, and
any other stock or security resulting from the adjustment thereof or
substitution therefor pursuant to Section 8.02 ("Common Stock (Nonvoting)"). The
Plan is also intended to attract and retain well-qualified persons for service
as Non-Employee Directors. The Plan is designed to comply with the provisions of
Rule 16b-3 ("Rule 16b-3") promulgated under Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
1.02. Options. For the purposes of the Plan, the right to acquire a specified
-------
number of shares of Common Stock (Nonvoting) at a stated price in accordance
with the terms of this Plan and an Option Agreement (as defined in Section 6.02)
shall be referred to as an "Option." Options granted under the Plan will not
qualify as "Incentive Stock Options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
1.03. Effective Date of Plan. This Plan shall become effective on March 1,
----------------------
1994 (the "Effective Date"); provided, however, that the approval by a majority
(or such other proportion as may be required by state law or the Certificate of
Incorporation of the Company) of the outstanding shares of Voting Common Stock,
par value $.01 per share, of the Company (the "Voting Common Stock"), voted
either in person or by proxy, at a duly held stockholders meeting or by written
consent is obtained within twelve (12) months of such adoption.
ARTICLE II
ADMINISTRATION OF THE PLAN
--------------------------
The Plan shall be implemented and administered by the Board. Subject to
the terms and conditions of the Plan, the Board shall have the power to construe
the provisions of the Plan, to determine all questions arising thereunder, and
to
<PAGE>
adopt and amend such rules and regulations for administering the Plan as the
Board deems desirable. In construing, amending and administering the Plan, the
Board shall have full and final discretion in all of its actions under the Plan
only to the extent consistent with Rule 16b-3(c)(2)(ii) promulgated under the
Exchange Act. All expenses of administering the Plan shall be borne by the
Company.
ARTICLE III
STOCK SUBJECT TO THE PLAN
-------------------------
3.01. Number of Shares. The stock subject to the Options granted under this
----------------
Plan shall be the Common Stock (Nonvoting). Under the Plan, Options may be
granted to purchase up to 1,000,000 shares of Common Stock (Nonvoting), subject
to adjustment as provided in Section 8.02. The shares of Common Stock
(Nonvoting) to be issued upon the exercise of Options may be authorized but
unissued shares, or shares issued and reacquired by the Company.
3.02. Release of Shares. If any Option granted hereunder shall be cancelled,
-----------------
expire or terminate for any reason without having been exercised in full, the
shares of Common Stock (Nonvoting) subject to such Option shall thereafter again
be available to be granted under the Plan.
3.03. Stockholder Rights. No person shall have any rights of a stockholder of
------------------
the Company with respect to shares of Common Stock (Nonvoting) subject to an
Option until, after proper exercise of the Option, such shares have been
recorded on the Company's official stockholder records as having been issued or
transferred to the party exercising the Option. No adjustment shall be made for
dividends or other rights for which the record date is prior to the date such
shares are recorded as issued or transferred (to the party exercising the
Option) in the Company's official stockholder records, except as provided in
Section 8.02. The Company shall cause its transfer agent to record the shares as
issued or transferred.
3.04. Stock Valuation. If and when the value or closing price of Common Stock
---------------
(Nonvoting) shall be required to be determined, it shall be the closing price
reported on the NASDAQ National Market or the principal securities exchange on
which the Common Stock (Nonvoting) may then be traded, as the case may be, or,
if there is no such sale on the relevant date, then on the last previous day on
which a sale was reported (which value or closing price shall be referred to
herein as the "Fair Market Value per share," or for a group of shares, as the
total "Fair Market Value").
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<PAGE>
ARTICLE IV
ELIGIBILITY
-----------
Each member of the Board who is not an employee, either full-time or part-
time, of the Company (each a "Non-Employee Director") shall be eligible to
receive Options to purchase shares of Common Stock (Nonvoting) in accordance
with Article V. A person to whom an Option hereunder is granted shall be
referred to hereinafter as an "Optionee" and such term shall include any person
who is appointed as a guardian of the Optionee's estate, any legal
representative of the Optionee's estate and any person to whom the Option is
transferred pursuant to the applicable laws of descent and distribution.
