-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RHp7sQ36cS0EQVlqHZ+mu0k+yzNps6oS5R/Nw4ZTq0RdCh2qSctgSj1GAyXH4pMj UcmllXmCQk6BzFwlgSN/3A== 0000912057-00-014775.txt : 20000331 0000912057-00-014775.hdr.sgml : 20000331 ACCESSION NUMBER: 0000912057-00-014775 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRANITE BROADCASTING CORP CENTRAL INDEX KEY: 0000839621 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 133458782 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-19728 FILM NUMBER: 585396 BUSINESS ADDRESS: STREET 1: 767 THIRD AVE 34TH FL CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128262530 MAIL ADDRESS: STREET 1: 767 THIRD AVE 34TH FL CITY: NEW YORK STATE: NY ZIP: 10017 10-K 1 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------------------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 ---------------------------- For the fiscal year ended December 31, 1999 Commission file number 0-19728 GRANITE BROADCASTING CORPORATION ---------------------------------------------------- (Exact name of registrant as specified in its charter) DELAWARE 13-3458782 ---------------------- ----------------- (State of Incorporation) (I.R.S. Employer Identification No.) 767 Third Avenue, 34th Floor New York, New York 10017 (212) 826-2530 -------------------------------------------------- (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ---------------------------- SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock (Nonvoting), $.01 par value per share Cumulative Convertible Exchangeable Preferred Stock, $.01 par value per share ---------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in any definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. |_| As of March 1, 2000, 18,168,071 shares of Granite Broadcasting Corporation Common Stock (Nonvoting) were outstanding. The aggregate market value (based upon the last reported sale price on the Nasdaq National Market on March 1, 2000) of the shares of Common Stock (Nonvoting) held by non-affiliates was approximately $138,424,317. (For purposes of calculating the preceding amounts only, all directors and executive officers of the registrant are assumed to be affiliates.) As of March 1, 2000, 178,500 shares of Granite Broadcasting Corporation Class A Voting Common Stock were outstanding, all of which were held by affiliates. ---------------------------- DOCUMENTS INCORPORATED BY REFERENCE Portions of Item 14 of Part IV are incorporated by reference to: Granite Broadcasting Corporation's Registration Statement No. 33-43770, filed on November 5, 1991; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on June 25, 1993; Granite Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, filed on November 15, 1993; Amendment No. 2 to Granite Broadcasting Corporation's Registration Statement No. 33-71172, filed on December 16, 1993; Granite Broadcasting Corporation's Annual Report on Form 10-K for the year ended December 31, 1994, filed on March 29, 1995; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on July 14, 1995; Granite Broadcasting Corporation's Registration Statement No. 33-94862, filed on July 21, 1995; Amendment No. 2 to Granite Broadcasting Corporation's Registration Statement No. 33-94862, filed on October 6, 1995; Granite Broadcasting Corporation's Annual Report on Form 10-K for the year ended December 31, 1995, filed on March 28, 1996; Granite Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, filed on August 13, 1996; Granite Broadcasting Corporation's Annual Report on Form 10-K for the year ended December 31, 1996, filed on March 21, 1997; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on October 17, 1997; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on March 2, 1998; Granite Broadcasting Corporation's Registration Statement No. 333-56327, filed on June 8, 1998; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on July 1, 1998; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on August 13, 1998; Granite Broadcasting Corporation's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed on March 31, 1999; Granite Broadcasting Corporation's Current Report on Form 8-K, filed on May 11, 1999; and Granite Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, filed on November 15, 1999. PART I ITEM 1. BUSINESS Granite Broadcasting Corporation ("Granite" or the "Company"), a Delaware corporation, is a group broadcasting company founded in 1988 to acquire and manage network-affiliated television stations and other media and communications-related properties. The Company's goal is to identify and acquire properties that management believes have the potential for substantial long-term appreciation and to aggressively manage such properties to improve their operating results. The Company currently owns and operates nine network-affiliated television stations: KNTV(TV), the ABC affiliate serving San Jose, California and the Salinas-Monterey, California television market ("KNTV"); WTVH-TV, the CBS affiliate serving Syracuse, New York ("WTVH"); KSEE-TV, the NBC affiliate serving Fresno-Visalia, California ("KSEE"); WPTA-TV, the ABC affiliate serving Fort Wayne, Indiana ("WPTA"); WEEK-TV, the NBC affiliate serving Peoria-Bloomington, Illinois ("WEEK-TV"); KBJR-TV, the NBC affiliate serving Duluth, Minnesota and Superior, Wisconsin ("KBJR"); WKBW-TV, the ABC affiliate serving Buffalo, New York ("WKBW"); WDWB-TV, the WB Network affiliate serving Detroit, Michigan ("WDWB") and KBWB-TV, the WB Network affiliate serving San Francisco-Oakland-San Jose, California ("KBWB"). KBJR and WEEK were acquired in separate transactions in October 1988, WPTA was acquired in December 1989, KNTV was acquired in February 1990, WTVH and KSEE were acquired in December 1993, WKBW was acquired in June 1995, WDWB was acquired in January 1997 and KBWB was acquired in July 1998. The Company owns each of its television stations through separate wholly owned subsidiaries (collectively, the "Subsidiaries"; references herein to the "Company" or to "Granite" include Granite Broadcasting Corporation and its subsidiaries). The Company's long-term objective is to acquire additional television stations and to pursue acquisitions of other media and communications-related properties in the future. The Company is also committed to growing its Internet properties with the goal of becoming the number one local web destination in each of its markets. The Company's internet strategy is to provide compelling local news, weather, sports and entertainment information on each of its websites, leveraging its newsroom assets and the power of television to drive viewers to the Web. The Company plans to maintain its position as one of the most progressive broadcast groups in the area of new media by continuing to not only explore Internet opportunities, but to pursue broadband business applications that utilize digital terrestrial spectrum for the delivery of digital content and services. RECENT DEVELOPMENTS KNTV AFFILIATION CHANGE AND NBC ALLIANCE In September 1999, the Company and the American Broadcasting Companies, Inc. ("ABC") agreed to terminate the ABC affiliation of KNTV, the ABC affiliate serving the San Jose-Salinas-Monterey, California Designated Market Area ("DMA"), effective July 1, 2000. The Company received $14,000,000 in cash on September 1, 1999 in accordance with the agreement. On February 14, 2000, the Company announced the formation of a strategic alliance (the "Strategic Alliance") with the National Broadcasting Company, Inc. ("NBC"). Pursuant to the Strategic Alliance, KNTV is to become the NBC affiliate in the San Francisco-Oakland-San Jose California DMA for a ten-year term commencing on January 1, 2002 (the "San Francisco Affiliation"). The Company intends to file a petition with the Federal Communications Commission (the "FCC") to change KNTV's market designation from San Jose, California to San Francisco-Oakland-San Jose, California. In connection with the affiliation switch to NBC, the Company intends to expand KNTV's coverage to include a greater percentage of the San Francisco-Oakland-San Jose DMA. The Company has received permission from the FCC to increase KNTV's signal coverage, and anticipates consummating such increase in May 2000. The Company is also seeking to reach all cable homes in the San Francisco-Oakland-San Jose DMA through expanded cable coverage. In addition, NBC is to extend the term of the Company's NBC affiliation agreements with KSEE, WEEK and KBJR until December 31, 2011. As part of such extension, NBC's affiliation payment obligations to Granite for such stations will terminate as of December 31, 2001. The Strategic Alliance further contemplates co-operative efforts between the Company and NBC with respect to digital spectrum and the operation of a cable news service in the San Francisco bay area, and provides for the Company to participate in NBC group programming purchases and preferred relationship technology and equipment deals to the extent such arrangements are commercially and legally feasible. In addition, the Company anticipates entering into joint sales agreements with the local Paxon Communications stations in both the San Francisco-Oakland-San Jose, California and Fresno, California markets. In consideration for the San Francisco Affiliation, the Company will pay NBC $362,000,000 in nine annual installments, with the initial payment in the amount of $61,000,000 being due January 1, 2002. In addition, Granite is to grant NBC a warrant to acquire 2.5 million shares of the Company's Common Stock (Nonvoting), par value $0.01 per share (the "Common Stock (Nonvoting)"), at an exercise price of $12.50 per share (the "A Warrant") and a warrant to purchase 2.0 million shares of Common Stock (Nonvoting) at an exercise price of $15.00 per share (the "B Warrant"). The A Warrant vests in full on December 31, 2000. The B Warrant vests in full on January 1, 2002, if the San Francisco Affiliation is in effect on that date. Each warrant, once vested, remains exercisable until December 31, 2011 and may be exercised for cash or surrender of a portion of a then exercisable warrant. The aggregate number of shares issuable upon exercise of the warrants (assuming they are exercised for cash) would represent approximately 20.0% of the Common Stock (Nonvoting) as of December 31, 1999 after giving effect to their issuance. Granite has also agreed to pay $7,430,000 during 2001 in promotion expenses in connection with KNTV's affiliation switch to NBC. Other terms of the Strategic Alliance include a right of first refusal in favor of NBC on the sale of KNTV, and an NBC right to purchase KNTV upon an uncured event of default by Granite, at a value to be determined by an independent appraiser. In addition, NBC will have the right to terminate the San Francisco Affiliation if it elects to acquire an attributable interest in another station in the San Francisco-Oakland-San Jose DMA. NBC can also terminate the Strategic Alliance if the definitive affiliation and warrant agreements are not executed by May 1, 2000. WEEK-FM AND KEYE DISPOSITION On July 30, 1999, the Company completed the disposition of WEEK-FM to the Cromwell Group, Inc. of Illinois for $1,150,000 in cash. On August 31, 1999, the Company completed the disposition of KEYE-TV, the CBS affiliate serving Austin, Texas, to CBS Corporation for $160,000,000 in cash. A portion of the proceeds from the sale of these stations was used to repay outstanding indebtedness under the Company's bank credit agreement (the "Credit Agreement") and to repurchase subordinated debt of the Company. WNGS ACQUISITION On November 16, 1999, the Company entered into a definitive agreement to acquire WNGS-TV, the UPN affiliate serving Buffalo, New York, from Caroline K. Powley for $23,000,000 in cash. Closing of the acquisition is subject to certain closing conditions, including approval by the FCC. Two informal objections have been filed against the application to assign WNGS-TV's FCC Licenses from Ms. Powley to Granite. Both objections relate to FCC matters asserted against Caroline K. Powley unrelated to her ownership of WNGS. Both Caroline K. Powley and the Company have filed oppositions to these two informal objections. The informal objections and the associated oppositions are still pending before the FCC. The Company expects to complete the acquisition in the fourth quarter of 2000. FT. WAYNE - WB CABLE ALLIANCE The Company has formed an alliance with the WB Television Network (the "WB Network") for the cable distribution of WB Network programming in Fort Wayne, Indiana. The cablecasting of this WB Network programming began on October 7, 1999 on the Comcast cable system, which serves approximately 32% of the Fort Wayne area. -2- CONVERSION OF PREFERRED STOCK On August 16, 1999 the Company announced it would redeem all outstanding shares of its Cumulative Convertible Exchangeable Preferred Stock on September 15, 1999 (the "Redemption Date") at a redemption price of $25.97 per share, plus accrued but unpaid dividends. Holders of the Cumulative Convertible Exchangeable Preferred Stock had the option to accept the Redemption Price or convert each preferred share into five shares of Common Stock (Nonvoting) at any time on or before September 10, 1999. All shares of the Cumulative Convertible Exchangeable Preferred Stock were converted into Common Stock (Nonvoting) prior September 10, 1999. OTHER DEVELOPMENTS On August 5, 1999, the FCC revised its ownership rules to permit the joint ownership of two television stations in a single market under various circumstances. As a result of the FCC decision, the Company became one of the first broadcasters to permanently own and operate two stations serving a top ten market. The Company has owned and operated KNTV since 1990. The Company completed the acquisition of KBWB on July 21, 1998. The FCC has consented to Granite's permanent joint ownership of these two stations. COMPANY AND INDUSTRY OVERVIEW The following table sets forth general information for each of the Company's television stations:
OTHER COMMERCIAL EXPIRATION MARKET DATE OF CHANNEL/ NETWORK MARKET STATIONS DATE OF STATION AREA ACQUISITION FREQUENCY AFFILIATION RANK(1) IN DMA FCC LICENSE - ------- -------- ----------- --------- ----------- ----- ----------- ----------- KBWB-TV San Francisco- Oakland - San Jose, CA 07/20/98 20/UHF WB 5 14(2) 12/01/06 WDWB-TV Detroit, MI 01/31/97 20/UHF WB 9 9(6) 10/01/05 WKBW-TV Buffalo, NY 06/29/95 7/VHF ABC 44 5 06/01/07 KNTV(TV) San Jose, Salinas - Monterey, CA 02/05/90 11/VHF ABC(5) 49 5(3) 12/01/06 KSEE-TV Fresno- Visalia, CA 12/23/93 24/UHF NBC 54 10(4) 12/01/06 WTVH-TV Syracuse, NY 12/23/93 5/VHF CBS 76 4 06/01/07 WPTA-TV Fort Wayne, IN 12/11/89 21/UHF ABC 103 3 08/01/05 WEEK-TV Peoria - Bloomington, IL 10/31/88 25/UHF NBC 110 4 12/01/05 KBJR-TV Duluth, MN - Superior, WI 10/31/88 6/VHF NBC 133 2 12/01/05
- ------------ (1) "Market rank" refers to the size of the television market or Designated Market Area ("DMA") as defined by the A.C. Nielsen Company ("Nielsen"), except for San Jose. KNTV, whose DMA is the Salinas-Monterey television market, primarily serves San Jose and Santa Clara County (which are part of the San Francisco-Oakland-San Jose DMA). If Santa Clara County were a separate DMA, it would rank as the 49th largest -3- DMA in the United States. All market rank data is derived from the Nielsen Station Index for September 1999. (2) Includes KDTV, San Francisco and KSTS, San Jose, both of which broadcast entirely in Spanish. (3) Includes KSMS, Salinas-Monterey and KCU, Salinas, both of which broadcast entirely in Spanish. (4) Includes KFTV Hanford-Fresno and KMSG, Sanger-Fresno, both of which broadcast entirely in Spanish. (5) KNTV will be an ABC affiliate through June 30, 2000. The Company has entered into a Strategic Alliance with NBC pursuant to which KNTV will be affiliated with NBC commencing on January 1, 2002. The Company intends to file a petition with the FCC to change KNTV's market designation from San Jose, California to San Francisco-Oakland-San Jose, California. See "Recent Developments--KNTV Affiliation Change and NBC Alliance." (6) Includes CBET Windsor, Canada. Commercial television broadcasting began in the United States on a regular basis in the 1940s. Currently, there are a limited number of channels available for broadcasting in any one geographic area and the license to operate a broadcast station is granted by the FCC. Television stations can be distinguished by the frequency on which they broadcast. Television stations which broadcast over the very high frequency ("VHF") band of the spectrum generally have some competitive advantage over television stations that broadcast over the ultra-high frequency ("UHF") band of the spectrum because the former usually have better signal coverage and operate at a lower transmission cost. In television markets in which all local stations are UHF stations, such as Fort Wayne, Indiana, Peoria-Bloomington, Illinois and Fresno-Visalia, California, no competitive disadvantage exists. Television station revenues are primarily derived from local, regional and national advertising and, to a lesser extent, from network compensation and revenues from studio rental and commercial production activities. Advertising rates are based upon a program's popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the size and demographic make-up of the market served by the station, and the availability of alternative advertising media in the market area. Because broadcast television stations rely on advertising revenues, declines in advertising budgets, particularly in recessionary periods, adversely affect the broadcast industry, and as a result may contribute to a decrease in the valuation of broadcast properties. THE COMPANY'S STATIONS Set forth below are the principal types of television gross revenues (before agency and representative commissions) received by the Company's television stations for the periods indicated and the percentage contribution of each to the gross television revenues of the television stations owned by the Company. GROSS REVENUES, BY CATEGORY, FOR THE COMPANY'S STATIONS (dollars in thousands)
YEARS ENDED DECEMBER 31, --------------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 --------------------------------------------------------------------------------------- AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT % Local/Regional(1)........ $60,969 51.0% $73,491 47.5% $87,412 48.3% $89,144 46.0% $89,626 49.2% National(2).............. 48,995 41.0 61,945 40.0 78,833 43.5 76,446 39.4 79,780 43.7 Network Compensation(3).. 4,154 3.5 7,289 4.7 7,859 4.3 6,715 3.5 5,074 2.8 Political(4)............. 1,498 1.3 7,265 4.7 1,036 0.6 15,752 8.1 2,601 1.4 Other Revenue(5)......... 3,849 3.2 4,851 3.1 5,943 3.3 5,877 3.0 5,249 2.9 ------- ------ -------- ------ ------- ------ -------- ----- -------- ----- Total.................... $119,465 100.0% $154,841 100.0% $181,083 100.0% $193,934 100.0% $182,330 100.0% ======== ====== ======== ====== ======== ====== ======== ====== ======== ======
(1) Represents sale of advertising time to local and regional advertisers or agencies representing such advertisers and other local sources. (2) Represents sale of advertising time to agencies representing national advertisers. -4- (3) Represents payment by networks for broadcasting network programming. (4) Represents sale of advertising time to political advertisers. (5) Represents miscellaneous revenue, including payment for production of commercials. Automobile advertising constitutes the Company's single largest source of gross revenues, accounting for approximately 34% of the Company's total gross revenues in 1999. Gross revenues from restaurants and entertainment-related businesses accounted for approximately 24% of the Company's total gross revenues in 1999. Each other category of advertising revenue represents less than 8% of the Company's total gross revenues. The following is a description of each of the Company's television stations: KBWB: SAN FRANCISCO-OAKLAND-SAN JOSE, CALIFORNIA KBWB began operations in 1968 and commenced operating as a WB Network affiliate in 1995. The San Francisco-Oakland-San Jose economy is centered around apparel, banking and finance, biosciences, engineering and architecture, film and TV production, health care, high technology, manufacturing, multimedia, telecommunications, tourism and wineries. The average household income in the DMA was $55,565, according to estimates provided in the BIA Investing in Television 1999 Market Report (the "BIA Report"). Leading employers in the area include Safeway Supermarkets, Hewlett-Packard, Seagate Technology, The Gap, Intel, Chevron, Oracle, Kaiser-Permanente and Levi-Strauss. The San Francisco-Oakland-San Jose DMA is also the home of several universities, including the University of California Berkeley, San Francisco State University, San Jose State University, Stanford University, California State University-Hayward, Santa Clara University and the University of San Francisco, with enrollment estimated at 122,000. WDWB: DETROIT, MICHIGAN WDWB began operating in 1962 and commenced operating as a WB Network affiliate in 1995. Detroit is the 9th largest DMA in the United States with a total of 1,855,500 television households and a population of 4,988,000 according to Nielsen. Detroit's economy is based on manufacturing, retail and health services. The largest employers are General Motors, Ford Motor Company, Daimler-Chrysler, Detroit Medical Center, Henry Ford Health System and Blue Cross Blue Shield of Michigan. The average household income in the DMA is $46,547 according to estimates provided in the BIA Report. WKBW: BUFFALO, NEW YORK WKBW began operations in 1958 and is affiliated with ABC. The Buffalo economy is centered around manufacturing, government, health services and financial services. The average household income in the DMA was $36,848, according to estimates provided in the BIA Report. Leading employers in the area include General Motors, Ford Motor Company, American Axle and Manufacturing, M&T Bank, Fleet Bank, Roswell Park Cancer Institute, Buffalo General Hospital, NYNEX, Tops Markets and DuPont. KNTV: SAN JOSE, CALIFORNIA KNTV began operations in 1955 and will be affiliated with ABC through June 30, 2000. On January 1, 2002, KNTV will become an NBC affiliate. See "Recent Developments - KNTV Affiliation Change and NBC Alliance." KNTV is the only network-affiliated station and only VHF station licensed to serve San Jose, California, the largest city in Northern California and the eleventh largest city in the United States. Its VHF signal is broadcast on Channel 11 and covers all of Santa Clara County, which includes an area that has come to be known as "Silicon -5- Valley." Although the Nielsen rating service designates KNTV as the ABC affiliate for the Salinas-Monterey market (which is southwest of and adjacent to San Jose), according to the November 1999 Nielsen Monterey/Salinas Viewers In Profile Report more than 72% of the station's audience resides in Santa Clara County. If Santa Clara County were a separate DMA with its estimated 577,250 television households, it would rank as the 49th largest DMA in the United States. Santa Clara County has a diverse and affluent economy. The average effective buying income by household was $57,890, according to the 1999 Demographics USA Report. The area is home to over 2,800 technological companies as well as numerous institutions and companies of national reputation. Prominent corporations located in Santa Clara County include Hewlett-Packard, Lockheed/Martin, IBM, Apple, Intel, Sun Microsystems, Amdahl, Tandem Computers, National Semiconductor, Syntex, Conner Peripherals, Varian Associates and Chips & Technologies. Santa Clara County is also the home of several universities including Stanford University, San Jose State University and Santa Clara University with enrollments aggregating approximately 51,000 students. The Company has entered the Strategic Alliance with NBC, which among other matters, provides for KNTV to become the NBC affiliate in the San Francisco-Oakland-San Jose DMA beginning on January 1, 2002. The Company intends to file a petition with the FCC to change KNTV's market designation from San Jose, California to San Francisco-Oakland-San Jose, California. See "Recent Developments-KNTV Affiliation Change and NBC Alliance." In connection with the affiliation switch to NBC, the Company intends to expand KNTV's coverage to include a greater percentage of the San Francisco-Oakland-San Jose DMA. The Company has received permission from the FCC to increase KNTV's signal strength, and anticipates consummating such increase in May 2000. The Company expects that such increase will enable KNTV's over-the-air signal to reach 92% of the households in the San Francisco-Oakland-San Jose DMA. The Company also anticipates being on substantially all cable systems in the San Francisco-Oakland-San Jose DMA by January 1, 2002. KSEE: FRESNO-VISALIA, CALIFORNIA KSEE began operations in 1953 and is affiliated with NBC. Fresno and the San Joaquin Valley is one of the most productive agricultural areas in the world with over 6,000 square miles planted with more than 250 different crops. Although farming continues to be the single most important part of the Fresno area economy, the area now attracts a variety of service-based industries and manufacturing and industrial operations. No single employer or industry dominates the local economy. The average income by household in the DMA was $34,709, according to estimates provided in the BIA Report. The Fresno-Visalia DMA is also the home of several universities, including Fresno State University, with enrollment estimated at 40,000. WTVH: SYRACUSE, NEW YORK WTVH began operations in 1948 and is affiliated with CBS. The Syracuse economy is centered on manufacturing, education and government. The average income by household in the DMA was $37,667, according to estimates provided in the BIA Report. Prominent corporations located in the area include Carrier Corporation, New Venture Gear, Bristol-Myers Squibb, Crouse-Hinds, Nestle Foods and Lockheed/Martin. The Syracuse DMA is also the home of several universities, including Syracuse University, Cornell University and Colgate University, with enrollments aggregating over 50,000 students. WPTA: FORT WAYNE, INDIANA WPTA began operations in 1957 and is affiliated with ABC. The Fort Wayne economy is centered on manufacturing, government, insurance, financial services and education. The average income by household in the DMA was $42,846, according to estimates provided in the BIA Report. Prominent corporations located in the area include Magnavox, Lincoln National Life Insurance, General -6- Electric, General Motors, North American Van Lines, GTE, Dana, Phelps Dodge, ITT, and Tokheim. Fort Wayne is also the home of several universities, including the joint campus of Indiana University and Purdue University at Fort Wayne, with enrollments aggregating over 11,000 students. WEEK: PEORIA-BLOOMINGTON, ILLINOIS WEEK began operations in 1953 and is affiliated with NBC. The Peoria economy is centered on agriculture and heavy equipment manufacturing but has achieved diversification with the growth of service-based industries such as conventions, healthcare and higher technology manufacturing. Prominent corporations located in Peoria include Caterpillar, Bemis, Central Illinois Light Company, Commonwealth Edison Company, Komatsu-Dresser Industries, IBM, Trans-Technology Electronics and Keystone Steel & Wire. In addition, the United States Department of Agriculture's second largest research facility is located in Peoria, and the area has become a major regional healthcare center. The economy of Bloomington, on the other hand, is focused on insurance, education, agriculture and manufacturing. Prominent corporations located in Bloomington include State Farm Insurance Company, Country Companies Insurance Company and Diamond-Star Motors Corporation (a subsidiary of Mitsubishi). The average income by household in the DMA was $44,470, according to estimates provided in the BIA Report. The Peoria-Bloomington area is also the home of numerous institutions of higher education including Bradley University, Illinois Central College, Illinois Wesleyan University, Illinois State University, Eureka College and the University of Illinois College of Medicine, with enrollments aggregating over 38,000 students. KBJR: DULUTH, MINNESOTA AND SUPERIOR, WISCONSIN KBJR began operations in 1954 and is affiliated with NBC. The area's primary industries include mining, fishing, food products, paper, medical, shipping, tourism and timber. The average income by household in the DMA was $33,026, according to estimates provided in the BIA Report. Duluth is one of the major ports in the United States out of which iron ore, coal, limestone, cement, grain, paper and chemicals are shipped. Prominent corporations located in the area include Northwest Airlines, Minnesota Power, U.S. West, Mesabi & Iron Range Railway Co., Walmart, Jeno Paulucci International, Lake Superior Industries, Potlatch Corporation, Boise Cascade, Burlington Northern Railway, Target (Dayton-Hudson Corporation), ConAgra, International Multifoods, Peavey, Cargill, U.S. Steel, Cleveland-Cliffs Corporation, NorWest Bank, Shopko, Cub Foods and Advanstar. The Duluth-Superior area is also the home of numerous educational institutions such as the University of Minnesota-Duluth, the University of Wisconsin-Superior and the College of St. Scholastica, with enrollments aggregating over 12,000 students. NETWORK AFFILIATION Whether or not a station is affiliated with one of the major networks, NBC, ABC, CBS, Fox (the "Traditional Networks") or the WB Network or United Paramount Networks ("UPN" and collectively with the WB Network and the Traditional Networks, the "Networks"), has a significant impact on the composition of the station's revenues, expenses and operations. A typical Traditional Network affiliate receives the significant portion of its programming each day from the Network. Historically, this programming, along with cash payments, is provided to the affiliate by the Traditional Network in exchange for a substantial majority of the advertising inventory during Network programs. The Traditional Network then sells this advertising time and retains the revenues so generated. A typical WB Network or UPN affiliate receives prime time programming from the Network pursuant to arrangements agreed upon by the affiliate and the Network. In contrast, a fully independent station purchases or produces all of the programming that it broadcasts, resulting in generally higher programming costs, although the independent station is, in theory, able to retain its entire inventory of advertising and all of the revenue obtained therefrom. However, barter and cash-plus-barter arrangements are becoming increasingly popular. Under such arrangements, a national program distributor typically -7- retains up to 50% of the available advertising time for programming it supplies, in exchange for reduced fees for such programming. Each of the Company's stations is affiliated with a Network pursuant to an affiliation agreement. KSEE, WEEK and KBJR are affiliated with NBC; KNTV will be affiliated with ABC until June 30, 2000 and will become affiliated with NBC on January 1, 2002 (see "Recent Developments--KNTV Affiliation Change and NBC Alliance"); WPTA and WKBW are affiliated with ABC; WTVH is affiliated with CBS; and KBWB and WDWB are affiliated with the WB Network. In substance, each Traditional Network affiliation agreement provides the Company's station with the right to broadcast all programs transmitted by the Network with which it is affiliated. In exchange, the Network has the right to sell a substantial majority of the advertising time during such broadcast. In addition, historically, for every hour that the station elects to broadcast Traditional Network programming, the Network has paid the station a fee (the "Network Compensation Fee"), specified in each affiliation agreement, which varies with the time of day. Typically, "prime-time" programming (Monday through Saturday 8 - 11p.m. and Sunday 7 - 11p.m. Eastern Time) generates the highest hourly rates. Rates are subject to increase or decrease by the Network during the term of each affiliation agreement, with provisions for advance notice to, and right of termination by, the station in the event of a reduction in rates. As part of the Strategic Alliance with NBC, in exchange for the San Francisco Affiliation and extending the terms of the NBC affiliation agreements for KSEE, WEEK and KBJR, Granite is to pay NBC $362 million in nine installments commencing on January 1, 2002 and Network Compensation Fees payable to KSEE, WEEK and KBJR, will terminate as of December 31, 2001. Under each WB Network affiliation agreement, the Company's stations receive "prime-time" programming from the WB Network. KBWB and WDWB pay an affiliation fee for the programming it receives pursuant to its affiliation agreement. The Network affiliation agreements provide for contract terms ranging from seven to eleven years. Under each of the Company's affiliation agreements, the Networks may, under certain circumstances, terminate the agreement upon advance written notice. Under the Company's ownership, none of its stations has received a termination notice from its respective Network. COMPETITION The financial success of the Company's television stations are dependent on audience ratings and revenues from advertisers within each station's geographic market. The Company's stations compete for revenues with other television stations in their respective markets, as well as with other advertising media, such as newspapers, radio, magazines, outdoor advertising, transit advertising, yellow page directories, the Internet, direct mail and local cable systems. Some competitors are part of larger companies with substantially greater financial resources than the Company. Competition in the broadcasting industry occurs primarily in individual markets. Generally, a television broadcasting station in one market does not compete with stations in other market areas. The Company's television stations are located in highly competitive markets. In addition to management experience, factors that are material to a television station's competitive position include signal coverage, local program acceptance, Network affiliation, audience characteristics, assigned frequency and strength of local competition. The broadcasting industry is continuously faced with technological change and innovation, the possible rise in popularity of competing entertainment and communications media, changes in labor conditions and governmental restrictions or actions of federal regulatory bodies, including the FCC and the Federal Trade Commission, any of which could possibly have a material adverse effect on the Company's operations and results. Conventional commercial television broadcasters also face competition from other programming, entertainment and video distribution systems, the most common of which is cable television. These other -8- programming, entertainment and video distribution systems can increase competition for a broadcasting station by bringing into its market distant broadcasting signals not otherwise available to the station's audience and also by serving as distribution systems for non-broadcast programming. Programming is now being distributed to cable television systems by both terrestrial microwave systems and by satellite. Other sources of competition include home entertainment systems (including video cassette recorders and playback systems, video discs and television game devices), the Internet, multi-point distribution systems, multichannel multi-point distribution systems, video programming services available through the Internet and other video delivery systems. The Company's television stations also face competition from direct broadcast satellite services which transmit programming directly to homes equipped with special receiving antennas and from video signals delivered over telephone lines. Satellites may be used not only to distribute non-broadcast programming and distant broadcasting signals but also to deliver certain local broadcast programming which otherwise may not be available to a station's audience. The broadcasting industry is continuously faced with technological change and innovation, which could possibly have a material adverse effect on the Company's operations and results. Video compression techniques, now in use with direct broadcast satellites and in development for cable, are expected to permit greater numbers of channels to be carried within existing bandwidth. These compression techniques, as well as other technological developments, are applicable to all video delivery systems, including over-the-air broadcasting and other non-broadcast commercial