ARTICLE V
GRANT OF OPTIONS
----------------
5.01. Director Service Awards.
-----------------------
(a) During the five (5) day period commencing on the Effective Date, each
Director shall have the right to make an irrevocable three-year election to
receive Options as compensation payable to such Director for attendance at
regular quarterly meetings ("Regular Board Meetings") of the Board (an "Option
Election"). Each Director making an Option Election shall receive an Option to
purchase 10,800 shares of Common Stock (Nonvoting) ("1994 Awards") in lieu of
the cash compensation that he would otherwise receive for attending Regular
Board Meetings during the period from and including the Effective Date until the
earlier to occur of: (i) termination of such Director's membership on the Board
("Completion of Service"); or (ii) the day immediately preceding the 1997
Triennial Period Commencement Date (as defined below) (the "1994 Triennial
Period Completion Date"). Each Director who received 1994 Awards shall be
granted an Option, dated July 25, 1995, to purchase 3,600 shares of Common Stock
(Nonvoting) ("1995 Awards"), which number of shares equals 600 multiplied by the
number of Regular Board Meetings from July 24, 1995 until the 1997 Triennial
Period Completion Date (as defined below), as compensation for attendance at
Regular Board Meetings during the period from and including the Date of Grant of
the Option until the earlier to occur of: (i) his or her Completion of Service;
or (ii) the 1997 Triennial Period Completion Date.
(b) On February 25, 1997 (the "1997 Triennial Period Commencement Date"),
each Director then in office shall be granted an Option to purchase 18,000
shares of Common Stock (Nonvoting) ("1997 Awards"), which Option shall serve as
the Director's Compensation for attendance at Regular Board Meetings during the
period from and including the Date of Grant of the Option until the earlier to
occur of: (i) his or her Completion of Service; or (ii) the day immediately
preceding the initial
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<PAGE>
Quinquennial Period Commencement Date (as defined below) (the "1997 Triennial
Period Completion Date"). Each Director who received 1997 Awards shall be
granted an Option, dated April 27, 1999, to purchase 4,875 shares of Common
Stock (Nonvoting) ("1999 Awards"), which number of shares equals 1,625
multiplied by the number of Regular Board Meetings from April 26, 1999 until the
1997 Triennial Period Completion Date, as compensation for attendance at Regular
Board Meetings during the period from and including the Date of Grant of the
Option until the earlier to occur of: (i) his or her Completion of Service; or
(ii) the 1997 Triennial Period Completion Date.
(c) On April 27, 1999 and on each five year anniversary thereof (each such
date a "Quinquennial Period Grant Date"), each Director then in office shall be
granted an Option to purchase 62,500 shares of Common Stock (Nonvoting), which
Option shall serve as the Director's Compensation for attendance at Regular
Board Meetings during the period from and including February 25, 2000 (each such
date and each five year anniversary thereof, a "Quinquennial Period Commencement
Date") until the earlier to occur of: (i) his or her Completion of Service; and
(ii) the day immediately preceding the next Quinquennial Period Commencement
Date (each such date, a "Quinquennial Period Completion Date"). Any
compensation for attendance at any other meetings of the Board shall be only in
cash.
(d) Each person who first becomes a Director after the Effective Date
(other than on the 1997 Triennial Period Commencement Date or on a Quinquennial
Period Grant Date) shall be granted, on the date such Director is first elected
a Director of the Company, an Option to purchase a number of shares equal to:
the number of Regular Board Meetings scheduled from the date of his or her
commencement of service as a Director until the earlier of the 1994 Triennial
Period Completion Date, the 1997 Triennial Period Completion Date or the
Quinquennial Period Completion Date for the period covered by the award, as
applicable, multiplied by 1,500, in the case of Regular Board Meetings prior to
April 27, 1999, or 3,125, in the case of Regular Board Meetings on or after
April 27, 1999. All Options granted pursuant to Sections 5.01(b)-(d) shall serve
as the Director's compensation for attendance at Regular Board Meetings during
the period from and including his or her election as a Director until the
earlier to occur of: (i) his or her Completion of Service; or (ii) the 1994
Triennial Period Completion Date, the 1997 Triennial Period Completion Date, or
the Quinquennial Period Completion Date for the period covered by the award, as
applicable.
5.02. Committee Service Awards.
------------------------
(a) On the Effective Date and on the first anniversary of the Effective
Date, each Director shall be granted an Option to purchase 400 shares of Common
Stock (Nonvoting) (an "Annual
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<PAGE>
Committee Award") as compensation for service on each committee of the Board on
which he or she serves, if any.
(b) On July 25, 1995, each Director who is then a member of the Company's
Audit Committee or Compensation Committee (each such Committee and only such
Committees being a "Board Committee") shall be granted an Option to purchase
6,000 shares of Common Stock (Nonvoting) (a "1995 Committee Award") for service
on each Board Committee on which he or she is a member. On the 1997 Triennial
Period Commencement Date, each Director who is then a member of a Board
Committee shall be granted an Option to purchase 9,000 shares of Common Stock
(Nonvoting) for service on each Board Committee on which he or she is a member.
On each Quinquennial Period Grant Date, each Director who is then a member
(other than the Chair) of a Board Committee shall be granted an Option to
purchase 12,500 shares of Common Stock (Nonvoting) for service on each Board
Committee on which he or she is a member, and each Director who is then the
Chair of a Board Committee shall be granted an Option to purchase 17,500 shares
of Common Stock (Nonvoting) for service as the Chair of such Board Committee.
(c) Each person who becomes a member of a specific Board Committee for the
first time after July 25, 1995 but prior to February 24, 2000 (other than on the
1997 Triennial Period Commencement Date), shall be granted an Option to purchase
a number of shares of Common Stock (Nonvoting) equal to 9,000 minus 1,500
multiplied by the number of complete 180 day periods from the Triennial Period
Commencement Date immediately preceding the Date of Grant of such Option until
the Date of Grant. Each person who becomes a member of a specific Board
Committee for the first time after February 25, 2000 (other than on a
Quinquennial Period Grant Date), shall be granted an Option to purchase a number
of shares of Common Stock (Nonvoting) equal to 12,500 (17,500 in the case of a
Board Committee Chair) minus 625 (875 in the case of a Board Committee Chair)
multiplied by the number of regular quarterly meetings of such Board Committee
("Regular Committee Meetings") from the Quinquennial Period Commencement Date
immediately preceding the Date of Grant of such Option until the Date of Grant.
Notwithstanding the above, each person who becomes a member of a specific Board
Committee for the first time between April 28, 1999 and February 24, 2000 shall
be granted an Option to purchase a number of shares of Common Stock (Nonvoting)
equal to the sum of (i) the number of complete 180 day periods from the Date of
Grant of such Option until February 24, 2000 multiplied by 1,500 and (ii) 12,500
(or 17,500 in the case of Board Committee Chair). After February 25, 2000, each
person who becomes a member of a specific Board Committee for the first time
between a Quinquennial Period Grant Date and the Quinquennial Period
Commencement Date to which such Quinquennial Period Grant Date relates, shall be
granted an Option to purchase a number of shares of Common Stock (Nonvoting)
equal to the sum of (i) the number of Regular Committee Meetings between the
Date of Grant and the immediately
-5-
<PAGE>
following Quinquennial Period Commencement Date multiplied by 625 (875 in the
case of a Board Committee Chair) and (ii) 12,500 (or 17,500 in the case of Board
Committee Chair).
(d) All Options granted pursuant to Sections 5.02(b)-(c) with respect to
periods prior to and including February 24, 2000 shall serve as compensation to
Board Committee members for attendance at Regularly Scheduled Committee Meetings
of the Board Committee for which the Option was granted occurring from the Date
of Grant of such Options until the earlier to occur of: (i) termination of such
Director's membership on the Board Committee; or (ii) the 1994 Triennial Period
Completion Date (in the case of grants on or prior to February 24, 1997) or the
1997 Triennial Completion Date (in the case of grants on or after February 25,
1997). For purposes of this Plan, Regularly Scheduled Committee Meetings shall
mean up to two meetings per calendar year of a Board Committee occurring on, or
within 30 days' prior to, a Regular Board Meeting. All Options granted pursuant
to this Section 5.02(b) with respect to periods beginning on or after February
25, 2000 shall serve as compensation to Board Committee members for attendance
at Regular Committee Meetings of the Board Committee for which the Option was
granted occurring from the Date of Grant of such Options until the earlier to
occur of: (i) termination of such Director's membership on the Board Committee;
or (ii) the Quinquennial Period Completion Date for the five year period to
which the grant relates.