applications, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences may alter the competitive dynamics for advertising expenditures. The Company is unable to predict the effect that technological changes will have on the Company. Commercial television broadcasting may face future competition from interactive video and data services that provide two-way interaction with commercial video programming, along with information and data services that may be delivered by commercial television stations, cable television, direct broadcast satellites, multi-point distribution systems, multichannel multi-point distribution systems or other video delivery systems. In addition, recent actions by the FCC, Congress and the courts all presage significant future involvement in the provision of video services by telephone companies. The Telecommunications Act of 1996 lifts the prohibition on the provision of cable television services by telephone companies in their own telephone areas subject to regulatory safeguards and permits telephone companies to own cable systems under certain circumstances. It is not possible to predict the impact on the Company's television stations of any future relaxation or elimination of the existing limitations on the ownership of cable systems by telephone companies. The elimination or further relaxation of the restriction, however, could increase the competition the Company's television stations face from other distributors of video programming. FCC LICENSES Television broadcasting is subject to the jurisdiction of the FCC under the Communications Act of 1934, as amended (the "Communications Act"). The Communications Act prohibits the operation of television broadcasting stations except under a license issued by the FCC and empowers the FCC, among other things, to issue, revoke and modify broadcasting licenses, determine the locations of stations, regulate the equipment used by stations, adopt regulations to carry out the provisions of the Communications Act and impose penalties for violation of such regulations. The Telecommunications Act of 1996, which amends major provisions of the Communications Act, was enacted on February 8, 1996. The FCC has commenced, but not yet completed, implementation of the provisions of the Telecommunications Act of 1996. The Communications Act prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. In addition, foreign governments, representatives of foreign governments, non-citizens, representatives of non-citizens, and corporations or partnerships organized under the laws of a foreign nation are barred from holding broadcast licenses. Non-citizens, however, may own up to 20% of the capital stock of a licensee and up to 25% of the capital stock of a United States corporation that, in turn, owns a controlling interest in a licensee. A broadcast license may not be granted to or held by any corporation that is controlled, directly or indirectly, by any other corporation of which more than one-fourth of the capital stock is owned or voted by non-citizens or their representatives, by foreign governments or their representatives, or by non-U.S. corporations, if the FCC finds that the public interest will be served by the refusal or revocation of such license. Under the -9- Telecommunications Act of 1996, non-citizens may serve as officers and directors of a broadcast licensee and any corporation controlling, directly or indirectly, such licensee. The Company is restricted by the Communications Act from having more than one-fourth of its capital stock owned by non-citizens, foreign governments or foreign corporations, but not from having an officer or director who is a non-citizen. Television broadcasting licenses generally are granted and renewed for a period of eight years, but may be renewed for a shorter period upon a finding by the FCC that the "public interest, convenience and necessity" would be served thereby. At the time application is made for renewal of a television license, parties in interest as well as members of the public may apprise the FCC of the service the station has provided during the preceding license term and urge the grant or denial of the application. Under the Telecommunications Act of 1996 as implemented in the FCC's rules, a competing application for authority to operate a station and replace the incumbent licensee may not be filed against a renewal application and considered by the FCC in deciding whether to grant a renewal application. The statute modified the license renewal process to provide for the grant of a renewal application upon a finding by the FCC that the licensee (1) has served the public interest, convenience, and necessity; (2) has committed no serious violations of the Communications Act or the FCC's rules; and (3) has committed no other violations of the Communications Act or the FCC's rules which would constitute a pattern of abuse. If the FCC cannot make such a finding, it may deny a renewal application, and only then may the FCC accept other applications to operate the station of the former licensee. In the vast majority of cases, broadcast licenses are renewed by the FCC even when petitions to deny are filed against broadcast license renewal applications. All of the Company's existing licenses are in effect and are subject to renewal at various times during 2005, 2006 and 2007. Although there can be no assurance that the Company's licenses will be renewed, the Company is not aware of any facts or circumstances that would prevent the Company from having its licenses renewed. FCC regulations govern the multiple ownership of broadcast stations and other media on a national and local level. The Telecommunications Act of 1996 directs the FCC to eliminate or modify certain rules regarding the multiple ownership of broadcast stations and other media on a national and local level. Pursuant to this directive, the FCC has revised its rules to eliminate the limit on the number of television stations that an individual or entity may own or control nationally, provided that the audience reach of all television stations owned does not exceed 35% of all U.S. households. For purposes of this calculation, stations in the UHF band, which covers channels 14 - 69, are attributed with only 50% of the households attributed to stations in the VHF band, which covers channels 2 - 13. Under its recently revised ownership rules, if an entity has attributable interests in two television stations in the same market, the FCC will count the audience reach of that market only once for purposes of applying the national ownership cap. During 1999, the FCC relaxed its "television duopoly" rule, which previously barred any entity from having an attributable interest in two television stations with overlapping service areas. The FCC's new television duopoly rule permits a party to have attributable interests in two television stations without regard to signal contour overlap provided the stations are licensed to separate DMAs, as determined by Nielsen. In addition, the new rule permits parties to own up to two television stations in the same DMA as long as at least eight independently owned and operating full-power television stations remain in the market at the time of acquisition, and at least one of the two stations is not among the top four ranked stations in the DMA based on specified audience share measures. The FCC also may grant a waiver of the television duopoly rule if one of the two television stations is a "failed" or "failing" station, if the proposed transaction would result in the construction of an unbuilt television station or if extraordinary public interest factors are present. With the changes in the FCC's rule on television duopolies, the Company's common ownership of KNTV and KBWB is fully consistent with the Commission's rules. The Company also is seeking to establish a second television duopoly in the Buffalo, New York DMA. The Company currently owns WKBW, Buffalo, New York and has filed an assignment application requesting FCC consent to acquire WNGS, which also is located in the Buffalo DMA. See "Recent Developments--WNGS Acquisition." The Company believes that this joint ownership is fully consistent with the FCC's new television duopoly rule. The FCC also relaxed its "one-to-a-market" rule in 1999, which restricts the common ownership of television and radio stations in the same market. One entity may now own up to two television stations and six radio stations in the same market provided that: (1) 20 independent voices (including certain newspapers and a single cable system) will remain in the relevant market following consummation of the proposed transaction, and -10- (2) the proposed combination is consistent with the television duopoly and local radio ownership rules. If fewer than 20 but more than 9 independent voices will remain in a market following a proposed transaction, and the proposed combination is otherwise consistent with the FCC's rules, a single entity may have attributable interests in up to two television stations and four radio stations. If neither of these various "independent voices" tests are met, a party generally may have an attributable interest in no more than one television station and one radio station in a market. The FCC's rules restrict the holder of an attributable interest in a television station from also having an attributable interest in a daily newspaper or cable television system serving a community located within the coverage area of that television station. The FCC also recently eliminated its "cross-interest" policy, which had prohibited common ownership of an attributable interest in one media outlet and a "meaningful", non-attributable interest in another media outlet serving essentially the same market. Although the FCC's recent revisions to its broadcast ownership rules became effective on November 16, 1999, several petitions have been filed at the FCC seeking reconsideration of the new rules. The Company cannot predict the outcome of these reconsideration requests. As directed by the Telecommunications Act of 1996, the FCC has eliminated its prior restriction on the common ownership of a cable system and a television network. Although the statute lifts the prior statutory restriction on the common ownership of a cable television system and a television station located in the same geographic market, the FCC is not statutorily required to eliminate its regulatory restriction on such common ownership. The FCC has initiated a proceeding to solicit comments on retaining, modifying, or eliminating this regulatory restriction. The Telecommunications Act of 1996 authorizes the FCC to permit the common ownership of multiple television networks under certain circumstances. Ownership of television licensees generally is attributed to officers, directors and shareholders who own 5% or more of the outstanding voting stock of a licensee, except that certain institutional investors who exert no control or influence over a licensee may own up to 20% of such outstanding voting stock before attribution results. Under FCC regulations, debt instruments, non-voting stock and certain limited partnership interests (provided the licensee certifies that the limited partners are not "materially involved" in the media-related activities of the partnership) and voting stock held by minority shareholders where there is a single majority shareholder generally will not result in attribution. However, under the FCC's new "equity-debt plus" rule, a party will be deemed to be attributable if it owns equity (including all stockholdings, whether voting, non-voting, common or preferred) and debt interests, in the aggregate, exceeding 33% of the total asset value (including debt and equity) of the licensee and it either provides 15% of the station's weekly programming or owns an attributable interest in another broadcast station, cable system or daily newspaper in the market. The "equity-debt plus" attributable rule will apply even if there is a single majority shareholder. Under the FCC's multiple and cross-ownership rules, which have been revised in accordance with the Telecommunications Act of 1996, an officer or director of the Company, a party attributable under the "equity-debt plus" rule or a holder of the Company's voting common stock who has an attributable interest in other broadcast stations, a cable television system or a daily newspaper may violate the FCC regulations depending on the number and location of the other broadcasting stations, cable television systems or daily newspapers attributable to such person. None of the Company's officers, directors or holders of voting common stock have attributable or non-attributable interests in broadcasting stations, cable television systems or daily newspapers that violate the FCC's multiple and cross-ownership rules. In addition, for purposes of its national and local multiple ownership rules, the FCC recently revised its rules to attribute local marketing agreements ("LMAs") that involve more than 15% of the brokered station's weekly program time. Thus, if an entity owns one television station in a market and has a qualifying LMA with another station in the same market, this arrangement must comply with all of the FCC's ownership rules including the television duopoly rule. LMA arrangements entered into prior to November 5, 1996 are grandfathered until 2004. LMAs entered into on or after November 5, 1996 have until approximately August 2001 to come into compliance with this requirement. Petitions for reconsideration of this FCC rule change are pending. The Company cannot predict the outcome of these reconsideration requests. -11- Irrespective of the FCC rules, the Justice Department and the Federal Trade Commission (together the "Antitrust Agencies") have the authority to determine that a particular transaction presents antitrust concerns. The Antitrust Agencies have recently increased their scrutiny of the television and radio industries, and have indicated their intention to review matters related to the concentration of ownership within markets (including LMAs) even when the ownership or LMA in question is permitted under the regulations of the FCC. There can be no assurance that future policy and rulemaking activities of the Antitrust Agencies will not impact the Company's operations. The Telecommunications Act of 1996 authorizes the FCC to issue additional licenses for digital television ("DTV") services only to Existing Broadcasters (as defined herein). DTV is a technology that will improve the technical quality of television service. The Telecommunications Act of 1996 directs the FCC to adopt rules to permit Existing Broadcasters to use their DTV channels for various purposes, including foreign language, niche, or other specialized programming. The statute also authorizes the FCC to collect fees from Existing Broadcasters who use their DTV channels to provide services for which payment is received. See "Digital Television Service." In accordance with requirements of the Telecommunications Act of 1996, the FCC has approved a voluntary rating system proposed by the broadcast industry to identify video programming that contains sexual, violent or such other material about which parents should be informed prior to viewing by children. The rating system also indicates the appropriateness of the programming for children according to age and/or maturity. The rating system applies to all television programming except news, sports and unedited movies rated by the Motion Picture Association of America. In connection with this programming rating system, the FCC also has established technical requirements of equipping new television receivers with a device, termed a "V-chip," which will permit parents to block programming with a common rating designation from their television sets. All new television receiver models with picture screens 13 inches or greater are required to be equipped with this "V-chip." Pursuant to the Balanced Budget Act of 1997, the FCC has adopted competitive bidding procedures to select among mutually exclusive applications for licenses for new commercial broadcast stations and major modifications to existing broadcast facilities. THE CABLE TELEVISION CONSUMER PROTECTION AND COMPETITION The Cable Television Consumer Protection and Competition Act of 1992 (the "Cable Act") and the FCC's implementing regulations give television stations the right to control the use of their signals on cable television systems. Under the Cable Act, at three year intervals beginning in June 1993, each television station is required to elect whether it wants to avail itself of must-carry rights or, alternatively, to grant retransmission consent. If a television station elects to exercise its authority to grant retransmission consent, cable systems are required to obtain the consent of that television station for the use of its signal and could be required to pay the television station for such use. The Cable Act further requires mandatory cable carriage of all qualified local television stations electing their must-carry rights or not exercising their retransmission rights. Under the FCC's rules, television stations were required to make their election between must-carry and retransmission consent status by October 1, 1999, for the period from January 1, 2000 through December 31, 2002. Television stations that fail to make an election by the specified deadline are deemed to have elected must-carry status for the relevant three year period. For the three year period beginning January 1, 2000, each of the Company's stations has either elected its must-carry rights, entered into retransmission consent agreements, or obtained an extension to permit the Company to continue negotiating a retransmission consent agreement with substantially all cable systems in its DMA. The FCC currently is conducting a rulemaking proceeding to determine the scope of the cable systems' carriage obligations with respect to digital broadcast signals during and following the transition from analog to DTV service. DIGITAL TELEVISION The FCC has adopted rules authorizing DTV service and intends to adopt other rules to implement the new service. In 1996, the FCC adopted a transmission standard for DTV which is consistent with a consensus agreement voluntarily developed by a broad cross-section of parties, including the broadcasting, equipment manufacturing and computer industries. This digital standard should improve the quality of both the audio and -12- video signals of television stations. The FCC has "set aside" channels within the existing television spectrum for DTV and limited initial DTV eligibility to existing television stations and certain applicants for new television stations ("Existing Broadcasters"). The FCC has adopted a DTV table of allotments as well as service and licensing rules to implement the service. The DTV allotment table provides a channel for DTV operations for each Existing Broadcaster and is intended to enable Existing Broadcasters to replicate their existing service areas. The affiliates of CBS, NBC, ABC and Fox in the ten largest U.S. television markets were required to initiate commercial DTV service with a digital signal by May 1, 1999. Affiliates of these networks located in the 11th through the 30th largest U.S. television markets were required to begin DTV operation by November 1, 1999. All other commercial stations are required to begin DTV broadcasts by May 1, 2002. All of the company-owned stations must meet the May 1, 2002 construction deadline. By 2006, broadcasters will have to convert to DTV service, terminate their existing analog service and surrender their present analog channel to the FCC. The FCC has begun issuing construction permits for DTV operations to broadcast licensees. All of the Company's stations, have filed applications requesting FCC authorization to begin construction of DTV facilities. Each station also has requested FCC consent to maximize its digital facilities and technical operations. Stations KBWB and KNTV have authorization to construct their digital facilities, and KNTV already has commenced its digital operations. Due to additional equipment requirements, implementation of DTV service will impose substantial additional costs on television stations. It is also possible that advances in technology may permit Existing Broadcasters to enhance the picture quality of existing systems without the need to implement DTV service in a high definition format. The Company will incur significant expense for DTV conversion and is unable to predict the extent or timing of consumer demand for any such digital television services. The FCC has adopted rules that will require the Company to pay a fee of 5% of the gross revenues received from any ancillary or supplemental uses of the DTV spectrum for which the Company charges subscription fees or other specified compensation. No fees will be due for commercial advertising revenues received from free over-the-air broadcasting services. The FCC also has initiated a rulemaking proceeding to examine: (1) whether, and to what extent, cable "must carry" obligations should be applied to DTV signals; and (2) various DTV tower siting issues. The Commission has initiated a notice of inquiry to examine whether additional public interest obligations should be imposed on DTV licensees. The FCC also has initiated a rulemaking proceeding to examine a number of issues that have arisen as television stations convert from analog to digital operations, including tower siting, signal replication and several other matters. SATELLITE HOME VIEWER IMPROVEMENT ACT The Satellite Home Viewer Improvement Act ("SHVIA") enables satellite carriers to provide more television programming to subscribers. Specifically, SHVIA: (1) provides a statutory copyright license to enable satellite carriers to retransmit a local television broadcast station into the station's local market (i.e., provide "local-into-local" service); (2) permits the continued importation of distant network signals (i.e., network signals that originate outside of a satellite subscriber's local television market or designated market areas ("DMA") for certain existing subscribers; (3) provides broadcast stations with retransmission consent rights in their local markets; and (4) mandates carriage of broadcast signals in their local markets after a phase-in period. "Local markets" are defined to include both a station's DMA and its county of license. SHVIA requires that, with several exceptions, satellite carriers may not retransmit the signal of a television broadcast station without the express authority of the originating station. Such express authorization is not needed, however, when satellite carriers retransmit a station's signal into its local market (i.e., provide local-into-local transmissions) prior to May 28, 2000. This retransmission can occur without the station's consent. Beginning May 29, 2000, however, a satellite carrier must obtain a station's consent before retransmitting its signal within the local market. Additional exceptions to the retransmission consent requirement exist for noncommercial stations, certain superstations and broadcast stations that have asserted their must-carry rights. In addition, SHVIA permits satellite carriers to provide distant or nationally broadcast programming to subscribers in "unserved" households (i.e., households are unserved by a particular network if they do not receive a signal of at least Grade B intensity from a station affiliated with that network) until December 31, 2004. -13- However, satellite television providers can retransmit the distant signals of no more than two stations per day for each television network. SHVIA provides for mandatory carriage of television broadcast stations by satellite carriers, effective January 1, 2002, under certain circumstances. Effective January 1, 2002, a satellite carrier that retransmits one local television broadcast station into its local market under a retransmission consent agreement must carry all television broadcast stations in that same market upon request. Satellite carriers are not required, however, to carry the signal of a station that substantially duplicates the programming of another station in the market, and are not required to carry more than one affiliate of the same network in a given market unless the television stations are located in different states. In addition, SHVIA requires the FCC to commence a rulemaking proceeding that extends the network nonduplication, syndicated exclusivity and sports blackout rules to the satellite retransmission of nationally distributed superstations. The FCC already has initiated several rulemaking proceedings, as required by SHVIA, to implement certain aspects of this Act. Pursuant to SHVIA, satellite carriers are beginning to offer local broadcast signals to subscribers in some of the nation's largest television markets. To date, however, these carriers have concentrated on retransmitting local broadcast programming offered by Fox, ABC, NBC and CBS affiliates. Satellite carriers have not yet begun to retransmit the signals of stations that are either affiliated with the WB or other networks outside the top four, or located in smaller television markets. Beginning May 29, 2000, satellite carriers that seek to retransmit the broadcast signals of the Company's stations into the stations' respective local markets will be required to negotiate the terms of this retransmission with the Company. In addition, after January 1, 2002, the Company's stations, especially those located in the larger television markets, may be permitted to invoke must carry rights to require satellite distribution of their signals into local markets. At this point, however, the Company cannot predict when, or how extensively, satellite carriers will seek to retransmit the signals of the Company's stations, or those of the stations' competitors, into local markets. PROPOSED LEGISLATION AND REGULATIONS The FCC currently has under consideration and the Congress and the FCC may in the future consider and adopt new or modify existing laws, regulations and policies regarding a wide variety of matters that could, directly or indirectly, affect the operation, ownership, and profitability of the Company's broadcast properties, result in the loss of audience share and advertising revenues for the Company's stations, and affect the ability of the Company to acquire additional stations or finance such acquisitions. Such matters include: (i) spectrum use or other fees on FCC licensees; (ii) matters relating to minority and female involvement in the broadcasting industry; (iii) rules relating to political broadcasting and advertising; (iv) technical and frequency allocation matters; (v) changes in the FCC's cross-interest, multiple ownership and cross-ownership rules and policies; (vi) changes to broadcast technical requirements; (vii) changes to the standards governing the evaluation and regulation of television programming directed towards children, and violent and indecent programming; (viii) restrictions on the advertisement of certain alcoholic products; (ix) an examination of whether the cable must-carry requirement mandates carriage of both analog and digital television signals; (x) an examination of legislation and FCC rules governing the ability of viewers to receive local and distant television network programming directly via satellite; and (xi) an examination of issues that have arisen during the transition from analog to digital television service. The Company cannot predict whether such changes will be adopted or, if adopted, the effect that such changes would have on the business of the Company. As an example of the above proposed changes, the FCC has a rulemaking proceeding pending where it seeks comment on whether it should relax attribution and other rules to facilitate greater minority and female ownership. This proceeding currently is being held in abeyance due to uncertainty created by a 1995 Supreme Court decision which narrowed the legal basis for affirmative action programs. The Telecommunications Act of 1996 requires the FCC to review the broadcast ownership rules every two years and to repeal or modify any rules that are determined to no longer be in the public interest. The FCC also has initiated a notice of inquiry proceeding seeking comment on whether the public interest would be served by establishing limits on the amount of commercial matter broadcast by television stations. No prediction can be made at this time as to whether the FCC will impose any limits on commercials at the conclusion -14- of its deliberation. The imposition of limits on the commercial matter broadcast by television stations may have an adverse effect on the Company's revenues. On November 29, 1999, Congress enacted the Community Broadcasters Protection Act, which created a new "Class A" status for low power television stations. Under this new statute, certain LPTV stations which previously had secondary status to full power television stations, are eligible for "Class A" status and are entitled to protection from future displacement by full-power television stations under certain circumstances. The FCC has initiated rulemaking proceedings to adopt rules governing the extent of interference protection that must be afforded to Class A stations and the eligibility criteria for these stations. Since Class A stations are required to provide interference protection to full-power television stations, these new facilities are not expected to adversely affect the operations of the Company's television stations. Legislation also has been introduced in the U.S. Congress to provide a tax deferral on gains made from the sale of telecommunications businesses in specific circumstances. This tax deferral is designed to promote greater diversity in the ownership of telecommunications businesses. The Company, at the present time, cannot predict how this legislation will affect its operations, if adopted. SEASONALITY The Company's operating revenues are generally lower in the first calendar quarter and generally higher in the fourth calendar quarter than in the other two quarters, due in part to increases in retail advertising in the fall months in preparation for the holiday season, and in election years due to increased political advertising. EMPLOYEES The Company and its subsidiaries currently employ approximately 940 persons, of whom approximately 279 are represented by three unions pursuant to contracts expiring in 2000, 2001 and 2002 (and one of which has expired but which the Company is currently renegotiating) at the Company's stations. The Company believes its relations with its employees are good. -15- ITEM 2. PROPERTIES The Company's principal executive offices are located in New York, New York. The lease agreement, for approximately 9,500 square feet of office space in New York, expires January 31, 2011. The types of properties required to support each of the Company's stations include offices, studios, transmitter sites and antenna sites. A station's studios are generally housed with its offices in downtown or business districts. The transmitter sites and antenna sites are generally located so as to provide maximum market coverage. -16- The following table contains certain information describing the general character of the Company's properties:
METROPOLITAN OWNED OR EXPIRATION STATION AREA AND USE LEASED APPROXIMATE SIZE OF LEASE KNTV SAN JOSE, CALIFORNIA Office and Studio Owned 26,469 sq. feet - Tower Site Leased 2,080 sq. feet 9/30/02 Low Power Transmission Site Leased 100 sq. feet 1/1/01(1) WTVH SYRACUSE, NEW YORK Office and Studio Owned 41,500 sq. feet - ONONDAGA, NEW YORK Tower Site Owned 2,300 sq. feet - KSEE FRESNO, CALIFORNIA Office and Studio Owned 32,000 sq. feet - BEAR MOUNTAIN, FRESNO COUNTY, CALIFORNIA Tower Site Leased 9,300 sq. feet 3/22/51 WPTA FORT WAYNE, INDIANA Office, Studio and Tower Site Owned 18,240 sq. feet - WEEK PEORIA, ILLINOIS Office, Studio and Tower Site Owned 20,000 sq. feet - BLOOMINGTON, ILLINOIS Studio and Sales Office Leased 617 sq. feet (2) KBJR DULUTH, MINNESOTA, SUPERIOR, WISCONSIN Office and Studio Owned 20,000 sq. feet - Tower Site Owned 3,300 sq. feet - KBWB SAN FRANCISCO, CALIFORNIA Office and Studio Leased 25,777 sq. feet 8/31/02 Tower Site Leased 2,750 sq. feet 2/28/05 WKBW BUFFALO, NEW YORK Office and Studio Owned 32,000 sq. feet - COLDEN, NEW YORK Tower Site Owned 3,406 sq. feet - WDWB SOUTHFIELD, MICHIGAN Office Leased 8,850 sq. feet 12/31/00 SOUTHFIELD, MICHIGAN Studio and Tower Site Leased(3) 30,000 sq. feet 9/30/06
(1) Assuming exercise of all of the Company's renewal options under such lease. (2) This lease is in effect on a month-to-month basis. (3) The Company owns a 3,400 square foot building on the property. -17- ITEM 3. LEGAL PROCEEDINGS Not Applicable ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On each of January 8, 1999 and February 23, 1999, the holders of all of the Company's Voting Common Stock adopted resolutions by written consent in lieu of a special meeting amending the Granite Broadcasting Corporation Stock Option Plan (a copy of the Stock Option Plan is filed as exhibit 10.1 hereto). 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., Jon E. Barfield and M. Frederick Brown as directors of the Company. On July 27, 1999, the holders of all of the Company's Voting Common Stock adopted resolutions by written consent in lieu of a special meeting amending the Granite Broadcasting Corporation Directors' Stock Option Plan (a copy of the Directors' Stock Option Plan is filed as exhibit 10.19 hereto). -18- PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock (Nonvoting) is traded over-the-counter on the Nasdaq National Market under the symbol GBTVK. As of March 1, 2000, the approximate number of record holders of Common Stock (Nonvoting) was 145. The range of high and low prices for the Common Stock (Nonvoting) for each full quarterly period during 1998 and 1999 is set forth in Note 15 to the Consolidated Financial Statements in Item 8 hereof. At March 1, 2000, the closing price of the Common Stock (Nonvoting) was $8.125 per share. The Company's publicly traded Cumulative Convertible Exchangeable Preferred Stock, par value $.01 per share (the "Cumulative Convertible Exchangeable Preferred Stock") was traded on the OTC Bulletin Board under the symbol GBTVP. The range of high and low prices for each full quarterly period that the Cumulative Convertible Exchangeable Preferred Stock traded during 1998 and 1999 is set forth in Note 15 to the Consolidated Financial Statements in Item 8 hereof. As of September 10, 1999, all outstanding shares of the Cumulative Convertible Exchangeable Preferred Stock were converted into Common Stock (Nonvoting). There is no established public trading market for the Company's Class A Voting Common Stock, par value $.01 per share (the "Voting Common Stock;" the Voting Common Stock and the Common Stock (Nonvoting) are referred to herein collectively as the "Common Stock"). As of March 1, 2000, the number of record holders of Voting Common Stock was 2. The Company had declared and paid quarterly cash dividends at a quarterly rate of $.4844 per share on the Cumulative Convertible Exchangeable Preferred Stock each quarter since its issuance. The Company has never declared or paid a cash dividend on its Common Stock and does not anticipate paying a dividend on its Common Stock in the foreseeable future. The payment of cash dividends on Common Stock is subject to certain limitations under the Indentures governing the Company's 10-3/8% Senior Subordinated Notes due May 15, 2005, 9-3/8% Senior Subordinated Notes due December 1, 2005 and the 8-7/8% Senior Subordinated Notes due May 15, 2008, respectively, and is restricted under the Company's Credit Agreement. The Company is also prohibited from paying dividends on any Common Stock until all accrued but unpaid dividends on the Company's Series A Convertible Preferred Stock, par value $.01 per share (the "Series A Preferred Stock"), are paid in full. All outstanding shares of Series A Preferred Stock were converted into Common Stock (Nonvoting) in August 1995. Accrued dividends on the Series A Preferred Stock, which totaled $262,844 at December 31, 1999, are payable on the date on which such dividends may be paid under the Company's existing debt instruments. -19- ITEM 6. SELECTED FINANCIAL DATA The information set forth below should be read in conjunction with the consolidated financial statements and notes thereto included at Item 8 herein. The selected consolidated financial data for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 are derived from the Company's audited Consolidated Financial Statements. The acquisitions by the Company of its operating properties during the periods reflected in the following selected financial data materially affect the comparability of such data from one period to another.