ARTICLE VI
TERMS AND CONDITIONS OF OPTIONS
-------------------------------
6.01. Exercise Price. The price per share of each share of Common Stock
--------------
(Nonvoting) purchased upon the exercise of an Option shall be the Fair Market
Value per share of the Common Stock (Nonvoting) on the date the Option is
granted (the "Date of Grant").
6.02. Option Agreement. Each Option granted under this Plan shall be evidenced
----------------
by an option agreement (an "Option Agreement"), which shall embody the terms and
conditions of such Option and which shall be subject to the express terms and
conditions set forth in the Plan.
6.03. Term of Option; Exercisability.
------------------------------
(a) With respect to all awards granted on or prior to the 1994 Triennial
Period Completion Date (other than Annual Committee Awards), subject to the
provisions of Articles VII and IX and Section 8.02, on the first anniversary of
the date of attendance, in person, at each Regular Board Meeting or Regularly
Scheduled Committee Meeting, as applicable, held prior to the 1994 Triennial
Period Completion Date, Options to purchase 1,500 (900 shares with respect to
the 1994 Grants and
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<PAGE>
600 shares with respect to the 1995 Grants) shares of Common Stock (Nonvoting)
shall become fully exercisable. All Annual Committee Service Awards shall become
fully exercisable on the first anniversary of the Date of Grant thereof.
(b) With respect to all awards granted on or after the 1997 Triennial
Period Commencement Date for periods ending on or prior to the 1997 Triennial
Period Completion Date, subject to the provisions of Article VII and IX and
Section 8.02, (i) Options to purchase 1,500 shares of Common Stock (Nonvoting)
shall become fully exercisable on the date of attendance, in person, at each
Regular Board Meeting held prior to April 27, 1999 or each Regularly Scheduled
Committee Meeting, as applicable, held prior to the 1997 Triennial Completion
Date, and (ii) Options to purchase 3,125 shares of Common Stock (Nonvoting)
shall become fully exercisable on the date of attendance, in person, at each
Regular Board Meeting on or after April 27, 1999 and prior to the 1997 Triennial
Period Completion Date.
(c) With respect to all awards granted on or after April 27, 1999 for
periods beginning on or after the initial Quinquennial Period Commencement Date,
subject to the provisions of Article VII and IX and Section 8.02, (i) Options to
purchase 3,125 shares of Common Stock (Nonvoting) shall become fully exercisable
on the date of attendance, in person or by telephonic means, at each Regular
Board Meeting held prior to the Quinquennial Period Completion Date for the
period covered by the award, and (ii) if applicable, Options to purchase 625
(875 in the case of a Board Committee Chair) shares of Common Stock (Nonvoting)
shall become fully exercisable on the date of attendance, in person or by
telephonic means, at each Regular Committee Meeting held prior to the
Quinquennial Period Completion Date for the period covered by the award.
(d) Notwithstanding anything to the contrary contained in this Section
6.03, no Options shall become exercisable prior to the amendment of the
Company's Certificate of Incorporation to increase the authorized number of
shares of Common Stock (Nonvoting) to at least 30,000,000 shares. Once
exercisable, all Options, unless earlier terminated pursuant to the provisions
of the Plan, shall remain exercisable until ten (10) years from the Date of
Grant (the "Option Period"). An exercisable Option, or portion thereof, may be
exercised in whole or in part only with respect to whole shares of Common Stock
(Nonvoting).
(e) All Options (whenever granted, that could become exercisable as a
result of attendance at a future Regular Board Meeting or Regular Committee
Meeting or that, upon the passage of time following attendance at a prior
Regular Board Meeting or Regular Committee Meeting, would become exercisable)
shall become immediately exercisable upon: (i) the death or disability (as
defined in Section 22(e)(3) of the Code) of such Optionee;
-7-
<PAGE>
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."
6.04. Method of Exercise. An Option may be exercised: (i) by giving written
------------------
notice to the Company's Secretary at the Company's main office, 767 Third
Avenue, New York, New York 10019 (or any office which is the successor main
office or which is otherwise designated as the office to which such notice is to
be given), specifying the number of whole shares to be purchased and accompanied
by payment therefor in full in a method provided in Section 6.05 below; and (ii)
by executing such documents as the Company may reasonably request to satisfy the
Optionee's obligations under the Plan and the Option Agreement. No shares of
Common Stock (Nonvoting) shall be issued until the full purchase price therefor
has been paid and the withholding obligations described in Article XII have been
satisfied. The Company shall deliver to the Optionee (or to such other person)
at the principal office of the Company, or such other place as shall be mutually
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 the law. Pursuant to Article IX, the Company may also
require that, at the time of exercise, each Optionee 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.
6.05. Method of Payment. The purchase price of the shares of Common Stock
-----------------
(Nonvoting) as to which an Option shall be exercised, shall be paid to the
Company: (i) in cash; (ii) in previously owned whole shares of Common Stock
(Nonvoting)(for which the director has good title free and clear of all liens
and encumbrances) having a Fair Market Value determined as of the date of
exercise; or (iii) a combination of (i) and (ii).
6.06. Reload Option. The Board may provide, at or subsequent to the date of
-------------
grant of an option, that in the event an Optionee pays the option price of such
option (in whole or in part) by tendering Common Stock owned by the Optionee,
such Optionee shall automatically be granted a relaod option for the number of
shares of Common Stock used to pay the exercise price. The reload option shall
be subject to the terms and conditions that the Board will in its discretion
provide, consistent with the terms of the Plan. Unless the Board explicitly
provides otherwise, if a reload option is granted as set forth above, one or
more successive reload options will be automatically granted to an Optionee who
pays all or part of the exercise price of any such reload option by tendering
Common Stock owned by such Optionee.
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<PAGE>
6.07. Non-assignability. 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 Board may, in its discretion,
authorize all or a portion of the Option 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 Board 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 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.
ARTICLE VII
TERMINATION
-----------
7.01. Disability or Death. If a Non-Employee Director's directorship terminates
-------------------
by reason of Disability (as defined herein) or death, any Option granted under
the Plan and held by the Non-Employee Director may thereafter be exercised by
such Director (or the duly appointed guardian of the director's estate or the
legal representative of the director's estate or the person to whom the Option
is transferred pursuant to applicable laws of descent and distribution) at any
time prior to the earlier to occur of six (6) months after the date of such
termination of the Non-Employee's Director's directorship and the expiration of
the Option Period, but, subject to Section 6.03(d), only to the extent of the
number of shares for which Options were then exercisable by him on the date of
termination. If a Non-Employee Director dies during the six (6) month period
following termination of such director's directorship by reason of Disability,
any Option held by the Non-Employee Director may thereafter be exercised by the
legal representative of the Director's estate (or the person to whom the Option
is transferred pursuant to applicable laws of descent and
-9-
<PAGE>
distribution) for a period of six (6) months from the date of death. A
Disability shall mean a permanent physical or mental incapacity which, in the
reasonable determination of the Board, renders the Optionee unable to perform
the duties of a director of the Company.
7.02. Other Termination. If a Non-Employee Director's directorship terminates
-----------------
for any reason other than Disability or death, any Option held by the Non-
Employee Director (excluding any Option which, as of the date of the termination
of directorship, was not then exercisable) may thereafter be exercised at any
time prior to the earlier to occur of the second anniversary of such date of
termination of directorship and the expiration of the Option Period.
7.03. Automatic Termination. Any Option or any portion thereof that does not
---------------------
become exercisable within six (6) years after the Date of Grant thereof shall
automatically terminate on such sixth anniversary of the Date of Grant.
ARTICLE VIII
PROVISIONS APPLICABLE TO THE PLAN
---------------------------------
8.01. Duration of the Plan. The Plan shall continue in effect until it is
--------------------
terminated by action of the Board, but such termination shall not affect the
terms of any then-outstanding Options.
8.02. Adjustments.
-----------
(a) 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 Common Stock (Nonvoting) 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 (b) or (c) of this
Section 8.02, 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
Common Stock (Nonvoting) then subject to outstanding Options.
-10-
<PAGE>
(b) Adjustment of Options on Recapitalization. The aggregate number of
-----------------------------------------
shares of Common Stock (Nonvoting) 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 (Nonvoting) 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 any other distribution to all holders of Common
Stock (Nonvoting) other than normal cash dividends; provided, however, that any
Options to purchase fractional shares resulting from any such adjustment shall
be eliminated.
(c) Adjustment of Options Upon Reorganization.