YEARS ENDED DECEMBER 31, 1995 1996 1997 1998 1999 ------------------------------------------------------------- STATEMENT OF OPERATIONS DATA: (Dollars in thousands except per share data) Net revenue................................... $ 99,895 $ 129,164 $ 153,512 $ 161,104 $149,847 Station operating expenses.................... 55,399 72,089 83,729 89,812 92,874 Time brokerage agreement fees................. - 150 600 428 - Depreciation.................................. 4,514 6,144 5,718 5,388 5,455 Amortization.................................. 7,592 9,737 13,824 18,493 26,667 Corporate expense............................. 3,132 4,800 6,639 8,179 8,862 Non-cash compensation......................... 363 496 986 977 935 -------- -------- -------- -------- -------- Operating income.............................. 28,895 35,748 42,016 37,827 15,054 Equity in net loss (income) of investee....... (439) 995 1,531 973 254 Interest expense, net......................... 27,026 36,765 38,986 38,896 36,352 Non-cash interest expense..................... 1,738 2,087 2,182 2,095 3,115 Gain on sale of assets........................ - - - (57,776) (101,292) Gain from insurance claim..................... - - - (2,159) (4,079) Other expenses................................ 798 1,034 1,167 1,381 1,616 -------- -------- -------- -------- -------- Income (loss) before income taxes and (228) (5,133) (1,850) 54,417 79,088 extraordinary item............................ Provision for income tax...................... (555) (761) (1,616) (10,250) (31,574) -------- -------- -------- -------- -------- Income (loss) before extraordinary item....... (783) (5,894) (3,466) 44,167 47,514 Extraordinary loss net of tax benefit in 1998 and 1999 of $950,000 and $256,655, respectively - (2,891) (5,569) (1,761) (385) -------- -------- -------- -------- -------- Net income (loss) ............................ $ (783) $ (8,785) $ (9,035) $ 42,406 $ 47,129 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Net income (loss) attributable to common $(4,368) $ (12,310) $ (31,207) $ 16,896 $ 19,912 shareholders.................................. -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- PER COMMON SHARE: Basic income (loss) before extraordinary item $ (0.74) $ (1.09) $ (2.93) $ 1.80 $ 1.46 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Basic net income (loss).................... $ (0.74) $ (1.43) $ (3.57) $ 1.63 $ 1.43 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Weighted average common shares outstanding. 5,920 8,612 8,765 10,358 13,969 Net income (loss) attributable to common shareholders - assuming dilution............ $(4,368) $ (12,310) $ (31,207) $ 19,776 $ 21,588 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- PER COMMON SHARE: Diluted income (loss) before extraordinary $ (0.74) $ (1.09) $ (2.93) $ 1.27 $ 1.16 item....................................... -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Diluted net income (loss) ................. $ (0.74) $ (1.43) $ (3.57) $ 1.17 $ 1.14 -------- -------- -------- -------- -------- -------- -------- -------- -------- -------- Weighted average common share outstanding - Assuming dilution........................ 5,920 8,612 8,765 16,967 19,012
DECEMBER 31, ---------------------------------------------------------- SELECTED BALANCE SHEET DATA: 1995 1996 1997 1998 1999 -------- ---------- ------------ ----------- --------- Total assets.................................. $ 452,221 $ 452,563 $633,614 $781,974 $730,591 Total debt.................................... 341,000 351,561 392,779 426,399 303,874
-20- Redeemable preferred stock.................... 45,488 45,488 207,700 216,351 210,709 Stockholders' equity (deficit) ............... 8,868 (3,135) (33,257) (1,470) 50,084
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Certain sections of this Form 10-K, including "Business" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain various "forward-looking statements" within the meaning of Section 21E of the Securities Exchange Act of 1934, which represent the Company's expectations or beliefs concerning future events. The "forward-looking statements" include, without limitation, the renewal of the Company's FCC licenses and the Company's ability to meet its future liquidity needs. The Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the "forward-looking statements". Such factors include, without limitation, general economic conditions, competition in the markets in which the Company's stations are located, technological change and innovation in the broadcasting industry and proposed legislation. INTRODUCTION Comparisons of the Company's consolidated financial statements between the years ended December 31, 1999 and 1998 have been affected by the acquisition of KBWB, which occurred on July 20, 1998, the sale of WWMT, which occurred on July 15, 1998, the sale of WLAJ, which occurred on August 17, 1998, the sale of WEEK-FM, which occurred on July 30, 1999 and the sale of KEYE, which occurred on August 31, 1999. The comparisons between the years ended December 31, 1998 and 1997 have been affected by the acquisition of KBWB, the acquisition of WDWB, which occurred on January 31, 1997, and the sales of WWMT and WLAJ. The Company's revenues are derived principally from local and national advertising and, to a lesser extent, from network compensation for the broadcast of programming and revenues from studio rental and commercial production activities. The primary operating expenses involved in owning and operating television stations are employee salaries, depreciation and amortization, programming and advertising and promotion. Amounts referred to in the following discussion have been rounded to the nearest thousand. The following table sets forth certain operating data for the three years ended December 31, 1997, 1998 and 1999:
YEAR ENDED DECEMBER 31, 1997 1998 1999 ---- ---- ---- Operating income........................ $ 42,016,000 $ 37,827,000 $ 15,054,000 Time brokerage agreement fees........... 600,000 428,000 - Depreciation and amortization........... 19,542,000 23,881,000 32,122,000 Corporate expense....................... 6,639,000 8,179,000 8,862,000 Non-cash compensation................... 986,000 978,000 935,000 Program amortization.................... 9,384,000 11,149,000 15,245,000 Program payments........................ (10,706,000) (11,747,000) (15,429,000) -------------- ------------ ----------- Broadcast cash flow..................... $ 68,461,000 $ 70,695,000 $ 56,789,000 ============= =========== ===========
"Broadcast cash flow" means operating income plus time brokerage agreement fees, depreciation, amortization, corporate expense, non-cash compensation and program amortization, less program payments. The Company has included broadcast cash flow data because such data are commonly used as a measure of performance for broadcast companies and are also used by investors to measure a company's ability to service debt. Broadcast cash flow is not, and should not be used as an indicator or alternative to operating income, net loss or cash flow as reflected in the consolidated financial statements, is not a measure of financial performance under generally accepted -21- 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. YEARS ENDED DECEMBER 31, 1999 AND 1998 Net revenue for the year ended December 31, 1999 totaled $149,847,000; a decrease of $11,257,000 or 7% as compared to $161,104,000 for the year ended December 31, 1998. The decrease was primarily due to the loss of political advertising in a non-election year as well as the loss of Olympic-related advertising revenue at the Company's CBS affiliated stations. The decrease was also due to the loss of revenue from the disposition of WWMT and WLAJ in the third quarter of 1998 and the disposition of KEYE in August of 1999, offset, in part, by the added revenues from the acquisition of KBWB in the third quarter of 1998 and strong revenue growth at the Company's WB affiliates. Station operating expenses for the year ended December 31, 1999 totaled $92,874,000; an increase of $3,062,000 or 3% as compared to $89,812,000 for the year ended December 31, 1998. The increase was primarily due to increases in programming and promotion expense at the Company's WB affiliates and in news expense at the Company's San Francisco duopoly. These increases were offset, in part, by an overall reduction in expenses resulting from the acquisition and dispositions. Amortization increased $8,173,000 or 44% for the twelve months ended December 31, 1999 as compared to the prior year primarily due to additional intangible amortization expense associated with the acquisition of KBWB. Corporate expense increased $682,000, or 8% during the year ended December 31, 1998 compared to the same period a year earlier, primarily due to the expansion of the Company's Internet business. The equity in net loss of investee of $254,000 and $973,000 for the years ended December 31, 1999 and 1998, respectively, resulted from the Company recognizing its pro rata share of the losses of Datacast, LLC under the equity method of accounting. The Company has written off its entire investment and no other charges will be incurred. Net interest expense decreased $2,543,000 or 7% primarily due to lower levels of outstanding indebtedness. The Company used the net proceeds from the sale of KEYE to repay a total of $129,000,000 of debt. Non-cash interest expense increased $1,020,000 or 49% due to the amortization of imputed interest on the Company's obligations to the WB Network. The net gain on asset dispositions of $101,292,000 for the year ended December 31, 1999 resulted primarily from the sale of KEYE in August 1999. The net gain on asset dispositions of $57,776,000 for the year ended December 31, 1998 resulted primarily from the sale of WWMT in August 1998. The gain on insurance settlement resulted from insurance proceeds the Company received in excess of the net book value of assets that were destroyed in a fire and, separately, in an ice storm, at KBJR. The Company anticipates that it will recognize additional gains in 2000 as further insurance proceeds are received upon replacement of the destroyed assets. The Company reported income before taxes and extraordinary item of $79,088,000 for the year ended December 31, 1999. The Company has partially offset this income with its remaining available net operating loss carryforwards. The provision for income taxes for the year consists of $25,508,000 of current federal and state taxes and $5,809,000 of deferred taxes. During 1999, the Company repurchased $59,255,000 principal amount of its subordinated notes at various repurchase prices. In connection with the repurchases, the Company incurred an extraordinary loss after the write-off of related deferred financing fees, net of tax, of $385,000. -22- YEARS ENDED DECEMBER 31, 1998 AND 1997 Net revenue for the year ended December 31, 1998 totaled $161,104,000, an increase of $7,592,000, or 5% compared to net revenue of $153,512,000 for the year ended December 31, 1997. Of this increase, $1,193,000 was due to the inclusion of one additional month of operations of WDWB. The remaining increase was primarily due to increases in local and national advertising revenue driven largely by first quarter Olympic spending at the Company's CBS affiliated stations, heavy political spending and the impact of the acquisition of KBWB, offset, in part, by the dispositions of WWMT and WLAJ. Station operating expenses for the year ended December 31, 1998 totaled $89,812,000, an increase of $6,083,000 or 7% compared to $83,729,000 for the same period a year earlier. Of this increase, $733,000 was due to the inclusion of one additional month of operations of WDWB. The remaining increase was primarily due to increased news, programming, promotion and sales expenses and the inclusion of operating expenses of KBWB, offset, in part by, the dispositions of WWMT and WLAJ. Depreciation and amortization increased $4,339,000 or 22% for the year ended December 31, 1998 as compared to the prior year primarily due to the acquisition of KBWB and the inclusion of one additional month of operations of WDWB, offset, in part, by the disposition of WWMT and WLAJ. Corporate expense increased $1,540,000, or 23% during the year ended December 31, 1998 compared to the same period a year earlier, primarily due to higher administrative costs associated with the expansion of the Company's corporate office. The equity in net loss of investee of $973,000 and $1,532,000 for the years ended December 31, 1998 and 1997, respectively, resulted from the Company recognizing its pro rata share of the losses of Datacast, LLC under the equity method of accounting. Net interest expense remained flat for the year ended December 31, 1998 compared to the prior year despite higher levels of outstanding indebtedness as a result of the Company's strategic plan to reduce its cost of borrowing. During the first quarter of 1997, the Company repurchased $19,405,000 principal amount of its 9-3/8% Senior Subordinated Notes due December 1, 2005 (the "9-3/8% Notes") at a discount. In September 1997, the Company redeemed the entire outstanding amount of its $60,000,000 principal amount 12.75% Senior Subordinated Debentures, due September 1, 2002 (the "12.75% Debentures") at a redemption price of 106.375%. This debt was replaced with credit agreement borrowings with a lower rate of interest. During the second quarter of 1998, the Company completed an offering of $175,000,000 of its 8-7/8% Senior Subordinated Debentures, due May 15, 2008 (the "8-7/8% Notes"). The proceeds of the offering were used to repay all of the Company's then outstanding borrowings under its then existing bank credit agreement and to repurchase $22,960,000 principal amount of its 10-3/8% Senior Subordinated Notes, due May 15, 2005 (the "10-3/8% Notes") at a repurchase price of 105.75%. During the third quarter of 1998, the Company used lower rate Credit Agreement borrowings to repurchase an additional $9,500,000 principal amount of the 10-3/8% Notes at a repurchase price of 101.50%. During the fourth quarter of 1999, the Company used lower rate bank borrowings to repurchase an additional $46,100,000 principal amount of its subordinated debt at discounts ranging from 89% to 95%. The gain on insurance settlement resulted from insurance proceeds received in excess of the net book value of assets that were destroyed in a fire at KBJR. Other expenses increased $214,000 or 18% during the year ended December 31, 1998 as compared to the same period a year earlier primarily due to costs incurred in connection with the relocation of several employees in 1998. In connection with the sale of WWMT and WLAJ, the Company recognized a pre-tax gain for financial statement purposes of $57,776,000 during the third quarter of 1998. The Company had sufficient net operating loss carryforwards to offset regular federal taxes on the gain. However, the tax provision for 1998 includes a cash tax of approximately $1,689,000 consisting of federal alternative minimum taxes and state income taxes. -23- In connection with the repurchases of subordinated debt throughout the year, the Company incurred an extraordinary loss, net of taxes, during the year ended December 31, 1998 of $1,761,000 relating to premiums paid and the write-off of deferred financing costs, offset, in part, by the repurchases made at a discount in the fourth quarter. In connection with the redemption of the 12.75% Debentures and the repurchase of $19,405,000 principal amount of its 9-3/8% Notes, the Company recognized an extraordinary loss during the year ended December 31, 1997 of $5,569,000 related to net premiums paid and the write-off of the related deferred financing fees. LIQUIDITY AND CAPITAL RESOURCES On July 30, 1999 the Company completed the disposition of WEEK-FM to the Cromwell Group, Inc. of Chicago for $1,150,000 in cash. On August 31, 1999 the Company completed the disposition of KEYE to CBS Corporation for $160,000,000 in cash. A portion of the proceeds from the sale of these stations was used to repay outstanding indebtedness under the Company's Credit Agreement and to repurchase subordinated debt of the Company. The Company recognized a pre-tax gain for financial statement reporting purposes on the sale of these stations of $103,470,000. The Company utilized its remaining net operating loss carryforwards to partially reduce income for tax purposes. The 1999 tax provision includes approximately $25,508,000 of current federal and state income taxes, which were paid in December 1999. In July 1999, the Company and ABC agreed to terminate the ABC affiliation of KNTV, effective July 1, 2000. The Company received $14,000,000 in cash on September 1, 1999 in accordance with the agreement. On February 14, 2000, the Company announced the formation of the Strategic Alliance with NBC. Pursuant to the Strategic Alliance, KNTV is to become the NBC affiliate in the San Francisco-Oakland-San Jose California market for a ten-year term commencing on January 1, 2002. In addition, NBC is to extend the term of the Company's NBC affiliation agreements with KSEE, WEEK and KBJR until December 31, 2011. As part of such extension, NBC's affiliation payment obligations to Granite for such stations will terminate as of December 31, 2001. In consideration for the San Francisco Affiliation, the Company will pay NBC $362,000,000 in nine annual installments, with the initial payment in the amount of $61,000,000 being due January 1, 2002. Granite has also agreed to pay $2,430,000 during 2001 in promotion expenses in connection with KNTV's affiliation switch to NBC. See "Recent Developments KNTV Affiliation Change and NBC Alliance." On November 16, 1999, the Company entered into a definitive agreement to acquire WNGS-TV, the UPN affiliate serving Buffalo, New York, from Caroline K. Powley for $23,000,000 in cash. In connection therewith, the Company made a $2,000,000 deposit which is refundable, under certain circumstances, if the acquisition is not completed. The acquisition is subject to satisfaction of certain conditions, including approval by the FCC. The Company expects to complete the acquisition in the fourth quarter of 2000. On June 10, 1998, the Company amended and restated its bank credit agreement (as amended and restated, the "Credit Agreement") which, among other things, allows 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. As of March 23, 1999, February 16, 2000 and March 17, 2000, the Company amended the Credit Agreement to revise the maximum consolidated total debt to consolidated cash flow ratio covenant contained therein. As of March 17, 2000, the Company had $11,663,000 of borrowings outstanding under the Credit Agreement and the ability to borrow in compliance with the financial covenants thereunder an additional $40,763,000 for acquisitions and working capital purposes. The Company expects to enter into a replacement credit agreement (the "New Credit Agreement") during the year 2000 to enable the Company to meet its long-term borrowing needs. During 1999, the Company repurchased $59,255,000 of its subordinated debentures at various prices. Net cash used in operating activities was $26,801,000 during the year ended December 31, 1999 compared to net cash provided by operating activities of $19,027,000 and $10,345,000 during the years ended -24- December 31, 1998 and 1997, respectively. The change from 1998 to 1999 was primarily a result of an increase in cash paid for taxes, a decrease in broadcast cash flow and an increase in net operating assets in 1999. The increase in net cash provided by operating activities from 1997 to 1998 was primarily due to a less significant increase in net operating assets, an increase in broadcast cash flow and a decrease in cash paid for interest in 1998. Net cash provided by investing activities was $156,471,000 during the year ended December 31, 1999 compared to net cash used in investing activities of $43,825,000 and $186,499,000 during the years ended December 31, 1998 and 1997, respectively. Cash provided by investing activities during 1999 resulted primarily from the sale of KEYE. Cash used in investing activities during 1998 resulted primarily from the purchase of KBWB as well as payments made in connection with securing the WB Network affiliation agreement at that station, offset, in part, by proceeds from the sale of WWMT in 1998. Cash used in investing activities during 1997 resulted primarily from the purchase of WDWB and the deposit made in advance of the purchase of KBWB. Net cash used in financing activities was $124,978,000 during the year ended December 31, 1999 compared to net cash provided by financing activities of $23,390,000 and $177,769,000 during the years ended December 31, 1998 and 1997, respectively. The change from 1998 to 1999 resulted primarily from the issuance of the 8-7/8% Notes during 1998, offset, in part, by a decrease in repurchases of subordinated debt and a reduction in payment of deferred financing fees in 1999. The decrease in net cash provided by financing activities from 1997 to 1998 resulted primarily from a net decrease in bank borrowings, an increase in payments for deferred financing fees and the issuance of the 12-3/4% Cumulative Exchangeable Preferred Stock during 1997, offset in part by the issuance of the 8-7/8% Notes in 1998. 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. The Company believes that internally generated funds from operations and borrowings under the Credit Agreement and the New 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 In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $1,490,000 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company's earnings are affected by changes in short-term interest rates as a result of its Credit Agreement. Under its Credit Agreement, the Company pays interest at floating rates based on Eurodollar. The Company has not entered into any agreements to hedge such risk. Assuming the balance under the Credit Agreement as of December 31, 1999 remains outstanding in 2000, a 2% increase in Eurodollar would increase interest expense by $340,000. This analysis does not consider the effects of the reduced level of overall economic activity that could exist in such an environment. Further, in the event of an increase in interest rates, management could potentially take actions to mitigate its exposure to the change. -25- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS The Board of Directors and Stockholders Granite Broadcasting Corporation We have audited the accompanying consolidated balance sheets of Granite Broadcasting Corporation as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1999. Our audits also included the financial statement schedule listed in the Index at Item 14(a) of the Granite Broadcasting Corporation Form 10K for the fiscal year ended December 31, 1999. These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Granite Broadcasting Corporation at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP New York, New York February 18, 2000 -26- GRANITE BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 1998 1999 ---- ---- ---- Net revenue............................................... $153,511,540 $161,104,371 $149,846,955 Station operating expenses................................ 83,728,786 89,811,723 92,874,454 Time brokerage agreement fees............................. 600,000 427,810 - Depreciation.............................................. 5,717,989 5,387,800 5,454,819 Amortization.............................................. 13,824,248 18,493,235 26,666,719 Corporate expense......................................... 6,639,159 8,179,232 8,861,640 Non-cash compensation expense............................. 985,634 977,502 935,142 ------------ ------------ ------------- Operating income........................................ 42,015,724 37,827,069 15,054,181 Other (income) expenses: Equity in net loss of investee.......................... 1,531,542 973,439 253,603 Interest expense, net................................... 38,985,979 38,895,358 36,351,950 Non-cash interest expense............................... 2,181,686 2,095,115 3,114,890 Gain on sale of assets.................................. - (57,775,928) (101,291,854) Gain from insurance claim............................... - (2,158,961) (4,079,207) Other................................................... 1,167,144 1,381,443 1,616,072 ------------ ------------ ------------- Income (loss) before income taxes and extraordinary item.................................... (1,850,627) 54,416,603 79,088,727 Provision for income taxes.............................. 1,616,212 10,250,000 31,574,238 ------------ ------------ ------------- Income (loss) before extraordinary item................... (3,466,839) 44,166,603 47,514,489 Extraordinary loss, net of tax benefit in 1998 and 1999 of $950,000 and $256,655, respectively.................. (5,569,119) (1,761,002) (384,983) ------------ ------------ ------------- Net income (loss)..................................... $ (9,035,958) $ 42,405,601 $ 47,129,506 ------------ ------------ ------------- ------------ ------------ ------------- Net income (loss) attributable to common shareholders..... $(31,207,468) $16,895,727 $19,912,091 ------------ ------------ ------------- ------------ ------------ ------------- Per common share: Basic income (loss) before extraordinary item....... $ (2.93) $ 1.80 $ 1.46 Basic extraordinary loss............................ (0.64) (0.17) (0.03) ------------ ------------ ------------- Basic net income (loss)........................... $ (3.57) $ 1.63 $ 1.43 ------------ ------------ ------------- ------------ ------------ ------------- Weighted average common shares outstanding................ 8,764,705 10,358,371 13,968,611 Net income (loss) attributable to common shareholders - assuming dilution......................................... $(31,207,468) $ 19,775,599 $ 21,588,040 Per common share: Diluted income (loss) before extraordinary item..... $ (2.93) $ 1.27 $ 1.16 Diluted extraordinary loss........................... (0.64) (0.10) (0.02) ------------ ------------ ------------- Diluted net income (loss) ........................... $ (3.57) $ 1.17 $ 1.14 ------------ ------------ ------------- ------------ ------------ ------------- Weighted average common shares outstanding - assuming dilution....................................... 8,764,705 16,966,501 19,011,795
See accompanying notes. -27- GRANITE BROADCASTING CORPORATION CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ASSETS 1998 1999 - ------ ---- ---- CURRENT ASSETS: Cash and cash equivalents................................................ $ 762,392 $ 5,453,542 Accounts receivable, less allowance for doubtful accounts ($424,290 in 1998 and $430,360 in 1999) ............................... 32,830,227 33,017,344 Film contract rights..................................................... 9,671,443 17,510,909 Other current assets..................................................... 9,627,807 10,399,749 ---------- ----------- TOTAL CURRENT ASSETS............................................. 52,891,869 66,381,544 PROPERTY AND EQUIPMENT, NET................................................ 33,040,152 39,176,169 FILM CONTRACT RIGHTS....................................................... 4,497,956 11,125,490 OTHER NONCURRENT ASSETS 2,788,083 3,142,422 DEFERRED FINANCING FEES, less accumulated amortization ($3,636,134 in 1998 and $5,011,922 in 1999) ............................. 11,086,733 8,209,537 INTANGIBLE ASSETS, NET..................................................... 677,669,324 602,555,693 ----------- ----------- $781,974,117 $730,590,855 ----------- ----------- ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES: Accounts payable......................................................... $ 4,031,837 $ 3,120,875 Accrued interest......................................................... 5,107,551 3,487,384 Other accrued liabilities................................................ 9,908,091 7,779,475 Film contract rights payable............................................. 13,648,629 22,049,869 Other current liabilities................................................ 5,763,882 6,473,693 ------------ ------------ TOTAL CURRENT LIABILITIES 38,459,990 42,911,296 LONG-TERM DEBT............................................................. 426,399,159 303,874,304 FILM CONTRACT RIGHTS PAYABLE............................................... 5,920,122 18,000,393 DEFERRED TAX LIABILITY..................................................... 78,308,597 84,117,915 OTHER NONCURRENT LIABILITIES............................................... 18,005,696 20,894,010 COMMITMENTS REDEEMABLE PREFERRED STOCK, net of offering costs.......................... 216,350,713 210,708,780 STOCKHOLDERS' (DEFICIT) EQUITY: Common stock: 41,000,000 shares authorized consisting of 1,000,000 shares of Class A Common Stock, $.01 par value, and 40,000,000 shares of Common Stock (Nonvoting), $.01 par value; 178,500 shares of Class A Common Stock and 17,964,081 shares of Common Stock (Nonvoting) (11,608,032 shares at December 31, 1998) issued and outstanding......................................................... 117,865 181,425 Additional paid-in capital............................................... 14,233,125 17,909,802 Retained (deficit) earnings.............................................. (12,006,267) 35,123,239 Less: Unearned compensation.................................................. (2,881,008) (1,946,434) Treasury stock (5,000 shares in 1998 and 30,000 shares in 1999), at cost................................ (47,000) (297,000) Note receivable from officer........................................... (886,875) (886,875) ----------- ----------- TOTAL STOCKHOLDER'S (DEFICIT) EQUITY................................... (1,470,160) 50,084,157 ----------- ----------- $781,974,117 $730,590,855 ----------- ----------- ----------- -----------
See accompanying notes -28- GRANITE BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) For the Years Ended December 31, 1997, 1998 and 1999
CLASS A COMMON ADDITIONAL (ACCUMULATED COMMON STOCK STOCK (NONVOTING) PAID-IN CAPITAL DEFICIT) ------------ ----------------- --------------- ------------ Balance at December 31, 1996 $1,785 $84,997 $45,547,145 $(45,375,910) Dividends on redeemable preferred stock (21,729,672) Accretion of offering costs related to Cumulative Exchangeable Preferred Stock (441,838) Exercise of stock options 124 58,164 Conversion of redeemable preferred stock into Common Stock (Nonvoting) 650 324,350 Issuance of Common Stock (Nonvoting) 990 (990) Repurchase of redeemable preferred stock Grant of stock award under stock plans 1,008,587 Stock expense related to stock plans (236,034) Net loss (9,035,958) ----------- ------------ --------------- ---------- Balance at December 31, 1997 1,785 86,761 24,529,712 (54,411,868) Dividends on redeemable preferred stock (25,009,726) Accretion of offering costs related to Cumulative Exchangeable Preferred Stock (500,148) Exercise of stock options 201 159,455 Conversion of redeemable preferred stock into Common Stock (Nonvoting) 27,958 13,951,142 Issuance of Common Stock (Nonvoting) 1,160 (1,160) Grant of stock award under stock plans 1,329,278 Stock expense related to stock plans (225,428) Net income 42,405,601 ----------- ------------ --------------- ---------- Balance at December 31, 1998 1,785 116,080 14,233,125 (12,006,267) Dividends on redeemable preferred stock (26,717,267) Accretion of offering costs related to Cumulative Exchangeable Preferred Stock (500,148) Exercise of stock options 260 97,930 Conversion of convertible preferred stock into Common Stock (Nonvoting) 62,367 31,121,033 Issuance of Common Stock (Nonvoting) 933 (933) Repurchase of 25,000 shares of Common Stock (Nonvoting) Grant of stock award under stock plans 568 Stock expense related to stock plans (324,506) Net income 47,129,506 ----------- ------------ --------------- ---------- Balance at December 31, 1999 $ 1,785 $179,640 $17,909,802 $35,123,239 ======== ======== ============ ===========
See accompanying notes.
NOTE TOTAL UNEARNED RECEIVABLE TREASURY STOCKHOLDERS' COMPENSATION FROM OFFICER STOCK EQUITY (DEFICIT) ------------ ------------ -------- ---------------- Balance at December 31, 1996 $(2,506,279) $(886,875) -- $(3,135,137) Dividends on redeemable preferred stock (21,729,672) Accretion of offering costs related to Cumulative Exchangeable Preferred Stock (441,838) Exercise of stock options 58,288 Conversion of redeemable preferred stock into Common Stock (Nonvoting) 325,000 Issuance of Common Stock (Nonvoting) -- Repurchase of redeemable preferred stock (47,000) (47,000) Grant of stock award under stock plans (1,008,587) -- Stock expense related to stock plans 985,634 749,600 Net loss (9,035,958) ------------- ------------- ---------- ----------- Balance at December 31, 1997 (2,529,232) (886,875) (47,000) (33,256,717) Dividends on redeemable preferred stock (25,009,726) Accretion of offering costs related to Cumulative Exchangeable Preferred Stock (500,148) Exercise of stock options 159,656 Conversion of redeemable preferred stock into Common Stock (Nonvoting) 13,979,100 Issuance of Common Stock (Nonvoting) -- Grant of stock award under stock plans (1,329,278) -- Stock expense related to stock plans 977,502 752,074 Net income 42,405,601 ------------- ------------- ---------- - ---------- Balance at December 31, 1998 (2,881,008) (886,875) (47,000) (1,470,160) Dividends on redeemable preferred stock (26,717,267) Accretion of offering costs related to Cumulative Exchangeable Preferred Stock (500,148) Exercise of stock options 98,190 Conversion of convertible preferred stock into Common Stock (Nonvoting) 31,183,400 Issuance of Common Stock (Nonvoting) -- Repurchase of 25,000 shares of Common Stock (Nonvoting) (250,000) (250,000) Grant of stock award under stock plans (568) -- Stock expense related to stock plans 935,142 610,636 Net income 47,129,506 ------------- ------------- ---------- ---------- Balance at December 31, 1999 $(1,946,434) $ (886,875) $(297,000) $50,084,157 =========== ========== ========= ===========
-29- GRANITE BROADCASTING CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 1997 1998 1999 -------- -------- -------- Cash flows from operating activities: Net income (loss).................................................... $(9,035,958) $ 42,405,601 $ 47,129,506 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Extraordinary loss................................................. 5,569,119 2,711,002 641,638 Amortization of intangible assets.................................. 13,824,248 18,493,235 26,666,719 Depreciation....................................................... 5,717,989 5,387,800 5,454,819 Non-cash compensation expense...................................... 985,634 977,502 935,142 Non-cash interest expense.......................................... 2,181,686 2,095,115 3,114,890 Deferred income taxes.............................................. 1,194,212 7,610,728 5,809,000 Equity in net loss of investee..................................... 1,531,542 973,439 253,603 Gain on sale of assets............................................. -- (57,775,928) (101,291,854) Gain from insurance settlement..................................... -- (2,158,961) (4,079,207) Change in assets and liabilities net of effects from acquisitions of stations: (Increase) decrease in accounts receivable......................... (8,251,013) 2,478,237 (187,117) (Decrease) increase in accrued liabilities......................... (629,972) 3,607,363 (3,748,783) (Decrease) increase in accounts payable............................ (131,725) 146,598 (910,962) Increase in film contract rights and other assets.................. (6,697,410) (4,176,217) (24,185,421) Increase (decrease) in film contract rights payable and other liabilities............................................. 4,086,757 (3,748,846) 17,596.607 ------------- ------------- ------------ Net cash provided by (used in) operating activities................... 10,345,109 19,026,668 (26,801,420) ------------- ------------- ------------ Cash flows from investing activities: Deposit for station acquisition and other related costs............. (5,960,000) -- (2,123,116) Proceeds from sale of assets, net................................... -- 149,990,381 171,308,975 WB affiliation payment.............................................. -- (14,846,638) (4,874,778) Insurance proceeds received......................................... -- 1,743,544 8,622,081 Investment in Datacast, LLC......................................... (1,500,000) (500,000) (133,603) Payment for acquisitions of assets, net of cash acquired............ (173,164,089) (170,869,424) Capital expenditures................................................ (5,874,633) (9,343,021) (16,078,762) ------------- ------------- ------------ Net cash provided by (used in) investing activities............... (186,498,722) (43,825,158) 156,720,797 ------------- ------------- ------------ Cash flows from financing activities: Proceeds from bank loan............................................. 138,500,000 100,000,000 72,500,000 Retirement of senior subordinated notes............................. (82,897,588) (78,560,000) (59,255,000) Repayment of bank borrowings........................................ (18,000,000) (162,500,000) (136,000,000) Payment of deferred financing fees.................................. (210,873) (7,195,821) (503,965) Proceeds from senior subordinated notes............................. -- 174,482,000 Proceeds from Preferred Stock Offering, net......................... 143,889,789 -- -- Dividends paid...................................................... (3,523,828) (2,926,217) (1,776,629) Purchase of Common Stock (Nonvoting) for treasury................... (47,000) -- (250,000) Other financing activities, net..................................... 58,287 89,993 57,367 ------------- ------------- ------------ Net cash provided by (used in) financing activities............... 177,768,787 23,389,955 (125,228,227) ------------- ------------- ------------ Net (decrease) increase in cash and cash equivalents.................. 1,615,174 (1,408,535) 4,691,150 Cash and cash equivalents, beginning of year.......................... 555,753 2,170,927 762,392 ------------- ------------- ------------ Cash and cash equivalents, end of year................................ $2,170,927 $ 762,392 $ 5,453,542 ------------- ------------- ------------ ------------- ------------- ------------ Supplemental information: Cash paid for interest.............................................. $40,711,506 $38,688,348 $39,031,115 Cash paid for income taxes.......................................... 193,000 195,000 26,800,664 Non-cash investing and financing activities: Non-cash capital expenditures..................................... 668,747 581,692 600,875 Stock dividend.................................................... 13,009,715 21,446,256 24,267,776
See accompanying notes. -30- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES FINANCIAL STATEMENT PRESENTATION The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain amounts in prior years have been reclassified to conform to the 1999 presentation. The Company accounts for its investment in Datacast, LLC under the equity method of accounting. REVENUE RECOGNITION The Company recognizes revenue from the sale of advertising at the time the advertisements are aired. INTANGIBLES Intangible assets at December 31 are summarized as follows:
1998 1999 -------- -------- Goodwill............................................. $216,788,583 $222,114,559 Covenant not to compete.............................. 30,000,000 30,000,000 Network affiliations................................. 187,731,900 130,979,900 Broadcast licenses................................... 302,638,089 297,336,089 ----------- ----------- 737,158,572 680,430,548 Accumulated amortization............................. (59,489,248) (77,874,855) ---------- ---------- Net intangible assets................................ $677,669,324 $602,555,693 ============ ============
The intangible assets are characterized as scarce assets with long and productive lives and are being amortized on a straight line basis over periods ranging from seven to forty years, with the exception of the covenant not to compete, which is being amortized over 5 years. In July 1999 the Company and the American Broadcasting Companies, Inc. ("ABC") agreed to terminate the ABC affiliation of KNTV, the ABC affiliate serving San Jose-Salinas-Monterey, California, effective July 2000. The Company received $14,000,000 in cash on September 1, 1999 in accordance with the agreement. The Company recognized a loss for financial statement purposes on the sale of the affiliation of $2,178,000. During 1999, the Company reclassified certain of its intangible assets based on appraised values. As both of these intangible assets are being amortized over a 40-year life, other than the impact on the loss on the sale of the ABC affiliation, the reclassification had no impact on the results of operations for the year ended December 31, 1999. The Company continually reevaluates the propriety of the carrying amount of intangible assets as well as the related amortization period to determine whether current events and circumstances warrant adjustments to the carrying value and/or revised estimates of useful lives. This evaluation is based on the Company's projections of the undiscounted cash flows over the remaining lives of the amortization period of the related intangible asset. To the extent such projections indicate that the undiscounted cash flows are not expected to be adequate to recover the carrying amounts of intangible assets, such carrying amounts will be written down to their fair market value. At this -31- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) time, the Company believes that no significant impairment of intangible assets has occurred and that no reduction of the estimated useful lives is warranted. DEFERRED FINANCING FEES The Company has incurred certain fees in connection with entering into a bank credit agreement, the sale of 12.75% Debentures (as defined), the sale of 10-3/8% Notes (as defined), the sale of 9-3/8% Notes (as defined) and the sale of 8-7/8% Notes (as defined). The deferred financing fees related to the bank credit agreement are being amortized over seven years, and the deferred financing fees related to the 10-3/8% Notes, the 9-3/8% Notes and the 8-7/8% Notes are being amortized over ten years. Amortization of deferred financing fees is classified as non-cash interest expense on the consolidated statement of operations. PROPERTY AND EQUIPMENT Property and equipment are recorded at cost and depreciated on a straight-line basis over their estimated useful lives ranging from three to 32 years. FILM CONTRACT RIGHTS Film contract rights are recorded as assets at gross value when the license period begins and the films are available for broadcasting, are amortized on an accelerated basis over the estimated usage of the films, and are classified as current or noncurrent on that basis. Film contract rights payable are classified as current or noncurrent in accordance with the payment terms of the various license agreements. Film contract rights are reflected in the consolidated balance sheet at the lower of unamortized cost or estimated net realizable value. At December 31, 1999, the obligation for programming that had not been recorded because the program rights were not available for broadcasting aggregated $64,237,000. BARTER TRANSACTIONS Revenue from barter transactions is recognized when advertisements are broadcast and merchandise or services received are charged to expense when received or used. The net effect of barter transactions on the Company's results of operations is not material. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS Cash and cash equivalents include funds invested overnight in Eurodollar deposits. -32- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NET LOSS PER COMMON SHARE The per share calculations shown on the face of the income statement are computed in accordance with Statement of Financial Accounting Standards No. 128, "Earnings Per Share." The following table sets forth the computation of basic and diluted earnings per share:
YEARS ENDED DECEMBER 31, --------------------------------------------- 1997 1998 1999 ---- ---- ---- Net income (loss) before extraordinary item.......... $ (3,466,839) $ 44,166,603 $ 47,514,489 Extraordinary loss on early extinguishment of debt, net of tax benefit in 1998 and 1999 of $950,000 and $256,655, respectively............. (5,569,119) (1,761,002) (384,983) ---------- ------------ ------------- Net income (loss) ................................... (9,035,958) 42,405,601 47,129,506 LESS: Preferred stock dividends: Convertible preferred............................. 3,523,989 2,879,872 1,675,949 Exchangeable preferred............................ 18,205,683 22,129,854 25,041,318 Accretion on exchangeable preferred.................. 441,838 500,148 500,148 ------------- ------------- ------------- Net income (loss) attributable to common shareholders (31,207,468) 16,895,727 19,912,091 Effect of dilutive securities: PLUS: Convertible preferred stock dividends.............. (a) 2,879,872 1,675,949 ------------- ------------- Net income (loss) attributable to common Shareholders - assuming dilution................... $(31,207,468) $19,775,599 $21,588,040 ============ =========== =========== Weighted average common shares outstanding for basic net income (loss) per share.................. 8,764,705 10,358,371 13,968,611 ADD: Effect of dilutive securities: Preferred stock conversions....................... 6,236,680 4,151,240 Stock options..................................... 371,450 891,944 ----------- ------------- Total potential dilutive common shares.......... (a) 6,608,130 5,043,184 Adjusted weighted average common shares outstanding - assuming dilution............. 8,764,705 16,966,501 19,011,795 ========= ========== ========== Per Common Share: Basic income (loss) before extraordinary item..... $ (2.93) $ 1.80 $ 1.46 Basic extraordinary loss.......................... (0.64) (0.17) (0.03) ------------ ------------ ------------ Basic net income (loss) per share................. $ (3.57) $ 1.63 $ 1.43 ============ =========== ============ Diluted income (loss) before extraordinary item... $ (2.93) $ 1.27 $ 1.16 Diluted extraordinary loss........................ (0.64) (0.10) (0.02) ------------ ------------ ------------ Diluted net income (loss) per share............... $ (3.57) $ 1.17 $ 1.14 ============== ============== ============
(a) No adjustments were made to the dilutive per share calculation for the year ended December 31, 1997 as doing so would have been antidilutive. -33- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 2 - ACQUISITIONS AND DISPOSITIONS On July 15, 1998, the Company completed the disposition of WWMT-TV, the CBS affiliate serving Grand Rapids-Kalamazoo-Battle Creek, Michigan, to Freedom Communications, Inc. ("Freedom") for $150,540,000 in cash. On August 17, 1998, the Company exercised its option to purchase WLAJ-TV, the ABC affiliate serving Lansing, Michigan, for $19,500,000 in cash and simultaneously sold the station to Freedom for $18,950,000 in cash. In connection with the sale of WWMT and WLAJ, the Company recognized a net pre-tax gain for financial statement purposes of $57,776,000. On July 20, 1998, the Company completed the acquisition of KBWB-TV (formerly KOFY-TV), the WB affiliate serving San Francisco-Oakland-San Jose California, by acquiring the stock of Pacific FM Incorporated ("Pacific"), the owner of KBWB-TV for $143,150,000 in cash and the assumption of certain liabilities. In addition, the Company paid $30,000,000 to the principal shareholders of Pacific for a covenant not to compete in the San Francisco-Oakland-San Jose television market for a period of five years from the closing. In connection with the purchase of KBWB-TV, the WB Network agreed to enter into a ten-year affiliation agreement with the Company instead of with another television station in the San Francisco market in return for total consideration of $31,572,000. The Company paid $14,847,000 to the WB Network after the closing of the acquisition and will pay the remaining $16,725,000 over a five year period. The remaining payment is shown at its net present value on the Company's balance sheet using an effective interest rate of 7.75%. The acquisition has been accounted for under the purchase method of accounting and the results of operations are included in the Company's consolidated statements of operations from the date of acquisition. The following comprises the allocation of the purchase price: Total Purchase Price $205,322,000 Net liabilities acquired, principally film contract rights, deferred tax liability and property and equipment 61,369,000 Broadcast license (118,902,000) Covenant not to compete (30,000,000) Network affiliation agreement (28,666,000) ----------- Goodwill $89,123,000 ----------- -----------
On July 30, 1999, the Company completed the disposition of WEEK-FM to the Cromwell Group, Inc. of Illinois for $1,150,000 in cash. On August 31, 1999, the Company completed the disposition of KEYE-TV, the CBS affiliate serving Austin, Texas to CBS Corporation ("CBS") for $160,000,000 in cash. A portion of the proceeds from the sale of these stations was used to repay outstanding indebtedness under the Company's bank credit agreement (the "Credit Agreement"). The Company recognized a pre-tax gain for financial statement purposes on the sale of these stations of $103,470,000. On November 16, 1999, the Company entered into a definitive agreement to acquire WNGS-TV, the UPN affiliate serving Buffalo, New York, from Caroline K. Powley for $23,000,000 in cash. Closing of the acquisition is subject to certain closing conditions, including approval by the Federal Communications Commission (the "FCC"). The Company expects to complete the acquisition in the fourth quarter of 2000. -34- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The following table summarizes the unaudited consolidated pro forma results of operations for the years ended December 31, 1997, 1998 and 1999 assuming the acquisition of KBWB-TV and the disposition of WWMT-TV and WLAJ-TV had occurred as of January 1, 1997 and the disposition of KEYE and WEEK-FM had occurred as of January 1, 1998:
1997 1998 1999 -------- ------- -------- Net revenue $147,580,000 $140,876,000 $139,400,000 Station operating expenses 84,925,000 79,711,000 87,212,000 Loss before extraordinary item (19,368,000) (10,139,000) (51,741,000) Per common share: Basic and diluted loss before extraordinary item $ (5.22) $ (3.44) $ (5.65)
NOTE 3 -- PROPERTY AND EQUIPMENT The major classifications of property and equipment are as follows:
DECEMBER 31, -------------------------------- 1998 1999 -------- -------- Land.................................... $ 1,853,704 $ 1,750,522 Buildings and improvements.............. 13,576,255 14,075,255 Furniture and fixtures.................. 6,707,887 7,990,633 Technical equipment and other........... 40,128,206 45,350,080 ---------- ---------- 62,266,052 69,166,490 Less: Accumulated depreciation......... 29,225,900 29,990,321 ---------- ---------- Net property and equipment.............. $33,040,152 $39,176,169 =========== ===========
NOTE 4 -- OTHER ACCRUED LIABILITIES Other accrued liabilities are summarized below:
DECEMBER 31, ------------------------------- 1998 1999 -------- -------- Compensation and benefits............... $ 2,313,611 $ 2,205,324 Income taxes payable.................... 5,287,748 3,912,027 Other................................... 2,306,732 1,662,124 --------- --------- Total................................... $ 9,908,091 $7,779,475 =========== ==========
-35- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 5 -- OTHER CURRENT LIABILITIES Other current liabilities are summarized below:
DECEMBER 31, ---------------------------- 1998 1999 -------- -------- WB affiliation payment, net................. $ 2,909,227 $ 4,101,907 Barter payable.............................. 2,023,280 1,724,025 Other....................................... 831,375 647,761 ----------- ----------- Total....................................... $5,763,882 $6,473,693 ========== ==========
NOTE 6-- OTHER CURRENT ASSETS Other current assets are summarized below:
DECEMBER 31, ---------------------------- 1998 1999 -------- -------- Barter and other receivables................ $ 3,114,266 $ 2,951,963 Escrow deposit related to station acquisition and other related costs....... -- 2,123,116 Prepaid film contract rights................ 1,589,776 92,496 Insurance settlement receivable............. 2,812,669 2,595,902 Other....................................... 2,111,096 2,636,272 --------- --------- Total....................................... $9,627,807 $ 10,399,749 ========== ===========
NOTE 7-- LONG-TERM DEBT The carrying amounts and fair values of the Company's long-term debt are as follows:
DECEMBER 31, 1998 DECEMBER 31, 1999 ------------------------------- -------------------------------- CARRYING AMOUNT FAIR VALUE CARRYING AMOUNT FAIR VALUE --------------- ---------- --------------- ---------- Senior Bank Debt.............. $ 80,500,000 $ 80,500,000 $ 17,000,000 $ 17,000,000 9-3/8% Senior Subordinated Notes, net of unamortized discount.................... 58,980,335 58,006,200 38,643,509 38,453,796 10-3/8% Senior Subordinated Notes....................... 134,420,000 135,764,200 132,420,000 134,856,528 8-7/8% Senior Subordinated Notes, net of unamortized discount.................... 152,498,824 145,661,063 115,810,795 111,873,960 ----------- ----------- ----------- ----------- Total......................... $426,399,159 $419,931,463 $303,874,304 $302,184,284 ============ ============ ============ ============
The fair value of the Company's Senior Subordinated Notes is estimated based on quoted market prices. The carrying amount of the Company's borrowings under its credit facility approximates fair value. -36- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) SENIOR BANK DEBT The Company's existing bank credit agreement was amended and restated on June 10, 1998 (as amended and restated and as further amended from time to time, the "Fourth Amended and Restated Credit Agreement" or the "Credit Agreement") to create a reducing revolving credit facility of up to $260,000,000 and permits additional borrowings of up to $240,000,000. The proceeds from this facility are available for acquisitions and for general working capital purposes as defined in the agreement. As of March 23, 1999, February 16, 2000 and March 17, 2000, the Company amended the Credit Agreement to revise the maximum consolidated total debt to consolidated cash flow ratio covenant contained therein. The March 17, 2000 amendment also increased the marginal rates above Eurodollar and the prime rate that outstanding indebtedness bear interest under the Credit Agreement. Outstanding principal balances under the Fourth Amended and Restated Credit Agreement bear interest at floating rates equal to Eurodollar (the "Eurodollar Rate") plus marginal rates between 1.50% and 2.75% or the prime rate plus marginal rates between 0.25% and 1.50%. The Eurodollar Rate was 5.6875% plus a marginal rate of 2.5% at December 31, 1998. The Eurodollar Rate was 6.25% plus a marginal rate of 2.25% at December 31, 1999. The prime rate was 7.75% plus a marginal rate of 1.25% at December 31, 1998. The prime rate was 8.5% plus a marginal rate of 1.00% at December 31, 1999. The marginal rate is subject to change based upon changes in the ratio of outstanding principal balances to operating cash flow. The principal amount of the revolving loans is subject to reduction in installments commencing December 31, 2000 through December 31, 2005, when the agreement matures. The Fourth Amended and Restated Credit Agreement is secured by substantially all of the assets of the Company, as well as a pledge of all issued and outstanding shares of capital stock of the Company's present and future subsidiaries and guaranteed by all present and future subsidiaries of the Company. The Fourth Amended and Restated Credit Agreement requires the Company to maintain compliance with certain financial ratios. Other provisions place limitations on the incurrence of additional debt, payments for capital expenditures, prepayment of subordinated debt, merger or consolidation with or acquisition of another entity, the declaration or payment of cash dividends and other transactions by the Company. SENIOR SUBORDINATED NOTES In May 1995, the Company issued $175,000,000 aggregate principal amount of its 10-3/8% Senior Subordinated Notes (the "10-3/8% Notes") due May 15, 2005. On May 6, 1996, the Company repurchased $2,000,000 face amount of its 10-3/8% Notes at a discount. In 1998, the Company repurchased a total of $38,580,000 face amount of its 10-3/8% Notes at various prices. During 1999, the Company repurchased $2,000,000 face amount of its 10-3/8% Notes at a premium. The 10-3/8% Notes are redeemable at any time on or after May 15, 2000, at the option of the Company, in whole or in part from time to time, at certain prices declining annually to 100% of the principal amount on or after May 15, 2002, plus accrued interest. The Company is required to offer to purchase all outstanding 10-3/8% Notes at 101% of the principal amount plus accrued interest in the event of a Change of Control (as defined in the Indenture governing the 10-3/8% Notes). The 10-3/8% Notes are subordinated in right of payment to all existing and future Senior Debt (as defined in the Indenture governing the 10-3/8% Notes) and rank PARI PASSU with all senior subordinated debt and senior to all subordinated debt of the Company. The Indenture governing the 10-3/8% Notes contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur debt, pay cash dividends on or repurchase capital stock, enter into agreements prohibiting the creation of liens or restricting the ability of a subsidiary to pay money or transfer assets to the Company, enter into certain transactions with their affiliates, dispose of certain assets and engage in mergers and consolidations. In February 1996, the Company completed an offering of $110,000,000 principal amount of its 9-3/8% Senior Subordinated Notes (the "9-3/8% Notes") due December 1, 2005 at a discount, resulting in net proceeds to the -37- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Company of $109,450,000. In 1996, the Company repurchased $13,500,000 principal amount of its 9-3/8% Notes at a discount. In 1997, the Company repurchased $19,405,000 principal amount of its 9-3/8% Notes at a discount. In 1998, the Company repurchased a total of $17,905,000 principal amount of its 9-3/8% Notes at a discount. During 1999, the Company repurchased a total of $20,430,000 principal amount of its 9-3/8% Notes at a premium. The 9-3/8% Notes are redeemable at any time on or after December 1, 2000, at the option of the Company, in whole or in part, at certain prices declining annually to 100% of the principal amount on or after December 1, 2002, plus accrued interest. The Company is required to offer to purchase all outstanding 9-3/8% Notes at 101% of the principal amount plus accrued interest in the event of a Change of Control (as defined in the Indenture governing the 9-3/8% Notes). The 9-3/8% Notes are subordinate in right of payment to all existing and future Senior Debt (as defined in the Indenture governing the 9-3/8% Notes) and rank PARI PASSU with all senior subordinated debt and senior to all subordinated debt. The provisions of the Indenture governing the 9-3/8% Notes contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur debt, make certain restricted payments, enter into certain transactions with their affiliates, dispose of certain assets, incur liens securing subordinated debt of the Company, engage in mergers and consolidations and restrict the ability of the subsidiaries of the Company to make distributions and transfers to the Company. In May 1998, the Company completed an offering of $175,000,000 principal amount of its 8-7/8% Senior Subordinated Notes, due May 15, 2008 (the "8-7/8% Notes"), at a discount, resulting in proceeds to the Company of $174,482,000. The proceeds of this offering were used to repay all of the then outstanding borrowings under the Company's then existing bank credit agreement and to repurchase $22,960,000 principal amount of its 10-3/8% Notes at a premium. In 1998, the Company repurchased a total of $22,075,000 principal amount of its 8-7/8% Notes at various prices. During 1999, the Company repurchased a total of $36,825,000 principal amount of its 8-7/8% Notes at various prices. The 8-7/8% Notes are redeemable in the event that on or before May 15, 2001 the Company receives net proceeds from the sale of its Capital Stock (other than Disqualified Stock (each as defined in the Indenture governing the 8-7/8% Notes), in which case the Company may, at its option and from time to time, use all or a portion of any such net proceeds to redeem certain amounts of the 8-7/8% Notes with certain limitations. In addition, the 8-7/8% Notes are redeemable at any time on or after May 15, 2003 at the option of the Company, in whole or in part, at certain prices declining annually to 100% of the principal amount on or after May 15, 2006, plus accrued interest. The Company is required to offer to purchase all outstanding 8-7/8% Notes at 101% of the principal amount thereof plus accrued interest in the event of a Change of Control (as defined in the Indenture governing the 8-7/8% Notes). The 8-7/8% Notes are subordinate in right of payment to all existing and future Senior Debt (as defined in the Indenture governing the 8-7/8% Notes) and rank PARI PASSU with all senior subordinated debt and senior to all subordinated debt. The provisions of the Indenture governing the 8-7/8% Notes contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur debt, make certain restricted payments, enter into certain transactions with their affiliates, dispose of certain assets, incur liens securing subordinated debt of the Company, engage in mergers and consolidations and restrict the ability of the subsidiaries of the Company to make distributions and transfers to the Company. During 1997, 1998 and 1999, the Company recognized extraordinary losses of $5,569,119, $2,711,002 and $641,638, respectively, related to the aforementioned repurchases of subordinated debt, as well as the repayment of all then outstanding term loan and revolving credit borrowings under the then existing bank credit agreements in 1998. Such extraordinary losses were the result of premiums paid and the write-off of related deferred financing fees, offset, in part, by gains recognized on that subordinated debt repurchased at a discount. There are no scheduled principal maturities on all long-term debt for the five years subsequent to December 31, 1999. -38- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 8 -- COMMITMENTS Future minimum lease payments under long-term operating leases as of December 31, 1999 are as follows: 2000............................................................. $ 1,488,610 2001............................................................. 1,289,580 2002............................................................. 1,138,723 2003............................................................. 1,027,387 2004 ............................................................ 1,107,464 2005 and thereafter.............................................. 2,600,659 ----------- $ 8,652,423 ----------- -----------