-----------------------------------------
(i) 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 Common Stock
(Nonvoting) 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 (Nonvoting) 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.
(ii) The resulting corporation 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 option.
8.03. Amendments of the Plan. The Board may amend this Plan as it shall deem
----------------------
advisable, subject to any requirements of stockholder approval imposed by
applicable law; provided, however, that the Plan may not be amended in a manner
which fails to comply with Rule 16b-3(c)(2)(ii)(B) promulgated under Section 16
of the Exchange Act. No amendment may impair the rights of a holder of an
outstanding Option without the consent of such holder.
-11-
<PAGE>
ARTICLE IX
REQUIREMENTS OF LAW
-------------------
9.01. The Company shall not be required to sell or issue any shares upon the
exercise of 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 (Nonvoting)
covered by an Option, the Company shall not be required to issue shares upon
exercise of any Option unless: (i) the Company 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) an opinion of counsel to the Company has been received by the Company, in a
form and substance which is deemed acceptable by the Company, to the effect that
a registration statement is not required. Any determination in this connection
by the Company 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 that 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 an 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."
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.
-12-
<PAGE>
ARTICLE X
USE OF PROCEEDS
---------------
10.01. The proceeds of the sale of Common Stock (Nonvoting) pursuant to the
exercise of the Options will be used for the Company's general corporate
purposes.
ARTICLE XI
INDEMNIFICATION OF THE
BOARD OF DIRECTORS
------------------
11.01. Each member of the Board 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 the Board, whether
or not he continues to be a member of the Board at the time of incurring such
loss, liabilities, costs and expenses. Notwithstanding any of the foregoing, no
member of the Board shall be entitled to such indemnification from the Company
for any loss, liabilities, costs and expenses incurred by him: (i) 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 the Board; or (ii) 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 such member the Board unless, within
sixty (60) days after institution of any such action, suit or proceeding, he
shall have 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 member of the
Board and shall be in addition to all other rights to which such member of the
Board may be entitled as a matter of law, contract or otherwise.
ARTICLE XII
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.
-13-
<PAGE>
ARTICLE XIII
GENERAL PROVISIONS
------------------
13.01. Effect on Service. Neither the adoption of this Plan, its operation,
-----------------
nor any documents describing or referring to this Plan (or any part thereof)
shall confer upon any Participant any right to continue service as a member of
the Board.
13.02. Unfunded Plan. The Plan, insofar as it provides for grants, shall be
-------------
unfunded, and the Company shall not be required to segregate any assets that may
at any time be represented by grants under this Plan. Any liability of the
Company to any person with respect to any grant under this Plan shall be based
solely upon any contractual obligations that may be created pursuant to this
Plan. No such obligation of the Company shall be deemed to be secured by any
pledge of, or other encumbrance on, any property of the Company.
13.03. Rules of Construction. Headings are given to the articles and sections
---------------------
of this Plan solely as a convenience to facilitate reference. The reference to
any statute, regulation, or other provision of law shall be construed to refer
to any amendment to or successor of such provision of law.
13.04 Applicable Law. The Plan shall be construed, governed and enforced in
--------------
accordance with the laws of the State of Delaware, without regard to choice of
law principles.
-14-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRANITE
BROADCASTING CORPORATION'S 2ND QUARTER FORM 10-Q AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,507,986
<SECURITIES> 0
<RECEIVABLES> 35,066,370
<ALLOWANCES> 466,968
<INVENTORY> 0
<CURRENT-ASSETS> 105,061,941
<PP&E> 59,665,850
<DEPRECIATION> 28,105,850
<TOTAL-ASSETS> 769,476,314
<CURRENT-LIABILITIES> 32,728,996
<BONDS> 433,937,145
228,162,250
0
<COMMON> 120,071
<OTHER-SE> (21,390,350)
<TOTAL-LIABILITY-AND-EQUITY> 769,476,314
<SALES> 0
<TOTAL-REVENUES> 74,800,227
<CGS> 0
<TOTAL-COSTS> 66,032,782
<OTHER-EXPENSES> (597,226)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,205,364
<INCOME-PRETAX> (10,840,693)
<INCOME-TAX> (3,464,990)
<INCOME-CONTINUING> (7,375,703)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,375,703)
<EPS-BASIC> (1.75)
<EPS-DILUTED> (1.75)
</TABLE>