Rent expense, including escalation charges, was $1,038,000, $1,314,000 and $1,559,000 for the years ended December 31, 1997, 1998 and 1999, respectively. NOTE 9 -- REDEEMABLE PREFERRED STOCK SERIES A PREFERRED STOCK The Company authorized 100,000 shares of its Series A Convertible Preferred Stock ("Series A Stock"), par value $.01 per share, which were issued at an aggregate price of $1,210,000. All outstanding shares of the Series A Stock were converted into shares of the Company's Common Stock (Nonvoting), par value $.01 per share (the "Common Stock (Nonvoting)") in August 1995. Prior to conversion, dividends accrued on the Series A Stock at an annual rate of $.40 per share which accumulated, without interest, if unpaid. Accrued but unpaid dividends on the Series A Stock totaled $262,844 at December 31, 1998 and 1999. Accrued dividends are due and payable on the date on which such dividends may be paid under the Company's debt instruments. CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK The Company had authorized 3,000,000 shares of its Cumulative Convertible Exchangeable Preferred Stock (the "Cumulative Convertible Exchangeable Preferred Stock"), par value $.01 per share, of which 1,520,000 shares were issued on December 23, 1993 at a price of $25.00 per share. The Company also issued on December 23, 1993 300,000 shares of its Cumulative Convertible Exchangeable Preferred Stock valued at $7,500,000 as consideration for acquiring certain outstanding securities of Queen City III Limited Partnership, the then ultimate parent of WKBW. Holders of the Cumulative Convertible Exchangeable Preferred Stock were entitled to receive cash dividends at an annual rate of $1.9375 per share, payable quarterly on each March 15, June 15, September 15 and December 15 in each year, when, as and if declared by the Company's Board of Directors. Dividends on the Cumulative Convertible Exchangeable Preferred Stock were cumulative and accrue without interest, if unpaid. In August 1999, the Company called for the redemption of all outstanding shares of its Cumulative Convertible Exchangeable Preferred Stock. Holders of Cumulative Convertible Exchangeable Preferred Stock had the option to accept cash in the amount of $25.97 per share, plus accrued but unpaid dividends, or convert at any time on or before September 10, 1999 each preferred share into 5 shares of the Company's Common Stock (Nonvoting). As of September 10, 1999 all of the Company's outstanding Cumulative Convertible Exchangeable Preferred Stock had been converted into Common Stock (Nonvoting). 12-3/4% CUMULATIVE EXCHANGEABLE PREFERRED STOCK In January 1997, the Company authorized 400,000 shares of its 12-3/4% Cumulative Exchangeable Preferred Stock (the "12-3/4% Cumulative Exchangeable Preferred Stock"), par value $.01 per share. In connection -39- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) with the Company's acquisition of WDWB-TV, 150,000 shares of the 12-3/4% Cumulative Exchangeable Preferred Stock were issued in January 1997 at a price of $1,000 per share. Holders of the 12-3/4% Cumulative Exchangeable Preferred Stock are entitled to receive dividends at an annual rate of 12-3/4% per share payable semi-annually on April 1 and October 1 of each year. The Fourth Amended and Restated Credit Agreement allows for the payment of cash dividends on the 12-3/4% Cumulative Exchangeable Preferred Stock provided that the Company is in compliance with all covenants under the Fourth Amended and Restated Credit Agreement. The Company may elect to pay dividends prior to April 1, 2002 in additional shares of 12-3/4% Cumulative Exchangeable Preferred Stock. Dividends on the 12-3/4% Cumulative Exchangeable Preferred Stock are cumulative and accrue without interest, if unpaid. The 12-3/4% Cumulative Exchangeable Preferred Stock is entitled to a preference of $1,000 per share initially, plus accumulated and unpaid dividends in the event of liquidation or winding up of the Company ($215,376,900 liquidation value at December 31, 1999). The Company is required, subject to certain conditions, to redeem all of the 12-3/4% Cumulative Exchangeable Preferred Stock outstanding on April 1, 2009, at a redemption price equal to 100% of the then effective liquidation preference thereof, plus, without duplication, accumulated and unpaid dividends to the date of redemption. Subject to certain conditions, each share of the 12-3/4% Cumulative Exchangeable Preferred Stock is exchangeable, in whole or in part, at the option of the Company, for the Company's 12-3/4% Exchange Debentures (the "12-3/4% Exchange Debentures") on any scheduled dividend payment date at the rate of $1,000 principal amount of 12-3/4% Exchange Debentures for each share of 12-3/4% Cumulative Exchangeable Preferred Stock outstanding at the time of the exchange. NOTE 10 -- STOCKHOLDERS' EQUITY STOCK OPTION PLANS The Company has a stock option plan (the "Stock Option Plan") for officers and certain key employees. On January 8, 1999, the Stock Option Plan was amended to increase the shares of Common Stock (Nonvoting) subject to options available for grant to 4,000,000 from 3,000,000. On February 23, 1999, the Stock Option Plan was further amended to increase the shares of Common Stock (Nonvoting) subject to options available for grant from 4,000,000 to 6,000,000. Options may be granted under the Stock Option Plan at an exercise price (for tax-qualified incentive stock options) of not less than 100% of the fair market value of the Common Stock (Nonvoting) on the date the option is granted, or 110% of such fair market value for option recipients who hold 10% or more of the Company's voting stock. The exercise price for nonqualified stock options may be less than, equal to or greater than the fair market value of the Common Stock (Nonvoting) on the date the option is granted. At December 31, 1998 and 1999, options granted under the Stock Option Plan were outstanding for the purchase of 1,803,125 and 4,692,625 shares of Common stock (Nonvoting), respectively. On March 1, 1994, the Company adopted a Director Stock Option Plan (the "Director Option Plan") providing for the grant, from time to time, of nonqualified stock options to non-employee directors of the Company to purchase an aggregate of 300,000 shares of Common Stock (Nonvoting). On July 27, 1999, the Director Option Plan was amended to increase the shares of Common Stock (Nonvoting) subject to options available for grant from 300,000 to 1,000,000. As of December 31, 1998 and 1999, options granted under the Director Option Plan were outstanding for the purchase of 250,100 and 786,685 shares of Common Stock (Nonvoting), respectively. The options granted under the Director Option Plan serve as compensation for attendance at regularly scheduled board meetings and for service on certain committees of the Board of Directors. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). Accordingly, no compensation expense has been recognized for the stock option plans. For purposes of SFAS 123 pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period; therefore, the impact on pro forma net income -40- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) (loss) in 1997, 1998 and 1999 may not be representative of the impact in future years. The Company's pro forma information for years ended December 31, follows:
1997 1998 1999 -------- -------- -------- Pro forma net income (loss)......................... $(10,301,413) $40,900,956 $45,661,497 Pro forma net income (loss) per share: Basic............................................. $(3.70) $1.49 $1.32 Diluted........................................... $(3.70) $1.08 $1.06
The fair value for each option grant was estimated at the date of grant using a binomial option pricing model with the following weighted-average assumptions for the various grants made during 1997, 1998 and 1999: risk-free interest rate of 5.67% in 1997, 4.65% in 1998 and 5.93% in 1999; no dividend yield; expected volatility of 38% in 1997 and 1998, and 45% in 1999; and expected lives of three years in 1997, 1998 and four years in 1999. The binomial option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. The Company's employee stock options have characteristics significantly different from those of traded options and changes in the subjective input assumptions can materially affect the fair value estimate.
1997 1998 1999 ------------------------------ ----------------------------- --------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE ------- -------------- ------ -------------- ------- -------------- Outstanding at beginning of year.... 1,872,700 $10.22 2,336,850 $ 9.98 2,053,225 8.51 Granted............................. 481,000 8.89 317,500 11.28 3,637,385 7.78 Exercised........................... (12,350) 4.72 (20,125) 7.62 (31,800) 4.63 Forfeited........................... (4,500) 9.75 (581,000) 15.97 (179,500) 6.95 --------- --------- --------- Outstanding at end of year.......... 2,336,850 9.98 2,053,225 8.51 5,479,310 8.10 ========= ========= ========= Exercisable at end of year.......... 1,285,250 8.87 1,298,025 7.49 1,779,810 7.90 Weighted-average fair value of options granted during the year... $2.84 $ 3.36 $ 2.87
OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED-AVERAGE -------------------------------- RANGE OF REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE EXERCISE PRICES AT 12/31/99 CONTRACTUAL LIFE EXERCISE PRICE AT 12/31/99 EXERCISE PRICE --------------- ----------- ---------------- ---------------- ----------- ---------------- $3 - $5.25 445,825 4.39 years $3.80 445,825 $3.80 $6.13 - $6.88 1,701,400 9.07 years $6.49 150,400 $6.67 $7 - $9.75 1,395,885 8.16 years $7.86 687,585 $8.06 $10 - $12.44 1,936,200 7.86 years $10.68 496,000 $11.74
MANAGEMENT STOCK PLAN In April 1993, the Company adopted a Management Stock Plan providing for the grant from time to time of awards denominated in shares of Common Stock (Nonvoting) (the "Bonus Shares") to salaried executive employees of the Company. The Company has set aside a reserve of 1,000,000 shares of Common Stock (Nonvoting) for grant under the Management Stock Plan. Shares generally vest over a five-year period. As of December 31, 1999, the Company has allocated a total of 783,979 Bonus Shares pursuant to the Management Stock Plan, 607,062 of which had vested through December 31, 1999. For the years ended December 31, 1998 and 1999, 135,000 and 66,600 shares, respectively, were granted pursuant to the Management Stock Plan. The weighted-average grant-date fair value of those shares is $11.39 and $7.60, respectively. -41- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NON-EMPLOYEE DIRECTORS' STOCK PLAN In April of 1997, the Company adopted a Non-Employee Directors' Stock Plan (the "Director Stock Plan"), providing an annual grant of the Company's Common Stock (Nonvoting) to each eligible non-employee director of a number of shares equal to $20,000 divided by the fair market value of the Common Stock (Nonvoting) on the date of grant. The Company has set aside a reserve of 100,000 shares of Common Stock (Nonvoting) for grant under the Director Stock Plan. Shares granted vest immediately. For the years ended December 31, 1998 and 1999, 12,586 and 27,297 shares, respectively, were granted pursuant to the Director Stock Plan with weighted-average grant date fair values of $11.13 and $6.23, respectively. The total number of common shares outstanding at December 31, 1999 assuming the exercise of all outstanding stock options is as follows: Class A Common Stock.............................................. 178,500 Common Stock (Nonvoting).......................................... 17,964,081 Stock option plans................................................ 5,479,310 ---------- 23,621,891 ---------- ----------
NOTE 11 -- INCOME TAXES The Company files a consolidated federal income tax return for its entities which, as of January 1, 1999 included the operations of WKBW. For all periods presented, the Company provides for income taxes using a liability approach for financial accounting and reporting which results in the recognition and measurement of deferred tax assets based on the likelihood of realization of tax benefits in future years. The provision for income taxes for the years ended December 31 consists of the following:
1997 1998 1999 ----------- ---------- ---------- Current taxes: Federal............................................... $ - $ 958,000 $ 23,397,000 State................................................. 422,000 731,000 2,111,000 ------- -------- --------- 422,000 1,689,000 25,508,000 Deferred taxes: Federal............................................... 844,212 7,469,000 4,876,000 State................................................. 350,000 142,000 933,000 -------- -------- ------- 1,194,212 7,611,000 5,809,000 --------- --------- --------- Provision for income taxes............................... $1,616,212 $9,300,000 $31,317,000 ========== ========== ===========
The provision for income taxes for the years ended December 31, 1997 and 1998 is comprised of a non-cash provision for income taxes relating to the separate federal return of WKBW of $1,730,561 and $719,215, respectively. -42- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Components of the Company's deferred tax asset and liability as of December 31 are as follows:
DECEMBER 31, ----------------------------- 1998 1999 -------- -------- Deferred tax liability: Deferred tax liability from excess carrying value of non-goodwill intangible assets over tax basis.......... $94,519,337 $88,674,743 Depreciation................................................ 756,021 2,406,638 Other....................................................... 177,265 181,473 ---------- ---------- Total deferred tax liability............................... 95,452,623 91,262,854 Deferred tax assets: Net operating loss carryforward........................... 16,185,619 7,144,939 Alternative minimum tax credit............................ 958,407 - ---------- ---------- Total deferred tax assets................................... 17,144,026 7,144,939 Net deferred tax liability.................................. $78,308,597 $84,117,915 =========== ===========
The difference between the U.S. federal statutory tax rate and the Company's effective tax rate for the years ended December 31 is as follows:
1997 1998 1999 ---------- ---------- ---------- U.S. statutory rate......................................... (35.0%) 35.0% 35.0% Nondeductible amortization................................. 35.5 1.9 1.8 State and local taxes....................................... 35.1 1.1 2.6 (Decrease) increase in valuation allowance.................. 51.7 (19.2) - Other (net)................................................. - - .5 --------- --------- ---- Effective tax rate......................................... 87.3% 18.8% 39.9% ==== ==== ====
At December 31, 1999, the Company had a net operating loss carryforward for federal tax purposes of approximately $18,000,000 relating to WKBW, which may be subject to limitation under the Separate Return Limitation Rules of the Internal Revenue Code. These net operating losses will expire no sooner than December 31, 2002. In 1998, the Company released the valuation allowance as it was more likely than not that deferred tax assets would be realized in the future. NOTE 12 -- DEFINED CONTRIBUTION PLAN The Company has a trusteed profit sharing and savings plan (the "Plan") covering substantially all of its employees. Contributions by the Company to the Plan are based on a percentage of the amount of employee contributions to the Plan and are made at the discretion of the Board of Directors. Company contributions, which are funded monthly, amounted to $718,000, $792,000 and $811,390 for the years ended December 31, 1997, 1998 and 1999, respectively. -43- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 13 -- RELATED PARTY In 1995, the Company loaned two of its officers an aggregate of $570,000 to pay certain personal taxes. The terms of the loans provide for an annual interest rate of 9% payable annually in April of each year, with all principal and remaining interest due on December 29, 2004. In 1996, the Company loaned one of its officers $886,875 to pay the exercise price incurred in connection with exercising options and $409,000 to pay related personal income taxes. The loans are term loans which provide for an annual interest rate of 8%, payable annually in April of each year, with all principal and remaining interest due on April 23 and December 31, 2001, respectively. The amount of the loan made in connection with exercising options is shown in the balance sheet at December 31, 1996 and 1997 as a reduction to stockholders' equity. In 1997, the Company loaned one of its officers $441,530 to pay certain personal taxes. The loan is a term loan which provides for an annual interest rate of 8%, payable annually on April 16 of each year with all principal and remaining interest due April 16, 2001. In 1998, the Company loaned one of its officers $825,000. The loan is a term loan which provides for an annual interest rate of 7.50%, payable annually on April 30 of each year with all principal and remaining interest due December 1, 2003. NOTE 14 - SUBSEQUENT EVENT On February 14, 2000, the Company announced the formation of a strategic alliance (the "Strategic Alliance") with the National Broadcasting Company, Inc. ("NBC"). Pursuant to the Strategic Alliance, KNTV is to become the NBC affiliate in the San Francisco-Oakland-San Jose California DMA for a ten-year term commencing on January 1, 2002 (the "San Francisco Affiliation"). In connection with the affiliation switch to NBC, the Company intends to expand KNTV's coverage to include a greater percentage of the San Francisco-Oakland-San Jose DMA. The Company has received permission from the FCC to increase KNTV's signal coverage, and anticipates consummating such increase in May 2000. The Company is also seeking to reach all cable homes in the San Francisco-Oakland-San Jose DMA through expanded cable coverage. In addition, NBC is to extend the term of the Company's NBC affiliation agreements with KSEE, WEEK and KBJR until December 31, 2011. As part of such extension, NBC's affiliation payment obligations to Granite for such stations will terminate as of December 31, 2001. In consideration for the San Francisco Affiliation, the Company will pay NBC $362,000,000 in nine annual installments, with the initial payment in the amount of $61,000,000 being due January 1, 2002. In addition, Granite is to grant NBC a warrant to acquire 2.5 million shares of the Company's Common Stock (Nonvoting), par value $0.01 per share (the "Common Stock (Nonvoting)"), at an exercise price of $12.50 per share (the "A Warrant") and a warrant to purchase 2.0 million shares of Common Stock (Nonvoting) at an exercise price of $15.00 per share (The "B Warrant"). The A Warrant vests in full on December 31, 2000. The B Warrant vests in full on January 1, 2002, if the San Francisco Affiliation is in effect on that date. Each warrant, once vested, remains exercisable until December 31, 2011 and may be exercised for cash or surrender of a portion of a then exercisable Warrant. The aggregate number of shares issuable upon exercise of the warrants (assuming they are exercised for cash) would represent approximately 20.0% of the Common Stock (Nonvoting) as of December 31, 1999 after giving effect to their issuance. Granite has also agreed to pay $2,430,000 during 2001 in promotion expenses in connection with KNTV's affiliation switch to NBC. -44- GRANITE BROADCASTING CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE 15 -- PRICE RANGE OF COMMON STOCK (NONVOTING) AND CUMULATIVE CONVERTIBLE EXCHANGEABLE PREFERRED STOCK (UNAUDITED) The Company's Common Stock (Nonvoting) is traded in the over-the-counter market and is quoted on the Nasdaq National Market under the symbol "GBTVK". The following table sets forth the closing market price ranges per share of Common Stock (Nonvoting) during 1998 and 1999, as reported by Nasdaq:
1998 HIGH LOW ---- ---- --- First Quarter..................................................... $12-1/4 $8-7/8 Second Quarter.................................................... 12-1/8 10-7/8 Third Quarter..................................................... 13-1/2 5-3/4 Fourth Quarter.................................................... 6-7/8 4 1999 First Quarter..................................................... $ 8-3/4 $6-1/8 Second Quarter.................................................... 8-1/8 6 Third Quarter..................................................... 12-1/8 7-3/8 Fourth Quarter.................................................... 14-3/8 8-15/16
As of March 1, 2000 the closing price per share for the Company's Common Stock (Nonvoting), as reported by Nasdaq was $8.125 per share. The Cumulative Convertible Exchangeable Preferred Stock was traded in the over-the-counter market and was quoted on the OTC Bulletin Board under the symbol "GBTVP". The following table sets forth the closing market price ranges per share of Cumulative Convertible Exchangeable Preferred Stock during 1998 and 1999:
1998 HIGH LOW ---- ---- --- First Quarter..................................................... $62-5/8 $45 Second Quarter.................................................... 59-19/64 54 Third Quarter..................................................... 66-1/2 30 Fourth Quarter.................................................... 34-11/16 20 1999 First Quarter..................................................... $43-1/8 $29-1/4 Second Quarter.................................................... 39-1/2 34 Third Quarter..................................................... 56 37-3/16
As of September 10, 1999 all of the Company's Cumulative Convertible Exchangeable Preferred Stock was converted into Common Stock (Nonvoting). -45- SCHEDULE II GRANITE BROADCASTING CORPORATION VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT ACQUIRED AMOUNT CHARGED BALANCE ALLOWANCE FOR BEGINNING ALLOWANCE FOR TO COSTS AMOUNT AT END DOUBTFUL ACCOUNTS OF YEAR DOUBTFUL ACCOUNTS AND EXPENSES WRITTEN OFF(1) OF YEAR ----------------- ---------- ----------------- -------------- -------------- -------- For the year ended December 31, 1997.... $ 391,910 134 $ 396,829 $ 380,583 $ 408,290 For the year ended December 31, 1998.... 408,290 - 466,945 450,945 424,290 For the year ended December 31, 1999.... 424,290 - 492,648 486,578 430,360
- -------- (1) Net of recoveries. -46- ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -47- PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information concerning the executive officers and directors of the Company as of March 1, 2000:
NAME AGE POSITION ---- --- -------- W. Don Cornwell(1)................................... 52 Chairman of the Board, Chief Executive Officer and Director Stuart J. Beck(1).................................... 53 President, Secretary and Director Robert E. Selwyn, Jr................................. 56 Chief Operating Officer and Director Lawrence I. Wills.................................... 39 Vice President-Finance and Controller Ellen McClain........................................ 35 Vice President-Corporate Development and Treasurer James L. Greenwald(2)................................ 72 Director Martin F. Beck....................................... 82 Director Edward Dugger, III................................... 50 Director Thomas R. Settle(1)(3)(4)............................ 59 Director Charles J. Hamilton, Jr.(2)(4)....................... 52 Director M. Fred Brown(2)...................................... 53 Director Jon E. Barfield(3)(4)................................. 48 Director Veronica Pollard(3)(5)................................ 54 Director
- ------------ (1) Member of the Stock Option Committee. (2) Member of the Audit Committee. (3) Member of the Compensation Committee. (4) Member of the Management Stock Plan Committee. (5) Joined the Board on January 1, 2000. Mr. Cornwell is a founder of the Company and has been Chairman of the Board of Directors and Chief Executive Officer of the Company since February 1988. Mr. Cornwell served as President of the Company, which office then included the duties of chief executive officer, until September 1991 when he was elected to the newly-created office of Chief Executive Officer. Prior to founding the Company, Mr. Cornwell served as a Vice President in the Investment Banking Division of Goldman, Sachs & Co. ("Goldman Sachs") from May 1976 to July 1988. In addition, Mr. Cornwell was the Chief Operating Officer of the Corporate Finance Department of Goldman Sachs from January 1980 to August 1987. Mr. Cornwell is a director of Hershey Trust Company, the Milton S. Hershey School, Pfizer, Inc. and CVS Corporation. Mr. Cornwell received a Bachelor of Arts degree from Occidental College in 1969 and a Masters degree in Business Administration from Harvard Business School in 1971. Mr. Stuart Beck is a founder of the Company and has been a member of the Board of Directors and Secretary of the Company since February 1988 and President of the Company since September 1991. Prior to founding the Company, Mr. Beck was an attorney in private practice of law in New York, New York and Washington, DC. Mr. Beck is a member of the Board of The American Women in Radio and Television Society and of the Board of The Advertising Council. Mr. Beck received a Bachelor of Arts degree from Harvard College in 1968 and a Juris Doctor degree from Yale Law School in 1971. Mr. Beck is the son of Martin F. Beck. -48- Mr. Selwyn has been Chief Operating Officer of the Company since September 19, 1996 and a member of the Board of Directors since May 11, 1998. Prior to joining the Company, Mr. Selwyn was employed by New World Communications, Inc. from May 1993 to June 1996 serving as Chairman and Chief Executive Officer of the New World Television Station Group. Mr. Selwyn received a Bachelor of Science degree from the University of Tennessee in 1968. From 1990 until 1993, Mr. Selwyn was the President of Broadcasting for SCI Television, Inc. Mr. Selwyn was an officer of SCI Television, Inc. at the time that company filed a petition under Federal bankruptcy laws. Mr. Wills has been Vice President-Finance and Controller of the Company since June 25, 1990. Prior to joining the Company, Mr. Wills was employed by Ernst & Young LLP from July 1982 to May 1990 in various capacities, the most recent of which was as audit manager responsible for managing and supervising audit engagements. Mr. Wills is a director of Junior Achievement of New York, Inc. Mr. Wills received a bachelors degree in Business Administration from Iona College in 1982. Ms. McClain has been Vice President - Corporate Development and Treasurer of the Company since January 1994. Prior to joining Granite, Ms. McClain attended Harvard Business School, where she received a Masters degree in Business Administration in June 1993. From 1990 to 1991, Ms. McClain was an Assistant Vice President with Canadian Imperial Bank of Commerce, where she served as a lender in the Bank's Media Group and from 1986 to 1990 was employed by Bank of New England, N.A. in various capacities including as a lender in the Communications Group. Ms. McClain is a director of the National Association of Black Owned Broadcasters. Ms. McClain received a Bachelor of Arts Degree in Economics from Brown University in 1986. Mr. Greenwald has been a member of the Board of Directors of the Company since December 1988. Mr. Greenwald was the Chairman and Chief Executive Officer of Katz Communications, Inc. from May 1975 to August 1994 and has been Chairman Emeritus since August 1994. Mr. Greenwald has served as President of the Station Representatives Association and the International Radio and Television Society and Vice President of the Broadcast Pioneers. Mr. Greenwald is a director of Paxson Communications Corp. and Source Media Inc. Mr. Greenwald received a Bachelor of Arts degree from Columbia University in 1949 and an Honorary Doctorate Degree in Commercial Science from St. Johns University in 1980. Mr. Martin Beck has been a member of the Board of Directors of the Company since December 1988. Mr. Beck has served as Chairman of Beck-Ross Communications, Inc., a New York-based group owner of FM radio stations, from June 1966 until April 1995, at which time he retired. Mr. Beck is a director of Site Shell Corporation. Mr. Beck has served as President of the New York State Broadcasters Association, the Long Island Broadcasters Association and the National Association of Broadcasters Radio Board. Mr. Beck received a Bachelor of Arts degree from Cornell University in 1938. Mr. Beck is the father of Stuart J. Beck. Mr. Dugger has been a member of the Board of Directors of the Company since December 1988. Mr. Dugger has been President and Chief Executive Officer of UNC Ventures, Inc., a Boston-based venture capital firm, since January 1978, and its investment management company, UNC Partners, Inc., since June 1990. Mr. Dugger is a director of the Federal Reserve Bank of Boston and Envirotest Systems Corp. Mr. Dugger received a Bachelor of Arts degree from Harvard College in 1971 and a Masters degree in Public Administration and Urban Planning from Princeton University in 1973. Mr. Hamilton has been a member of the Board of Directors of the Company since July 1992. Mr. Hamilton has been a partner in the New York law firm of Battle Fowler LLP since 1983. Mr. Hamilton received a Bachelor of Arts degree from Harvard College in 1969 and a Juris Doctor degree from Harvard Law School in 1975. Mr. Hamilton is a trustee of the National Urban League, Inc. and the Environmental Defense Fund. Mr. Hamilton is a member of the Board of Directors of the Phoenix House Foundation, Inc. He is a member of the Committee on Policy for Racial Justice of the Joint Center for Political and Economic Studies, Inc. in Washington, DC and is Chairman of the Board of Directors of the Higher Education Extension Service. Mr. Settle has been a member of the Board of Directors of the Company since July 1992. Mr. Settle founded and has been the President of The Winchester Group, Inc., an investment advisory firm, since 1990. Mr. -49- Settle was the chief investment officer at Bernhard Management Corporation from 1985 to 1989. He was a Managing Director of Furman Selz Capital Management from 1979 until 1985. Mr. Settle received a Bachelor of Arts Degree from Muskingum College in 1963 and a Masters degree in Business Administration from Wharton Graduate School in 1965. Mr. Brown has been a member of the Board of Directors since April 1999. Mr. Brown founded and has been President of JetAir Capital, Inc., a San Francisco based company specializing in the trading and leasing of commercial jet aircraft and high-bypass jet engines and aircraft spare parts acquisition and sales, since 1993. Prior to founding JetAir, Mr. Brown was Senior Vice President and Managing Director of Marketing for Blenhiem Aviation from 1989-1993. Mr. Brown is a director of Dominican College and Jazz in the City. Mr. Brown received a Bachelor of Science degree from Middlebury College in 1969. He received a Juris Doctor degree and a Masters degree in Business Administration from the University of California at Berkeley in 1973. Mr. Barfield has been a member of the Board of Directors since April 1999. Mr. Barfield has been Chairman and Chief Executive Officer of The Bartech Group, a contract employment and staffing services firm specializing in the recruitment and placement of engineering, MIS and technical professionals, since 1995. In addition, Mr. Barfield served as President of The Bartech Group from 1981 to 1995. Prior to joining The Bartech Group, Mr. Barfield practiced corporate and securities law with the Chicago based law firm of Sidley and Austin from 1977 to 1981. Mr. Barfield is a director of National City Corporation, Tecumseh Products Company, Blue Cross Blue Shield of Michigan, Reading is Fundamental, Inc. and the Community Foundation for Southeastern Michigan. He is also a Charter Trustee of Princeton University and a Trustee of Henry Ford Museum and Greenfield Village. Mr. Barfield received a Bachelor of Arts degree from Princeton University in 1974 and received a Juris Doctor degree from Harvard Law School in 1977. Ms. Pollard has been a member of the Board of Directors since January 2000. Ms. Pollard has been Vice President-External Affairs for Toyota Motor North America, Inc. since 1998. Prior to joining Toyota Motor North America, Inc., Ms. Pollard was Vice President-Corporate Public Relations for ABC, Inc., a division of The Walt Disney Company from 1994 to 1998. Ms. Pollard is a director of the National YMCA of the USA and the Museum for African Art. Ms. Pollard received a Bachelor of Arts degree from Boston University in 1966 and a Masters degree from Columbia University Teachers College in 1968. All members of the Board of Directors hold office until the next annual meeting of shareholders of the Company or until their successors are duly elected and qualified. All officers are elected annually and serve at the discretion of the Board of Directors. Directors are separately reimbursed by the Company for their travel expenses incurred in attending Board or committee meetings and receive securities under each of the Company's Non-Employee Director Stock Plan and Director Option Plan (each as defined herein and collectively referred to as the "Director Plans"). SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE Each director and officer of the Company who is subject to Section 16 of the Securities Exchange Act of 1934, as amended, is required to report to the Securities and Exchange Commission, by a specified date, his or her beneficial ownership of, or certain transactions in, the Company's securities. Except as noted below, based solely upon a review of such reports, the Company believes that all filing requirements under Section 16 were complied with on a timely basis. For fiscal year 1999, Mr. Brown did not report, on a timely basis, one transaction on one Form 4, and Mr. Greenwald did not report, on a timely basis two transactions on one Form 4. Also, Mr. Martin Beck did not report on a timely basis, one transaction on one Form 4 for fiscal year 1998. All of the reports referred to above have been filed. In addition, the following automatic grants of securities to directors under the Director Plans ("Director Grants") that were exempt from the profit recovery rules of Section 16(b) under the Securities Exchange Act of -50- 1934, as amended, were inadvertently not timely reflected on Form 5. For fiscal year 1999, Mr. Barfield did not report, on a timely basis, three Director Grants on Form 5 and Mr. Brown did not report, on a timely basis, one Director Grant on Form 5. In addition, Messrs. Martin Beck, Hamilton and Settle did not report, on a timely basis, three Director Grants on Form 5 for fiscal year 1997 and one Director Grant on Form 5 for each of fiscal year 1998 and 1999, and Messrs. Dugger and Greenwald did not report, on a timely basis, three Director Grants on Form 5 for fiscal year 1997, one Director Grant on Form 5 for fiscal year 1998 and three Director Grants on Form 5 for fiscal year 1999. All of the reports referred to above have been filed. ITEM 11. EXECUTIVE COMPENSATION The following table sets forth the cash compensation paid by the Company to its Chief Executive Officer and each of its most highly compensated executive officers whose total cash compensation exceeded $100,000 for each of the three years in the period ended December 31, 1999: Summary Compensation Table
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------- ---------------------- SECURITIES RESTRICTED UNDERLYING ALL OTHER NAME AND STOCK OPTIONS/ COMPENSATION PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) AWARDS SARS (#) ($)(2) --------------------- -------- ------------ -------------- ---------- ---------- ------------- W. Don Cornwell 1999 $550,000 $585,960 - 1,160,000 $5,000 Chief Executive 1998 550,000 448,300 - 150,000 5,000 Officer 1997 500,000 448,300 - 166,000 4,750 Stuart J. Beck 1999 $550,000 $419,760 - 962,000 $13,800 President 1998 550,000 349,800 - 135,000 5,000 1997 500,000 349,800 - 135,000 4,750 Robert E. Selwyn, Jr. 1999 $371,600 $90,500 - 150,000 $14,600 Chief Operating 1998 362,000 72,000 - - 5,000 Officer 1997 350,000 70,000 - - 4,750 Lawrence I. Wills 1999 $140,500 $85,125 - 50,000 $5,000 Vice President - 1998 136,500 35,000 6,000(3) - 5,000 Finance and Controller 1997 130,000 26,000 - - 3,250 Ellen McClain 1999 $140,500 $85,125 - 50,000 $4,063 Vice President - Corporate 1998 136,500 32,500 6,000(3) - 5,000 Development and 1997 130,000 26,000 - - 3,250 Treasurer
- ---------- (1) Represents bonuses for services rendered in 1997, 1998 and 1999 that were paid in the following year. (2) The amounts shown in this column consist of a matching Company contribution under the Company's Employees' Profit Sharing and Savings (401(k)) Plan and, in 1999, an annual perquisite allowance for Messrs. Beck and Selwyn of $8,800 and $9,600, respectively. (3) Represents the market value on the date of award of 1,000 Bonus Shares awarded under the Company's Management Stock Plan on December 31, 1998. -51- EMPLOYMENT AGREEMENTS AND COMPENSATION ARRANGEMENTS Mr. Cornwell and Mr. Stuart Beck each have an employment agreement with the Company. The agreements provide for a two year employment term which is automatically renewed for subsequent two year terms unless advance notice of nonrenewal is given (the current term under such agreements, which were renewed in 1999, expires September 19, 2001). The base salary determined by the Compensation Committee of the Board of Directors was $500,000 for 1997 and $550,000 for each of 1998 and 1999. The agreements stipulate that Mr. Cornwell and Mr. Beck will devote their full time and efforts to the Company and will not engage in any business activities outside the scope of their employment with the Company unless approved by a majority of the Company's independent directors. Under the agreements, Mr. Cornwell and Mr. Beck are permitted to exchange any or all of their shares of Voting Common Stock for shares of Common Stock (Nonvoting), provided that such exchange does not jeopardize the Company's status as a minority-controlled entity under FCC regulations and that, after such exchange is effected, there will continue to be shares of voting stock of the Company outstanding. In addition to the compensation set forth in the employment agreements, Mr. Cornwell and Mr. Beck are eligible to receive incentive bonus payments under the Company's incentive bonus plan and stock options under the Stock Option Plan. See "--Stock Option Plan" and "--Management Stock Plan." Mr. Selwyn has an employment agreement with the Company. The current employment term was extended to January 31, 2003. The annual base salary determined by the Compensation Committee of the Board of Directors was $350,000 for 1997, $362,000 for 1998 and $371,600 for 1999. The agreement stipulates that Mr. Selwyn will devote his full time and effort to the Company and will not engage in any business activities outside of the scope of his employment with the Company other than permitted thereunder. In addition to his base salary, Mr. Selwyn is eligible to receive shares of the Company's Common Stock (Nonvoting) under the Management Stock Plan, has been granted options to purchase shares of Common Stock (Nonvoting) under the Stock Option Plan and is eligible to participate in the Company's Employee Stock Purchase Plan. See "--Employee Stock Purchase Plan," "--Stock Option Plan" and "--Management Stock Plan." Under an employment arrangement with the Company, Mr. Wills is eligible to receive an annual cash bonus based upon the Company's financial performance during that year, such bonus to be determined by Messrs. Cornwell and Beck. Mr. Wills' 1999 base salary was fixed at $140,500. Under an employment arrangement with the Company, Ms. McClain is eligible to receive an annual cash bonus based upon the Company's financial performance during that year, such bonus to be determined by Messrs. Cornwell and Beck. Ms. McClain's 1999 base salary was fixed at $140,500. 401(k) PROFIT SHARING AND SAVINGS PLAN Effective January 1990, the Company adopted the Granite Broadcasting Corporation Employees' Profit Sharing and Savings (401(k)) Plan (the "401(k) Plan") for the purpose of providing retirement benefits for substantially all of its employees. Contributions to the 401(k) Plan are made by both the employee and the Company. The Company matches 50% of that part of an employee's deferred compensation which does not exceed 5% of such employee's salary. Company-matched contributions vest at a rate of 20% for each year of an employee's service to the Company. The plan was amended in 1999 to provide that all Company-matched contributions on behalf of employees of KEYE-TV fully vested upon the sale of KEYE-TV to CBS. A contribution to the 401(k) Plan of $811,390 was charged to expense for 1999. EMPLOYEE STOCK PURCHASE PLAN On February 28, 1995, the Company adopted the Granite Broadcasting Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") for the purpose of enabling its employees to acquire ownership of Common Stock (Nonvoting) at a discount, thereby providing an additional incentive to promote the growth and profitability of the Company. The Stock Purchase Plan enables employees of the Company to purchase up to an aggregate of 1,000,000 shares of Common Stock (Nonvoting) at 85% of the then current market price through application of -52- regularly made payroll deductions. The Stock Purchase Plan is administered by a Committee consisting of not less than two directors who are ineligible to participate in the Stock Purchase Plan. The members of the Committee are currently Mr. Cornwell and Mr. Stuart J. Beck. At the discretion of the Committee, purchases under the Stock Purchase Plan may be effected through issuance of authorized but previously unissued shares, treasury shares or through open market purchases. The Committee has engaged a brokerage company to administer the day-to-day functions of the Stock Purchase Plan. Purchases under the Stock Purchase Plan commenced on June 1, 1995. STOCK OPTION PLAN In April 1990, the Company adopted a Stock Option Plan (the "Stock Option Plan") providing for the grant, from time to time, of Options to key employees, officers and directors of the Company or its affiliates (collectively, the "Participating Persons") to purchase shares of Common Stock (Nonvoting). The Stock Option Plan was amended on January 8, 1999 and February 23, 1999 to increase the number of shares of Common Stock (Nonvoting) subject to options available for grant under the plan to 4,000,000 and 6,000,000, respectively. As of March 1, 2000, options granted under the Stock Option Plan were outstanding for the purchase of 4,575,165 shares of Common Stock (Nonvoting). The Stock Option Plan provides for the grant of (i) Options intended to qualify as Incentive Stock Options ("ISOs") as defined in Section 422 of the Code, to certain key employees of the Company or its affiliates (including employees who are officers or directors, but excluding directors who are not employees) who have substantial responsibility in the direction and management of the Company or an affiliate ("Key Employees") and (ii) Options which do not qualify as ISOs ("NQSOs") to Key Employees and other officers and directors of the Company or its affiliates who have substantial responsibility in the direction and management of the Company or an affiliate. No Participating Person may be granted ISOs which, when first exercisable in any calendar year will permit such person to purchase stock of the Company having an aggregate fair market value (determined as of the time the ISO was granted) of more than $100,000. The Stock Option Plan is administered by a committee consisting of not less than three members of the Board of Directors appointed by the Board. The members of the Committee are Mr. Cornwell, Mr. Stuart J. Beck and Mr. Settle. Subject to the provisions of the Stock Option Plan, the committee is empowered to, among other things, grant Options under the Stock Option Plan; determine which employees may be granted Options under the Stock Option Plan, the type of Option granted (ISO or NQSO), the number of shares subject to each Option, the time or times at which Options may be granted and exercised and the exercise price thereof; construe and interpret the Stock Option Plan; determine the terms of any option agreement pursuant to which Options are granted (an "Option Agreement"), and amend any Option Agreement with the consent of the recipient of Options (the "Optionee"). Notwithstanding the foregoing, grants under the Stock Option Plan to officers of the Company and holders of 10% or more of the Voting Common Stock are made by the disinterested members of the Board of Directors of the Company. The Board of Directors may amend or terminate the Stock Option Plan at any time, except that approval of the holders of a majority of the outstanding Voting Common Stock of the Company is required for amendments which decrease the minimum option price for ISOs, extend the term of the Stock Option Plan beyond 10 years or the maximum term of the Options granted beyond 10 years, withdraw the administration of the Stock Option Plan from the committee, change the class of eligible employees, officers or directors or increase the aggregate number of shares which may be issued pursuant to the provisions of the Stock Option Plan. Notwithstanding the foregoing, the Board of Directors may, without the need for shareholder approval, amend the Stock Option Plan in any respect to qualify ISOs as Incentive Stock Options under Section 422 of the Code. The exercise price per share for all ISOs may not be less than 100% of the fair market value of a share of Common Stock (Nonvoting) on the date on which the Option is granted (or 110% of the fair market value on the date of grant of an ISO if the Optionee owns more than 10% of the total combined voting power of all classes of voting stock of the Company or any of its affiliates (a "10% Holder")). The exercise price per share for NQSOs may be less than, equal to or greater than the fair market value of a share of Common Stock (Nonvoting) on the date such NQSO is granted. Options are not assignable or transferable other than by will or the laws of descent and distribution. -53- The Stock Option Committee may provide, at or subsequent to the date of grant of any Option, that in the event the Optionee pays the exercise price for the Option by tendering shares of Common Stock (Nonvoting) previously owned by the Optionee, the Optionee will automatically be granted a "reload option" for the number of shares of Common Stock (Nonvoting) used to pay the exercise price plus the number of shares withheld to pay for taxes associated with the Option exercise (a "Reload Option"). On October 26, 1999, the Board of Directors granted to each officer of the Company on that date the right to receive a Reload Option with respect to all NQSO's granted to such officer prior to October 26, 1999 in the event the officer pays the exercise price for any such NQSO by tendering shares of Common Stock (Nonvoting). The Reload Option has an exercise price equal to the fair market value of the Common Stock (Nonvoting) on the date of grant of the Reload Option and remains exercisable for the remainder of the term of the NQSO to which it relates. Unless sooner terminated by the Board of Directors, the Stock Option Plan will terminate on April 1, 2000, 10 years after its effective date. Unless otherwise specifically provided in an Optionee's Option Agreement and except in the case of Reload Options as discussed above, each Option granted under the Stock Option Plan expires no later than 10 years after the date such Option is granted (5 years for ISO's granted to 10% Holders). Options may be exercised only during the period that the original Optionee has a relationship with the Company which confers eligibility to be granted Options and (i) for a period of 30 days after termination of such relationship, (ii) for a period of 3 months after retirement by the Optionee with the consent of the Company, or (iii) for a period of 12 months after the death or disability of the Optionee. MANAGEMENT STOCK PLAN In April 1993, the Company adopted a Management Stock Plan (the "Management Stock Plan") providing for the grant from time to time of awards denominated in shares of Common Stock (Nonvoting) (the "Bonus Shares") to all salaried executive employees of the Company. The purpose of the Management Stock Plan is to keep senior executives in the employ of the Company and to compensate such executives for their contributions to the growth and profits of the Company and its subsidiaries. On April 28, 1998, the Company increased the reserve of shares of Common Stock (Nonvoting) for grant under the Management Stock Plan to 1,000,000 from 750,000. All salaried executive employees (including officers and directors, except for persons serving as directors only) are eligible to receive a grant under the Management Stock Plan. The Management Stock Plan is administered by a committee appointed by the Board of Directors which consists of not less than two members of the Board of Directors (the "Management Stock Plan Committee"). Pursuant to Board resolution, the members of the Compensation Committee constitute the members of the Management Stock Plan Committee. The Management Stock Plan Committee, from time to time, selects eligible employees to receive a discretionary bonus of Bonus Shares based upon such employee's position, responsibilities, contributions and value to the Company and such other factors as the Management Stock Plan Committee deems appropriate. The Management Stock Plan Committee has discretion to determine the date on which the Bonus Shares allocated to an employee will be issued to such employee. The Management Stock Plan Committee may, in its sole discretion, determine what part of an award of Bonus Shares is paid in cash and what part of an award is paid in the form of Common Stock (Nonvoting). Any cash payment will be made to such employee as of the date the corresponding Bonus Shares would otherwise be issued to such employee and shall be in an amount equal to the fair market value of such Bonus Shares on that date. As of March 1, 2000, the Company has allocated a total of 783,979 Bonus Shares pursuant to the Management Stock Plan, of which 607,062 had vested through March 1, 2000. Each allocation provides for the vesting of a percentage of the award on each December 31 after the date of the allocation. DIRECTOR STOCK OPTION PLAN On March 1, 1994, the Company adopted a Director Stock Option Plan (the "Director Option Plan") providing for the grant, from time to time, of Options to non-employee directors of the Company ("Director Participants") to purchase Common Stock (Nonvoting). On July 27, 1999, the Company increased the number of shares of Common Stock (Nonvoting) allocated for grant under the Director Option Plan to 1,000,000 from 300,000. As of March 1, 2000, Options granted under the Director Option Plan were outstanding for the purchase of 859,860 shares of Common Stock (Nonvoting). -54- The Director Option Plan provides for the grant of NQSOs to Director Participants. On February 25, 1997, all non-employee directors automatically received an option to purchase 18,000 shares of Common Stock (Nonvoting) as compensation for attendance at regular quarterly meetings during the three year period beginning on such date in lieu of cash compensation. On April 27, 1999, the Director Option Plan was amended to provide that all Director Participants automatically receive on April 27, 1999 (and on each five year anniversary thereafter) an option to purchase 62,500 shares of Common Stock (Nonvoting) as compensation for attendance at regular quarterly meetings during the five year period beginning on February 25, 2000 (or each five year anniversary thereof, as the case may be) in lieu of cash compensation. Non-employee directors elected or appointed during the course of a three year or five year option period receive Options, in lieu of a cash compensation, for the remaining portion of such option period. In addition, under the Director Option Plan, non-employee directors receive automatic committee awards for certain committees of the Board of Directors on which they serve. Between February 25, 1997 and April 26, 1999, Options to purchase 1,500 shares of Common Stock (Nonvoting) became exercisable on the date of attendance in person of a Director Participant at each regular quarterly meeting of the Board of Directors. Options to purchase 500 shares of Common Stock (Nonvoting) became exercisable if such Director Participant attended the meeting by telephonic means. Since April 27, 1999, Options to purchase 3,125 shares of Common Stock (Nonvoting) become exercisable on the date of attendance, in person or by telephonic means, of a Director Participant at each regular quarterly meetings of the Board of Directors. Between February 25, 1997 and February 24, 2000, Options to purchase 1,500 shares of Common Stock (Nonvoting) became exercisable on the date of attendance in person at each regularly scheduled meeting of the Audit Committee and the Compensation Committee of any Director Participant who is a member of such committees. Since February 25, 2000, Options to purchase 625 shares of Common Stock (Nonvoting) (875 in the case of Committee chairs) become exercisable upon the date of attendance, in person or by telephonic means, at each regular meeting of the Audit Committee and the Compensation Committee of any Director Participant who is a member of such committees. The exercise price per share of all Options is the fair market value on the date of grant. The Board of Directors may provide, at or subsequent to the date of grant of any Option, that in the event the Director Participant pays the exercise price for the Option by tendering shares of Common Stock (Nonvoting) previously owned by the Director Participant, the Director Participant will automatically be granted a "reload option" for the number of shares of Common Stock (Nonvoting) used to pay the exercise price plus the number of shares withheld to pay for taxes associated with the Option exercise (a "Reload Option"). On October 26, 1999, the Board of Directors granted to each Director Participant on that date the right to receive a Reload Option with respect to all Options granted prior to October 26, 1999 in the event the director pays the exercise price for any such Options by tendering shares of Common Stock (Nonvoting). The Reload Option has an exercise price equal to the fair market value of the Common Stock (Nonvoting) on the date of grant of the Reload Option and remains exercisable for the remainder of the term of the Option to which it relates. Unless otherwise specifically provided in a Director Participant's Option Agreement and except in the case of Reload Options as described above, each Option granted under the Director Option Plan expires no later than 10 years after the date the Option is granted. Options may be exercised only during the period that the original optionee is a non-employee director and (i) for a period of 6 months after the death or disability of the Director Participant or (ii) for a period of 2 years after termination of the Director Participant's directorship for any other reason. NON-EMPLOYEE DIRECTORS STOCK PLAN On April 29, 1997, the Company adopted a Non-Employee Directors Stock Plan (the "Non-Employee Directors Stock Plan") for the purpose of providing a means to attract and retain highly qualified persons to serve as non-employee directors of the Company and to enable such persons to acquire or increase a proprietary interest in the Company. The Non-Employee Directors Stock Plan provides that on April 29, 1997 and 1998, and on January 1st of each subsequent calendar year during the term of the Non-Employee Directors Stock Plan, non- -55- employee directors of the Company ("Directors Stock Plan Participants") shall receive a number of shares of Common Stock (Nonvoting) equal to $20,000 divided by the fair market value per share on the date of grant. If a person first becomes a non-employee director after January 1st of any calendar year, such person receives a pro rated grant, based on the number of regular board meetings scheduled from the date of his or her commencement of service as a director until December 31 of that year. The number of shares of Common Stock (Nonvoting) available for issuance under the Non-Employee Directors Stock Plan is 100,000. Each Directors Stock Plan Participant may elect to defer the payment of shares of Common Stock (Nonvoting) by filing an irrevocable written election with the Secretary of the Company. The Non-Employee Directors Stock Plan, unless earlier terminated by action of the Board of Directors, will terminate at such time as no shares remain available for issuance under the Non-Employee Directors Stock Plan and the Company and the Directors Stock Plan Participants have no further rights or obligations under the Non-Employee Directors Stock Plan. As of March 1, 2000, 68,433 shares had been granted under the Non-Employee Directors Stock Plan. The following table sets forth information with respect to Options granted to the executive officers of the Company during 1999. Option/SAR Grants in Last Fiscal Year
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM ----------------------------------------------------------- -------------------------- % OF TOTAL OPTIONS/SARS GRANTED TO EXERCISE OR OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION NAME GRANTED (#) FISCAL YEAR ($ PER SHARE) DATE 5%($) 10% ($) - ---------------------- ---------- ---------- ------------- ------------ -------- ---------- W. Don Cornwell 136,000(1) 4.4% $6.875 1/08/2009 $588,016 $1,490,149 14,000(2) 0.5% 7.560 1/08/2004 29,242 64,616 400,000(3) 13.1% 6.125 2/23/2009 1,540,792 3,904,669 610,000(4) 19.9% 10.000 2/23/2009 3,836,257 9,721,829 Stuart J. Beck 121,000(5) 4.0% 6.875 1/08/2009 523,162 1,325,795 14,000(2) 0.5% 7.560 1/08/2004 29,242 64,616 327,000(6) 10.7% 6.125 2/23/2009 1,259,597 3,192,067 500,000(4) 16.3% 10.000 2/23/2009 3,144,473 7,968,712 Robert E. Selwyn 150,000(7) 4.9% 6.875 1/08/2009 648,548 1,643,547 Lawrence I. Wills 50,000(8) 1.6% 6.875 1/08/2009 216,183 547,849 Ellen McClain 50,000(8) 1.6% 6.875 1/08/2009 216,183 547,849
- -------- (1) 30,000 Options vest on each of January 8, 2000, 2001, 2002 and 2003 and 16,000 Options vest on January 8, 2004. (2) Options vest on January 8, 2004. (3) 160,000 Options vest on February 23, 2000; 120,000 Options vest on February 23, 2001; 80,000 Options vest on February 23, 2002 and 40,000 Options vest on February 23, 2004. (4) 50% vest at the time the closing stock price of the Common Stock (Nonvoting) averages $15.00 or more for ten consecutive business days and 50% vest when the closing stock price averages $20.00 or more for ten consecutive business days. (5) 27,000 Options vest on each January 8, 2000, 2001, 2002 and 2003 and 13,000 on January 8, 2004. -56- (6) 130,800 Options vest on February 23, 2000; 98,100 Options vest on February 23, 2001; 65,400 Options vest on February 23, 2002 and 32,700 Options vest on February 23, 2004. (7) 50,000 Options vest on each of December 31, 2000, 2001 and 2002. (8) 12,500 Options vest on each of December 31, 1999, 2000, 2001 and 2002. The following table sets forth, as of December 31, 1999, the number of options and the value of unexercised options held by the Company's executive officers who held options as of that date, and the options exercised and the consideration received therefor by such persons during fiscal 1999. Aggregated Option/SAR Exercises In Last Fiscal Year And FY-End Option/SAR Values
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT DECEMBER 31, 1999 AT DECEMBER 31, 1999 ($) SHARES ACQUIRED VALUE ---------------------- ------------------------ NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE - ------------------------ --------------------- ------------ ------------------------- ------------------------ W. Don Cornwell - - 547,500/1,379,500 $1,522,413/2,292,873 Stuart J. Beck - - 613,500/1,151,000 2,179,125/1,912,723 Robert E. Selwyn, Jr. - - 142,000/158,000 -/487,500 Lawrence I. Wills - - 16,250/37,500 58,906/121,875 Ellen McClain - - 12,500/37,500 40,625/121,875
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During 1999, Thomas R. Settle, Charles J. Hamilton, Jr. and Jon E. Barfield served as members of the Compensation Committee of the Board of Directors of the Company. -57- ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth certain information, as of March 1, 2000, regarding beneficial ownership of (i) the Company's Voting Common Stock by each shareholder who is known by the Company to own beneficially more than 5% of the outstanding Voting Common Stock, each director, each executive officer and all directors and officers as a group, and (ii) beneficial ownership of the Company's Common Stock (Nonvoting) (assuming exercise of all options for the purchase of Common Stock (Nonvoting), which exercise is at the option of the holder within sixty (60) days), by each director, each executive officer and all directors and officers as a group. The Company also has 153,241 shares of its 12 3/4% Cumulative Exchangeable Preferred Stock outstanding, none of which are owned by any officers or directors of the Company. Except as set forth in the footnotes to the table, each shareholder listed below has informed the Company that such shareholder has (i) sole voting and investment power with respect to such shareholder's shares of stock, except to the extent that authority is shared by spouses under applicable law and (ii) record and beneficial ownership with respect to such shareholder's shares of stock.
VOTING COMMON STOCK COMMON STOCK (NONVOTING) -------------------------- ---------------------------- SHARES SHARES BENEFICIALLY OWNED BENEFICIALLY OWNED -------------------------- ---------------------------- NUMBER PERCENT NUMBER PERCENT (1) ------ ------- ------ ----------- W. Don Cornwell.................. 98,250 55.0% 1,176,500 (2) 6.2% Stuart J. Beck................... 80,250 45.0% 1,059,862 (3) 5.6% Robert E. Selwyn, Jr. ........... 227,342 (4) 1.2% Lawrence I. Wills................ 34,589 (5) * Ellen McClain.................... 22,425 (6) * Martin F. Beck................... 135,808 (7) * James J. Greenwald............... 145,546 (8) * Edward Dugger III................ 33,994 (9) * Thomas R. Settle................. 120,181 (10) * Charles J. Hamilton, Jr. ........ 66,444 (11) * M. Fred Brown.................... 23,783 (12) * Jon E. Barfield.................. 17,083 (13) * Veronica Pollard................. 6,100 (14) * All directors and officers as a group(13) .............. 178,500 100.0% 3,069,657 15.3%
- ----- * Less than 1%. -58- (1) Percentage figures assume the exercise of options for the purchase of Common Stock (Nonvoting) held by such shareholder, which exercise is at the option of the holder within sixty (60) days. (2) Includes 812,800 shares issuable upon exercise of options granted to Mr. Cornwell under the Stock Option Plan which are exercisable at the option of the holder within sixty (60) days and a total of 4,900 shares held by Mr. Cornwell's immediate family. Mr. Cornwell disclaims beneficial ownership with respect to such 4,900 shares. The business address of Mr. Cornwell is Granite Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York, New York, 10017. (3) Includes 696,940 shares issuable upon exercise of options granted to Stuart J. Beck under the Stock Option Plan which are exercisable at the option of the holder within sixty (60) days and a total of 8,000 shares held in trust for Mr. Beck's children. Mr. Beck disclaims beneficial ownership with respect to such 8,000 shares. The business address of Mr. Stuart Beck is Granite Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York, New York, 10017. (4) Includes 150,000 shares issuable upon exercise of options granted to Mr. Selwyn under the Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. (5) Includes 16,250 shares issuable upon the exercise of options granted to Mr. Wills under the Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. (6) Includes 12,500 shares issuable upon exercise of options granted to Ms. McClain under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. (7) Includes 8,250 shares held by Mr. Beck's wife, 29,264 shares held by the Martin F. Beck Family Foundation and 31,100 shares issuable upon exercise of options granted to Mr. Beck under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. Mr. Beck disclaims beneficial ownership with respect to shares held by his spouse and by the Martin F. Beck Family Foundation. (8) Includes 55,525 shares issuable upon exercise of options granted to Mr. Greenwald under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. (9) Includes 24,500 shares issuable upon exercise of options granted to Mr. Dugger under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. (10) Includes 3,000 shares held by Mr. Settle's wife as custodian for his children and 51,235 shares issuable upon exercise of options granted to Mr. Settle under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. Mr. Settle disclaims beneficial ownership with respect to the shares held by his spouse as custodian for his children. (11) Includes 56,700 shares issuable upon exercise of options granted to Mr. Hamilton under the Directors' Stock Option Plan, which are exercisable at the option of the holder within sixty (60) days. (12) Includes 200 shares held by Mr. Brown's children and 14,625 shares issuable upon exercise of options granted to Mr. Brown under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. (13) Includes 13,125 shares issuable upon exercise of options granted to Mr. Barfield under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. (14) Includes 3,125 shares issuable upon exercise of options granted to Ms. Pollard under the Directors' Stock Option Plan which are exercisable at the option of the holder within sixty (60) days. -59- ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS In 1995, the Company made a loan to Mr. Cornwell, Chief Executive Officer and Chairman of the Board of Directors, in the amount of $348,660 and a loan to Mr. Stuart Beck, President and a member of the Board of Directors, in the amount of $221,200 to pay for certain personal taxes. Both loans are term loans providing for an annual interest rate of 9%, payable annually on April 30 of each year, with all principal and remaining interest due on December 29, 2004. As of March 1, 2000, the amount outstanding on such loans, including accrued interest, to Messrs. Cornwell and Beck was $387,189 and $245,643, respectively. During 1999, the largest amount outstanding on such loans, including accrued interest, to Messrs. Cornwell and Beck was $390,499 and $247,744, respectively. In April 1996, the Company made a loan to Mr. Cornwell in the amount of $886,875 to pay the exercise price incurred in connection with exercising options. In December 1996, the Company made a loan to Mr. Cornwell in the amount of $409,000 to pay certain personal taxes in connection with the exercise of such options. Each loan is a term loan which provides for an annual interest rate of 8%, payable annually, with all principal and remaining interest due on April 23 and December 31, 2001, respectively. In April 1997, the Company made a loan to Mr. Cornwell in the amount of $441,530 to pay certain personal taxes. The loan is a term loan which provides for an annual interest rate of 8%, payable annually, with all principal and remaining interest due on April 16, 2002. In December 1998, the Company made a loan to Mr. Cornwell in the amount of $825,000. The loan is a term loan which provides for an annual interest rate of 7.50%, payable annually, with all principal and remaining interest due on December 1, 2003. As of March 1, 2000 (i) the amount outstanding under the April 1996 loan, including accrued interest, was $973,986, (ii) the amount outstanding under the December 1996 loan, including accrued interest, was $449,173, (iii) the amount outstanding under the April 1997 loan, including accrued interest, was $484,898, and (iv) the amount outstanding under the December 1998 loan, including accrued interest was $900,969. During 1999, the largest amount outstanding, including accrued interest (i) on the April 1996 loan was $981,475, (ii) on the December 1996 loan was $452,627, (iii) on the April 1997 loan was $488,627, and (iv) on the December 1998 loan was $907,500. -60- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1 Financial Statements GRANITE BROADCASTING CORPORATION Report of Independent Auditors Consolidated Statements of Operations for the Years Ended December 31, 1997, 1998 and 1999 Consolidated Balance Sheets as of December 31, 1998 and 1999 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1997, 1998 and 1999 Consolidated Statements of Cash Flows for the Years Ended December 31, 1997, 1998 and 1999 Notes to Consolidated Financial Statements (a)2 Financial Statement Schedule Schedule II -- Granite Broadcasting Corporation: Valuation and Qualifying Accounts (a)3 Exhibits 3.1(e)/ Third Amended and Restated Certificate of Incorporation of the Company, as amended. 3.2(e)/ Amended and Restated Bylaws of the Company, as amended as of February 20, 1996. 3.3(h)/ Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Company's 12 3/4%, Cumulative ExchangeablE Preferred Stock and Qualifications, Limitations and Restrictions Thereof. 3.4(t)/ May 11, 1998 Amendment to Amended and Restated Bylaws of the Company. 4.30(2)/ Form of Indenture relating to the Company's Junior Subordinated Convertible Debentures issuable upon the exchange of the Company's Cumulative Convertible Exchangeable Preferred Stock. 4.31(2)/ Form of Junior Subordinated Convertible Debenture. 4.35(g)/ Fourth Amended and Restated Credit Agreement, dated as of June 10, 1998, among Granite Broadcasting Corporation, as Borrower, the Lenders listed therein, Bankers Trust Company, as Administrative Agent, The Bank of New York, as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union Bank of California, N.A. and ABN AMRO Bank N.V., as Co-Agents. 4.37(3)/ Indenture, dated as of May 19, 1995, between Granite Broadcasting Corporation and United States Trust Company of New York for the Company's $175,000,000 Principal Amount 10-3/8% Senior Subordinated Notes due May 15, 2005. 4.38(4)/ Form of 10-3/8% Senior Subordinated Note due May 15, 2005.
-61- 4.41(e)/ Indenture, dated as of February 22, 1996, between Granite Broadcasting Corporation and The Bank of New York relating to the Company's $110,000,000 Principal Amount 9-3/8% Series A Senior Subordinated Notes due December 1, 2005. 4.42(e)/ Form of 9-3/8% Series A Senior Subordinated Note due December 1, 2005. 4.43(h)/ Exchange and Registration Rights Agreement, dated as of January 31, 1997, by and between Granite Broadcasting Corporation and Goldman, Sachs & Co., BT Securities Corporation, Lazard Freres & Co. LLC and Salomon Brothers Inc. 4.44(h) Indenture, dated as of January 31, 1997, between Granite Broadcasting Corporation and The Bank of New York for the Company's 12 3/4% Series A Exchange Debentures and 12 3/4% Exchange Debentures due April 1, 2009. 4.45(h)/ Form of 12 3/4% Exchange Debenture due April 1, 2009 (included in the Indenture filed as Exhibit 4.44). 4.49(p)/ Indenture dated as of May 11, 1998, between the Company and The Bank of New York, as Trustee, relating to the Company's 8-7/8% Senior Subordinated Notes due May 15, 2008 (including form of note). 4.50(q)/ Exchange and Registration Rights Agreement dated as of May 11, 1998, between Granite Broadcasting Corporation and Goldman, Sachs & Co., Bear Stearns & Co. Inc. and Salomon Brothers Inc. 10.1 Granite Broadcasting Corporation Stock Option Plan, as amended through October 26, 1999. 10.9(4)/ Network Affiliation Agreement (KBJR-TV). 10.10(4)/ Network Affiliation Agreement (WEEK-TV). 10.11(e)/ Network Affiliation Agreement (KNTV(TV)). 10.12(e)/ Network Affiliation Agreement (WPTA-TV). 10.13(1)/ Employment Agreement dated as of September 20, 1991 between Granite Broadcasting Corporation and W. Don Cornwell. 10.14(1)/ Employment Agreement dated as of September 20, 1991 between Granite Broadcasting Corporation and Stuart J. Beck. 10.15(p)/ Granite Broadcasting Corporation Management Stock Plan, as amended through April 28, 1998. 10.19 Granite Broadcasting Corporation Directors' Stock Option Plan, as amended on October 26, 1999. 10.20(3)/ Network Affiliation Agreement (WTVH-TV). 10.21(4)/ Network Affiliation Agreement (KSEE-TV). 10.24(3)/ Network Affiliation Agreement (KEYE-TV). 10.25(c)/ Granite Broadcasting Corporation Employee Stock Purchase Plan, dated February 28, 1995.
-62- 10.28(d)/ Network Affiliation Agreement (WKBW). 10.30(h)/ Employment Agreement dated as of September 19, 1996 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr. 10.31 Non-Employee Directors Stock Plan of Granite Broadcasting Corporation, as amended through April 26, 1999. 10.32(i)/ Stock Purchase Agreement, dated as of October 3, 1997, by and among Granite Broadcasting Corporation, Pacific FM Incorporated, James J. Gabbert and Michael P. Lincoln. 10.33(j)/ Purchase and Sale Agreement, dated as of February 18, 1998, among Granite Broadcasting Corporation, Freedom Communications, Inc., WWMT-TV, Inc., WLAJ, Inc. and WWMT License, Inc. 10.34(m)/ First Amendment to Purchase and Sale Agreement, dated as of July 20, 1998 among Granite Broadcasting Corporation, Pacific FM Incorporated, James J. Gabbert and Michael P. Lincoln. 10.35(r)/ Purchase and Sale Agreement, dated as of July 15, 1998, among Granite Broadcasting Corporation, WLAJ, Inc., WLAJ License, Inc., WWMT-TV, Inc. and WWMT-TV License, Inc. 10.36(n)/ Stock Purchase Agreement, dated as of June 26, 1998, between Granite Broadcasting Corporation and The Michael Lincoln Charitable Remainder Unitrust. 10.37(o)/ Stock Purchase Agreement, dated as of June 26, 1998, between Granite Broadcasting Corporation and The James J. Gabbert Charitable Remainder Unitrust. 10.38(t)/ Extension Letter, dated February 28, 1999 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr. extending the term of Mr. Selwyn's Employment Agreement to January 31, 2003. 10.39(t)/ First Amendment, dated as of March 23, 1999, to the Fourth Amended and Restated Credit Agreement, dated as of June 10, 1998, by and among Granite Broadcasting Corporation, the Lenders listed therein and Bankers Trust Company, as Administrative Agent. 10.40(s)/ Limited Waiver, dated August 31, 1999, to the Fourth Amended and Restated Credit Agreement, dated as of June 10, 1998, as amended, by and among Granite Broadcasting Corporation, the Lenders listed therein, and Bankers Trust Company, as Administrative Agent, The Bank of New York, as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union Bank of California, N.A., and ABN Amro Bank N.V., as Co-Agents. 10.41(s)/ Amendment, dated July 26, 1999, to the Network Affiliation Agreement (KNTV(TV)). 10.42(u)/ Purchase and Sale Agreement, dated as of April 28, 1999, among CBS Corporation, Granite Broadcasting Corporation, KBVO, Inc. and KBVO License, Inc. 10.43 Form of Second Amendment, dated February 16, 2000, to the Fourth Amended and Restated Credit Agreement, dated as of June 10, 1998, as amended, by and among Granite Broadcasting Corporation, the Lenders listed therein, and Bankers Trust Company, as
-63- Administrative Agent, The Bank of New York, as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union Bank of California, N.A., and ABN Amro Bank N.V., as Co-Agents. 10.44 Form of Third Amendment, dated March 17, 2000, to the Fourth Amended and Restated Credit Agreement, dated as of June 10, 1998, as amended, by and among Granite Broadcasting Corporation, the Lenders listed therein, and Bankers Trust Company, as Administrative Agent, The Bank of New York, as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union Bank of California, N.A., and ABN Amro Bank N.V., as Co-Agents. 10.45 Asset Purchase Agreement, dated as of November 12, 1999, between Caroline K. Powley and Granite Broadcasting Corporation as amended. 21. Subsidiaries of the Company. 23. Consent of Independent Auditors (Ernst & Young LLP). 27. Financial Data Schedule.
- ---------- (1)/ Incorporated by reference to the similarly numbered exhibits to the Company's Registration Statement No. 33-43770 filed on November 5, 1991. (2)/ Incorporated by reference to the similarly numbered exhibits to Amendment No. 2 to Registration Statement No. 33-71172 filed December 16, 1993. (3)/ Incorporated by reference to the similarly numbered exhibits to the Company's Registration Statement No. 33-94862 filed on July 21, 1995. (4)/ Incorporated by reference to the similarly numbered exhibits to Amendment No. 2 to Registration Statement No. 33-94862 filed on October 6, 1995. (c)/ Incorporated by reference to the similarly numbered exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994, filed on March 29, 1995. (d)/ Incorporated by reference to the similarly numbered exhibit to the Company's Current Report on Form 8-K filed on July 14, 1995. (e)/ Incorporated by reference to the similarly numbered exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, filed on March 28, 1996. (f)/ Incorporated by reference to the similarly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, as filed on August 13, 1996. (g)/ Incorporated by reference to the similarly numbered exhibit to the Company's Current Report on Form 8-K, filed on July 1, 1998. (h)/ Incorporated by reference to the similarly numbered exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1996, filed on March 21, 1997.
-64- (i)/ Incorporated by reference to Exhibit Number 1 to the Company's Current Report on Form 8-K, filed on October 17, 1997. (j)/ Incorporated by reference to Exhibit Number 1 to the Company's Current Report on Form 8-K, filed on March 2, 1998. (m)/ Incorporated by reference to Exhibit Number 2.5 to the Company's Current Report on Form 8-K, filed on August 13, 1998. (n)/ Incorporated by reference to Exhibit Number 2.3 to the Company's Current Report on Form 8-K, filed on July 1, 1998. (o)/ Incorporated by reference to Exhibit Number 2.4 to the Company's Current Report on Form 8-K, filed on July 1, 1998. (p)/ Incorporated by reference to the similarly numbered exhibit to the Company's Registration Statement No. 333-56327 filed on June 8, 1998. (q)/ Incorporated by reference to Exhibit Number 99.3 to the Company's Registration Statement No. 333-56327 filed on June 8, 1998. (r)/ Incorporated by reference to Exhibit Number 2.6 to the Company's Current Report on Form 8-K, filed on August 13, 1998. (s)/ Incorporated by reference to the similarly numbered exhibits to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, filed on November 15, 1999. (t)/ Incorporated by reference to the similarly numbered exhibits to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998, filed on March 31, 1999. (u)/ Incorporated by reference to Exhibit Number 1 on the Company's Current Report on Form 8-K, filed on May 11, 1999.
-65- (b) Reports on Form 8-K. 1. 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. 2. Current Report on Form 8-K, filed September 13, 1999, reporting the sale of the assets of KEYE-TV, the CBS affiliate serving the Austin, Texas television market, to CBS Corporation for a purchase price of $160 million, subject to certain adjustments. No financial statements were filed at such time. -66- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 27th day of March, 2000. GRANITE BROADCASTING CORPORATION By: /s/ W. DON CORNWELL ------------------------------------ W. Don Cornwell Chief Executive Officer and Chairman of the Board of Directors Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated:
SIGNATURE TITLE DATE /s/ W. DON CORNWELL Chief Executive Officer March 27, 2000 - --------------------------------- (Principal Executive Officer) and Chairman (W. Don Cornwell) of the Board of Directors /s/ STUART J. BECK President and Secretary March 27, 2000 - --------------------------------- (Principal Financial Officer) and Director (Stuart J. Beck) /s/ LAWRENCE I. WILLS Vice President - Finance and March 27, 2000 - --------------------------------- Controller (Principal Accounting Officer) (Lawrence I. Wills) /s/ ROBERT E. SELWYN, JR. Chief Operating Officer and Director March 27, 2000 - --------------------------------- (Robert E. Selwyn, Jr.) /s/ MARTIN F. BECK Director March 27, 2000 - --------------------------------- (Martin F. Beck) /s/ JAMES L. GREENWALD Director March 27, 2000 - --------------------------------- (James L. Greenwald) /s/ EDWARD DUGGER III Director March 27, 2000 - --------------------------------- (Edward Dugger III) /s/ THOMAS R. SETTLE Director March 27, 2000 - --------------------------------- (Thomas R. Settle) /s/ CHARLES J. HAMILTON, JR. Director March 27, 2000 - --------------------------------- (Charles J. Hamilton, Jr.) /s/ M. FRED BROWN Director March 27, 2000 - --------------------------------- (M. Fred Brown) /s/ JON E. BARFIELD Director March 27, 2000 - --------------------------------- (Jon E. Barfield) /s/ VERONICA POLLARD Director March 27, 2000 - --------------------------------- (Veronica Pollard)
EX-10.1 2 EXHIBIT 10.1 Exhibit 10.1 GRANITE BROADCASTING CORPORATION STOCK OPTION PLAN AS AMENDED THROUGH OCTOBER 26, 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, July 27, 1999 and October 26, 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. Shares tendered by an Optionee to pay all or part of the option price of an option and shares that are withheld to pay taxes associated with the exercise of an option may be again available for issuance pursuant to nonqualified options under the Plan. 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, 2 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. (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 3 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 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 plus the number of shares withheld to pay for taxes associated with the exercise of the option. 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 4 Members"), (ii) a trust or trusts for exclusive benefit of such Immediate Family Members, or (iii) a partnership or limited liability company in which such Immediate Family Members are the only partners or members, as applicable; provided, that (x) there may be no consideration for any such transfer, (y) the Option agreement pursuant to which such Options are granted must be approved by the Committee and must expressly provide for transferability in a manner consistent with this Section, and (z) subsequent transfers of transferred Options shall be prohibited except those occurring by laws of descent and distribution. Following transfer, any such Options shall continue to be subject to the same terms and conditions as were applicable immediately prior to transfer; provided, that for purposes of the Plan, the term Optionee shall be deemed to refer to the transferee; provided, however, that, the Option shall continue to be exercisable and shall terminate in 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. 5 (2) In the event that Optionee shall die while in the employment of the Company (or an Affiliate) or if Optionee's employment by the Company (or an Affiliate) is terminated because Optionee has become disabled within the meaning of Section 22(e)(3) of the Code, the Optionee, his personal representative, estate or beneficiary shall have the right at any time within twelve months after such date of death or termination due to disability to exercise such Optionee's options. Notwithstanding the foregoing, the provisions of this Section 4(g)(2) shall be subject to the provisions of Sections 4(b), 4(j)(3) and 4(k), which may terminate the option earlier. (3) In the event that any termination of employment by an Optionee is due to retirement with the consent of his employer, the Optionee shall have the right to exercise his option at any time within three months after such retirement to the extent the option was exercisable 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 6 Plan, the number of shares covered by each outstanding option, and the exercise price per share for each such option shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock of the Company resulting from the subdivision or consolidation of shares, or the payment of a stock dividend after the effective date of this Plan, or other increase (excluding any increase due to conversion of any other outstanding securities of the Company) or decrease in such shares effected without receipt of consideration by the Company, such that each Optionee remains entitled upon exercise of his option(s) to the same total number and class of shares as he would have received for the same aggregate consideration had he exercised his options in full immediately prior to the event requiring the adjustment; provided, however, that any options to purchase fractional shares resulting from any such adjustment shall be eliminated; and provided, further, that any such adjustment shall be made in a manner so as not to constitute a "modification" as defined in Section 425(h)(3) of the Code. (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 7 observe or perform any of the requirements of his position with the Company, or it Affiliate (or successor by merger or consolidation), or (ii) the Optionee's grossly negligent or willful and continued misconduct or action on the part of the Optionee that is damaging or detrimental to the operations of the Company or its Affiliate (or successor by merger or consolidation), or (b) resignation by the Optionee within thirty (30) days after a material diminution in duties or compensation of the Optionee. A sale of all or substantially all of the assets of the Company for a consideration (apart from the assumption of obligations) consisting primarily of securities shall be deemed a merger or consolidation for the foregoing purposes. Notwithstanding the foregoing, the provisions of this Section 4(j)(1) shall be subject to Section 4(b). (2) The resulting Affiliation following any reorganization may at any time, in its sole discretion, tender substitute options as it may deem appropriate. However, in no event may the substitute options entitle an Optionee under the Plan to any fewer shares (or at any greater aggregate price) or any less other property than the Optionee would be entitled to under the immediately preceding paragraph upon an exercise of the options held prior to the substitution of the new 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 8 Optionee, and the Optionee shall have the right, during the period of thirty (30) days preceding such termination, to exercise his option. Notwithstanding the foregoing, the provisions of this Section shall be subject to Section 4(b) and shall be subject to Section 4(j)(3) if the Optionee receives notice under Section 4(j)(3) at a time earlier than the notice provided for herein. (L) SUBSTITUTION OPTIONS. Options may be granted under this Plan from time to time in substitution for stock options held by employees of other corporations who become employees of the Company or an Affiliate as a result of a merger or consolidation of the employing corporation with the Company or an Affiliate, or the acquisition by the Company or an Affiliate of the assets of the employing corporation, or the acquisition by the Company or an Affiliate of at least 50% of the issued and outstanding stock of the employing corporation as the result of which it becomes an Affiliate of the Company. The terms and conditions of the substitute options so granted may vary from the terms and conditions set forth in this Plan to such extent as the Stock Option Committee at the time of grant may deem appropriate to conform, in whole or in part, to the provisions of the stock options in substitution for which they are granted, but with respect to stock options which are Incentive Stock Options, no such variation shall be such as to affect the status of any such substitute option as an "incentive stock option" under Section 422A of the Code. (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 9 the effect that the Company is aware of the fact of such sale or transfer. The blank contained in such legend shall be filled in with the date that is the later of: (1) one year and one day after the date of exercise of such Incentive Stock Option or (2) two years and one day after the date of grant of such Incentive Stock Option. Upon delivery to the Company, at its principal executive office, of a written statement to the effect that such shares have been sold or transferred prior to such date, the Company does hereby agree to promptly deliver to the transfer agent for such shares a written statement to the effect that the Company is aware of the fact of such sale or transfer. The Company may also require the inclusion of any additional legend which may be necessary or appropriate. 5. ADMINISTRATION. (a) Subject to Section 5(f) hereof, the Plan shall be administered by a Stock Option Committee (the "Stock Option Committee") consisting of not less than three (3) members of the Board of Directors, to be appointed by the Board of Directors of the Company. The Board of Directors may, from time to time, remove members from or add members to the Stock Option Committee. Vacancies in the Stock Option Committee, however caused, shall be filled by the Board of Directors. The Stock Option Committee shall select one of its members as chairman who shall preside at all of its meetings, and shall designate a secretary (who may or may not be a Stock Option 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 10 Plan, to construe or interpret the Plan, to prescribe, amend and rescind rules and regulations relating to it and to make all other determinations necessary or advisable for its administration. Any such determinations by a majority of the whole Stock Option Committee shall be final and binding. (c) Subject to the provisions of Sections 3, 4 and 5(f) hereof, the Stock Option Committee may, from time to time, determine which employees of the Company or its Affiliates shall be granted options under the Plan, the type of option granted, the number of option shares subject to each option, the time or times at which options shall be granted and be exercisable, the exercise price thereof, and the timing of payment of the exercise price, and the Stock Option Committee may grant such options under the Plan. (d) The Stock Option Committee or the Compensation Committee, as the case may be, shall report to the Board of Directors the names of employees granted options, the number of option shares subject to, and the terms and conditions of, each option. (e) No member of the Board of Directors, the Stock Option Committee or the Compensation Committee shall be liable for any action, determination or omission of any other member of the Stock Option Committee or for any action, determination, or omission on his own part, including but not limited to the exercise of any power or discretion given to him under the Plan, except those resulting from his gross 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 11 Securities Act of 1933, as amended (the "Act") with respect to the shares of Common Stock covered by an option, the Company shall not be required to issue shares upon exercise of any option (i) unless the Stock Option Committee has received evidence satisfactory to it to the effect that the holder of such option is acquiring such shares for investment and not with a view to the distribution thereof or (ii) unless an opinion of counsel to the Company has been received by the Company, in a form and substance which is deemed acceptable by the Stock Option Committee, to the effect that a registration statement is not required. Any determination in this connection by the Stock Option Committee shall be final, binding and conclusive. In the event the shares issuable on exercise of an option are not registered under the Act, the Company may imprint the following legend or any other legend which counsel for the Company considers necessary or advisable to comply with the Act: "The shares of stock represented by this certificate have not been registered under the Securities Act of 1933 or under the securities laws of any State and may not be sold or transferred except pursuant to an effective registration statement or upon receipt by the Corporation of any opinion of counsel satisfactory to the Corporation, in form and substance satisfactory to the Corporation, that registration is not required for such sale or transfer." 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. 12 9. INDEMNIFICATION. Each member of the Stock Option Committee, the Compensation Committee and the Board of Directors shall be indemnified and held harmless by the Company for all loss, liabilities, costs and expenses (including the amount of judgments and the amount of approved settlements made with a view to the curtailment of costs of litigation, other than amounts paid to the Company itself) reasonably incurred by him in connection with or arising out of any action, suit, or proceeding regarding administration of the Plan in which he may be involved by reason of his being or having been a member of such committee or the Board of Directors, whether or not he continues to be a member of such committee or the Board of Directors at the time of incurring such loss, liabilities, costs and expenses. Notwithstanding any of the foregoing, no member of such committee or the Board of Directors shall be entitled to such indemnification from the Company for any loss, liabilities, costs and expenses incurred by him (a) in respect of matters as to which he shall be finally adjudged in any such action, suit or proceeding to have been guilty of gross negligence or willful misconduct in the performance of his duty as a member of such committee or the Board of Directors, or (b) in respect of any matter in which any settlement is effected, to an amount in excess of the amount approved by the Company on the advice of its legal counsel. Moreover, no right of indemnification under the provisions set forth herein shall be available to or enforceable against the Company by any member of such committee and the Board of Directors unless, within sixty (60) days after institution of any such action, suit or proceeding, he shall have 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. 13 12. EFFECTIVE DATE AND TERMINATION. (a) The effective date of the Plan is April 1, 1990; provided, that, within one year of that date, the Plan shall have been approved by a majority of the holders of the outstanding voting stock of the Company. (b) The Plan shall terminate ten years after the effective date of the Plan and no options shall be granted pursuant to the Plan thereafter. The Board of Directors may terminate the Plan at any time prior to ten years after the effective date of the Plan. Termination of the Plan shall not alter or impair, without the consent of the Optionee, any of the rights or obligations and any option theretofore granted under the Plan. 13. AMENDMENTS. The Board of Directors of the Company may, from time to time, alter, amend, suspend, or discontinue the Plan, or alter or amend any and all option agreements granted thereunder; provided, however, that no such action of the Board of Directors, without the approval of a majority of the holders of shares of the Company then entitled to vote, may alter the provisions of the Plan so as to: (a) Decrease the minimum option price for Incentive Stock Options; (b) Extend the term of the Plan beyond ten years or the maximum term of the options granted beyond ten years; (c) Withdraw the administration of the Plan from the Stock Option Committee; (d) Change the class of eligible employees, officers and directors; or (e) Increase the aggregate number of shares which may be issued pursuant to the provisions of the Plan; Notwithstanding the foregoing, (i) the Board of Directors may amend the Plan in any respect in order to qualify the Incentive Stock Options granted pursuant hereto as Incentive Stock Options as defined in Section 422A of the Code, (ii) no amendment may be made to an outstanding option agreement to the detriment of the Optionee without the Optionee's consent, and (iii) no amendment may be made to this Plan (or any option granted hereunder without the consent of the Optionee) which would constitute a modification of any Incentive Stock Option outstanding under Section 425(h) of the Code or which would adversely affect an outstanding Incentive Stock Option's status as an Incentive Stock Option under Section 422A of the Code. 14 EX-10.19 3 EXHIBIT 10.19 Exhibit 10.19 GRANITE BROADCASTING CORPORATION DIRECTORS' STOCK OPTION PLAN AS AMENDED THROUGH OCTOBER 26, 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 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. Shares tendered by an Optionee to pay all or part of the option price of an option and shares that are withheld to pay taxes associated with the exercise of an option may be again available for issuance pursuant to options 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"). 2 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 3 Option until the earlier to occur of: (i) his or her Completion of Service; or (ii) the day immediately preceding the initial 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 4 purchase 400 shares of Common Stock (Nonvoting) (an "Annual 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 5 Committee Meetings between the Date of Grant and the immediately 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 a 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 6 purchase 1,500 (900 shares with respect to the 1994 Grants and 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 7 (as defined in Section 22(e)(3) of the Code) 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." 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 reload option for the number of shares of Common Stock used to pay the exercise price plus the number of shares withheld to pay for taxes associated with the exercise of the option. 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 8 pays all or part of the exercise price of any such reload option by tendering Common Stock owned by such Optionee. 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 9 Director's estate (or the person to whom the Option is transferred pursuant to applicable laws of descent and 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 10 to the number, class or price of shares of Common Stock (Nonvoting) then subject to outstanding Options. (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 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 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 of 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 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 EX-10.31 4 EXHIBIT 10.31 Exhibit 10.31 NON-EMPLOYEE DIRECTORS STOCK PLAN OF GRANITE BROADCASTING CORPORATION as amended through April 26, 1999 1. PURPOSE. The purpose of this Non-Employee Directors Stock Plan (the "Plan") of Granite Broadcasting Corporation (the "Company"), is to advance the interests of the Company and its stockholders by providing a means to attract and retain highly qualified persons to serve as non-employee directors of the Company and to enable such persons to acquire or increase a proprietary interest in the Company, thereby promoting a closer identity of interests between such persons and the Company's stockholders. 2. DEFINITIONS. In addition to terms defined elsewhere in the Plan, the following are defined terms under the Plan: (a) "CODE" means the Internal Revenue Code of 1986, as amended from time to time. References to any provision of the Code shall be deemed to include regulations thereunder and successor provisions and regulations thereto. (b) "DISABILITY" means a permanent physical or mental incapacity which, in the reasonable determination of the Board, renders the Participant unable to perform his duties as a director of the Company. (c) "FAIR MARKET VALUE" of a Share on a given date shall mean 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. (d) "PARTICIPANT" means a person who, as a non-employee director of the Company, has been granted Shares under the Plan. (e) "SHARE" means a share of Common Stock (Nonvoting), $.01 par value, of the Company and such other securities as may be substituted for such Share or such other securities pursuant to Section 8. 3. SHARES AVAILABLE UNDER THE PLAN. Subject to adjustment as provided in Section 8, as of any date, the total number of Shares issuable under the Plan shall be 100,000. Such Shares may be authorized but unissued Shares, treasury Shares, or Shares acquired in the market for the account of the Participant. 4. ADMINISTRATION OF THE PLAN. The Plan will be administered by the Board of Directors of the Company (the "Board"). 5. ELIGIBILITY. Only directors of the Company who are not employees of the Company or any subsidiary of the Company shall participate in the Plan. 6. GRANT OF SHARES. On April 29, 1997, April 28, 1998, January 1, 1999 and on January 1 of each subsequent calendar year during the term of the Plan, each Participant shall receive a number of Shares equal to $20,000 divided by the Fair Market Value per Share on the date of grant. As of January 1, 1999, if a person first becomes a director of the Company at any time after January 1 of any calendar year and such person is eligible to participate in the Plan under Section 5 hereof, such person shall receive on the date such person is first elected a director of the Company a number of Shares equal to (x) $5,000 multiplied by the number of regular board meetings scheduled from the date of his or her commencement of service as a director until December 31 of such calendar year divided by (y) the Fair Market Value per Share on the date of grant. 7. DEFERRAL OF SHARES. Each director of the Company may elect to defer the payment of Shares by submitting an election form to the Board, in accordance with this Section 7. (A) ELECTIONS. Each director who elects to defer the payment of Shares for a given calendar year must file an irrevocable written election with the Secretary of the Company no later than December 31 of the year preceding such calendar year; provided, that, any newly elected or appointed director may file an election for any year not later than 30 days after the date such person first became a director, and a director may file an election for the year in which the Plan became effective not later than 30 days after the date of effectiveness of the Plan. An election by a director shall be deemed to be continuing and therefore applicable to subsequent Plan years unless the director revokes or changes such election by filing a new election form by the due date for such form specified in this Section 7(a). The election must specify the following: (i) A percentage or number of Shares to be deferred under the Plan; and (ii) The date on which the commencement of payments of Shares should begin, which date shall not be later than 10 years from the date the Shares originally were payable; PROVIDED, HOWEVER, that, notwithstanding an election pursuant to this Section 7(a), all Shares of a Participant for which payment has not otherwise occurred, shall be paid upon death, Disability or termination of directorship of the Participant. (B) DEFERRAL OF SHARES. The Company will establish a deferral account for each Participant who elects to defer Shares under 2 this Section 7. At any date Shares are payable to a Participant who has elected to defer Shares, the Company will credit such Participant's deferral account with a number of Shares so deferred. (C) CREDITING OF DIVIDEND EQUIVALENTS. Whenever dividends are paid or distributions made with respect to Shares, a Participant to whom Shares are then credited in a deferral account shall be entitled, on the dividend payment date, as dividend equivalents, to an amount equal in value to the amount of the dividend paid or property distributed on a single Share multiplied by the number of Shares credited to his or her deferral account as of the record date for such dividend or distribution. Such dividend equivalents shall be credited to the Participant's deferral account by payment to such account of a number of Shares determined by dividing the aggregate value of such dividend equivalents by the Fair Market Value of a Share at the payment date of the dividend or distribution. (D) SETTLEMENT OF DEFERRED SHARES. The Company will settle the Participant's deferral account by delivering to the Participant (or his or her beneficiary) a number of Shares equal to the number of whole Shares then credited to his or her deferral account (or a specified portion in the event of any partial settlement), together with cash in lieu of any fractional Share remaining at a time that less than one whole Share is credited to such deferral account. Such settlement shall be made at the time or times specified in the Participant's election filed in accordance with Section 7(a); provided, however, that a Participant may further defer settlement of Shares if counsel to the Company determines that such further deferral likely would be effective under applicable federal income tax laws and regulations. (E) NONFORFEITABILITY. The interest of each Participant in any Shares (and any deferral account relating thereto) at all times will be nonforfeitable. 8. ADJUSTMENT PROVISIONS. In the event any dividend or other distribution (whether in the form of cash, Shares or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, exchange of Shares or other securities of the Company, extraordinary dividend (whether in the form of cash, Shares, or other property), liquidation, dissolution, or other similar corporate transaction or event affects the Shares such that an adjustment is appropriate in order to prevent dilution or enlargement of each Participant's rights under the Plan, then an adjustment shall be made, in a manner that is proportionate to the change to the Shares and otherwise equitable, in (i) the number and kind of Shares remaining reserved and available for issuance under Section 3, and (ii) the number and kind of Shares to be issued upon settlement of deferred Shares under Section 7. In addition, the Board is authorized to make such adjustments in 3 recognition of unusual or non-recurring events (including, without limitation, events described in the preceding sentence) affecting the Company or any subsidiary or the financial statements of the Company or any subsidiary, or in response to changes in applicable laws, regulations or accounting principles. The foregoing notwithstanding, no adjustment may be made hereunder except as will be necessary to maintain the proportionate interest of the Participant under the Plan and to preserve, without exceeding, the value of outstanding deferred Shares. 9. CHANGES TO THE PLAN. The Board may amend, alter, suspend, discontinue, or terminate the Plan or authority to grant Shares under the Plan without the consent of stockholders or Participants, except that any amendment or alteration will be subject to the approval of the Company's stockholders at or before the next annual meeting of stockholders for which the record date is after the date of such Board action if such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system as then in effect, and the Board may otherwise determine to submit other such amendments or alterations to stockholders for approval; provided, however, that, without the consent of an affected Participant, no such action may materially impair the rights of such Participant with respect to any previously granted Shares. 10. GENERAL PROVISIONS. (A) AGREEMENTS. Any right or obligation under the Plan may be evidenced by agreements or other documents executed by the Company and the Participant incorporating the terms and conditions set forth in the Plan, together with such other terms and conditions not inconsistent with the Plan, as the Board may from time to time approve. (B) COMPLIANCE WITH LAWS AND OBLIGATIONS. The Company will not be obligated to issue or deliver Shares in a transaction subject to the registration requirements of the Securities Act of 1933, as amended, or any other federal or state securities law, any requirement under any listing agreement between the Company and any stock exchange or automated quotation system, or any other law, regulation, or contractual obligation of the Company, until the Company is satisfied that such laws, regulations, and other obligations of the Company have been complied with in full. Certificates representing Shares issued under the Plan will be subject to such stop-transfer orders and other restrictions as may be applicable under such laws, regulations, and other obligations of the Company, including any requirement that a legend or legends be placed thereon. (C) LIMITATIONS ON TRANSFERABILITY. Deferred Shares under the Plan will not be transferable by a Participant except 4 by will or the laws of descent and distribution or to a beneficiary in the event of the Participant's death. Deferred Shares may not be pledged, mortgaged, hypothecated or otherwise encumbered, and shall not be subject to the claims of creditors. (D) NO RIGHT TO CONTINUE AS A DIRECTOR. Nothing contained in the Plan or any agreement hereunder will confer upon any Participant any right to continue to serve as a director of the Company. (E) NO STOCKHOLDER RIGHTS CONFERRED. Nothing contained in the Plan or any agreement hereunder will confer upon any Participant (or any person or entity claiming rights by or through a Participant) any rights of a stockholder of the Company unless and until Shares are in fact issued to such Participant (or person). (F) NONEXCLUSIVITY OF THE PLAN. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements for directors as it may deem desirable. (G) GOVERNING LAW. The validity, construction, and effect of the Plan and any agreement hereunder will be determined in accordance with the laws of the State of New York, without giving effect to principles of conflicts of laws, and applicable federal law. 11. STOCKHOLDER APPROVAL, EFFECTIVE DATE, AND PLAN TERMINATION. The Plan will be effective as of the date of its adoption by the Board, subject to stockholder approval if necessary or appropriate, and, unless earlier terminated by action of the Board, shall terminate at such time as no Shares remain available for issuance under the Plan and the Company and Participants have no further rights or obligations under the Plan. 5 EX-10.43 5 EXHIBIT 10.43 Exhibit 10.43 EXECUTION GRANITE BROADCASTING CORPORATION SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT This SECOND AMENDMENT AND LIMITED WAIVER TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this "AMENDMENT") is dated as of February 16, 2000 and entered into by and among GRANITE BROADCASTING CORPORATION, a Delaware corporation ("COMPANY"), the financial institutions listed on the signature pages hereof ("LENDERS") and BANKERS TRUST COMPANY ("BANKERS"), as administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and, for purposes of Section 5 hereof, the Credit Support Parties (as defined in Section 3 hereof) listed on the signature pages hereof, and is made with reference to that certain Fourth Amended and Restated Credit Agreement dated as of June 10, 1998 by and among Company, Lenders, Administrative Agent, The Bank of New York as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union Bank of California, N.A. and ABN-Amro Bank N.V., as Co-Agents, as amended by that certain First Amendment dated as of March 23, 1999 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company has requested that Requisite Lenders amend the leverage ratio contained in Section 7.6A of the Credit Agreement for the fiscal quarter ending December 31, 1999; and WHEREAS, Agent and Requisite Lenders are willing to make such amendment, but only on the terms and conditions set forth herein: NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, and in reliance on the representations and warranties of Company and the Credit Support Parties herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT AMENDMENTS TO SECTION 7.6A: MAXIMUM TOTAL DEBT RATIO Section 7.6A of the Credit Agreement is hereby amended by inserting the following proviso at the end thereof: "; PROVIDED FURTHER, HOWEVER, that notwithstanding anything in the foregoing to the contrary, for the fiscal quarter period ending on December 31, 1999, the ratio of 6.50:1 shall apply." The parties hereto agree that the amendment to the Credit Agreement set forth in this Section 1 shall be deemed effective as of December 31, 1999. SECTION 2. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company. C. NO CONFLICT. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. 2 F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. After giving effect to the amendment set forth herein, no event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. SECTION 3. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Borrower Pledge and Security Agreement and the Borrower Mortgage, in each case as amended through the date hereof, pursuant to which Company has created Liens in favor of Agent on certain Collateral to secure the Obligations. Each of Company's Subsidiaries is a party to the Subsidiary Guaranty and the Subsidiary Pledge Agreement and each of Company's Subsidiaries (other than the License Cos and Granite Response Television Inc.) is a party to one or more Subsidiary Mortgages, in each case as amended through the date hereof, pursuant to which such Subsidiary has (i) guarantied the Obligations and (ii) created Liens (subject to Liens permitted by the Credit Agreement) in favor of Administrative Agent on certain Collateral (except to the extent prohibited by the FCC or the Communications Act) to secure the obligations of such Subsidiary under the Subsidiary Guaranty. Company, and each Subsidiary Guaranty are collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the Borrower Pledge and Security Agreement, the Borrower Mortgage, the Subsidiary Guaranty, the Subsidiary Pledge Agreement and the Subsidiary Mortgages are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS". Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including without limitation the payment and performance of all such "Guarantied Obligations" or "Secured Obligations," as the case may be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement and the Notes defined therein. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the 3 Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 4. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (i) On and after the date hereof, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in Section 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT 4 LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective upon the execution of a counterpart hereof by Company, Requisite Lenders and each of the Credit Support Parties and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof. [Remainder of page intentionally left blank] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. ADMINISTRATIVE AGENT: BANKERS TRUST COMPANY, individually and as Administrative Agent and Collateral Agent By: ----------------------------------- Name: Title: LENDERS: THE BANK OF NEW YORK, as Documentation Agent and a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- GOLDMAN SACHS CREDIT PARTNERS L.P., as a Co-Agent and a Lender By: ----------------------------- Name: ------------------------- Title: ------------------------- UNION BANK OF CALIFORNIA, N.A., as a Co-Agent and a Lender By: ----------------------------- Name: ------------------------- Title: ------------------------- S-1 ABN AMRO BANK N.V., NEW YORK BRANCH, as a Co-Agent and a Lender By: ----------------------------- Name: ------------------------- Title: ------------------------- NATEXIS BANQUE BFCE, as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- CREDIT INDUSTRIEL ET COMMERCIAL as a Lender By: ----------------------------- Name: ------------------------- Title: ------------------------- By: ----------------------------- Name: ------------------------- Title: ------------------------- HELLER FINANCIAL, INC., as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- S-2 PARIBAS, as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- By: ------------------------------ Name: ------------------------- Title: ------------------------- THE BANK OF NOVA SCOTIA, as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- BANQUE NATIONALE DE PARIS, as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- By: ------------------------------ Name: ------------------------- Title: ------------------------- S-3 MELLON BANK, N.A., as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- BANK OF TOKYO-MITSUBISHI TRUST, as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- FINOVA CAPITAL CORPORATION, as a Lender By: ------------------------------ Name: ------------------------- Title: ------------------------- SOUTHERN PACIFIC BANK, as a Lender By: ------------------------------- Name: ------------------------- Title: ------------------------- S-4 COMPANY: GRANITE BROADCASTING CORPORATION By: ------------------------------ Lawrence I. Wills Vice President SUBSIDIARIES: GRANITE RESPONSE TELEVISION, INC. KBVO, INC. KBVO LICENSE, INC. KNTV, INC. KNTV LICENSE, INC. RJR COMMUNICATIONS, INC. KBJR LICENSE, INC. SAN JOAQUIN COMMUNICATIONS CORPORATION KSEE LICENSE, INC., WPTA-TV, INC. WPTA-TV LICENSE, INC. WTVH L.L.C. WTVH LICENSE, INC. WWMT-TV, INC. WWMT-TV LICENSE, INC. WKBW-TV LICENSE, INC. QUEEN CITY BROADCASTING OF NEW YORK, INC. WEEK, INC. WEEK LICENSE, INC. WXON, INC. WXON LICENSE, INC. WLAJ, INC. WLAJ LICENSE, INC. WEEK-TV LICENSE, INC. PACIFIC FM INCORPORATED KOFY-TV LICENSE, INC. By: ---------------------------- Lawrence I. Wills Vice President S-5 EX-10.44 6 EXHIBIT 10.44 Exhibit 10.44 EXECUTION GRANITE BROADCASTING CORPORATION THIRD AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT This THIRD AMENDMENT TO FOURTH AMENDED AND RESTATED CREDIT AGREEMENT (this "AMENDMENT") is dated as of March __, 2000 and entered into by and among GRANITE BROADCASTING CORPORATION, a Delaware corporation ("COMPANY"), the financial institutions listed on the signature pages hereof ("LENDERS") and BANKERS TRUST COMPANY ("BANKERS"), as administrative agent for Lenders ("ADMINISTRATIVE AGENT"), and, for purposes of Section 3 hereof, the Credit Support Parties (as defined in Section 3 hereof) listed on the signature pages hereof, and is made with reference to that certain Fourth Amended and Restated Credit Agreement dated as of June 10, 1998 by and among Company, Lenders, Administrative Agent, The Bank of New York as Documentation Agent, and Goldman Sachs Credit Partners L.P., Union Bank of California, N.A. and ABN-Amro Bank N.V., as Co-Agents, as amended by that certain First Amendment dated as of March 23, 1999, and that certain Second Amendment dated as of February 16, 2000 (as so amended, the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the same meanings herein as set forth in the Credit Agreement. RECITALS WHEREAS, Company has requested that Requisite Lenders (i) amend the leverage ratio contained in Section 7.6A of the Credit Agreement for each of the fiscal quarters in the fiscal year ending December 31, 2000 and (ii) make certain other amendments as set forth herein; and WHEREAS, Agent and Requisite Lenders are willing to make such amendments, but only on the terms and conditions set forth herein: NOW, THEREFORE, in consideration of the premises and the agreements, provisions and covenants herein contained, and in reliance on the representations and warranties of Company and the Credit Support Parties herein contained, the parties hereto agree as follows: SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT 1.1 AMENDMENTS TO SECTION 1.1: CERTAIN DEFINED TERMS. (a) The definition of "Applicable Margin" contained in Section 1.1 of the Credit Agreement is hereby amended and restated in its entirety as follows: `"APPLICABLE MARGIN" means, for each Loan, a percentage per annum determined by reference to the Leverage Ratio as set forth below:
----------------------------------------- --------------------------- -------------------------------- PRICE LEVERAGE RATIO BASE RATE LOANS EURODOLLAR RATE LOANS ----------------------------------------- --------------------------- -------------------------------- => 7.0 to 1 1.50% 2.75% ----------------------------------------- --------------------------- -------------------------------- => 6.5 to 1 and < 7.0 to 1 1.25% 2.50% ----------------------------------------- --------------------------- -------------------------------- => 6.0 to 1 and < 6.5 to 1 1.00% 2.25% ----------------------------------------- --------------------------- -------------------------------- => 5.5 to 1 and < 6.0 to 1 0.75% 2.00% ----------------------------------------- --------------------------- -------------------------------- => 5.0 to 1 and < 5.5 to 1 0.50% 1.75% ----------------------------------------- --------------------------- -------------------------------- < 5.0 to 1 0.25% 1.50%" ----------------------------------------- --------------------------- --------------------------------
(b) Notwithstanding anything in Section 2.2A of the Credit Agreement to the contrary, from and after the Third Amendment Effective Date (as defined below) until the first day following delivery to Administrative Agent of the first Compliance Certificate delivered to Administrative Agent after the Third Amendment Effective Date pursuant to Section 6.1 of the Credit Agreement, the Applicable Margin shall be that determined with reference to the most recent Compliance Certificate delivered to Administrative Agent by Company on or before the Third Amendment Effective Date (as defined below) pursuant to Section 6.1 of the Credit Agreement. (c) Section 1.1 of the Credit Agreement is hereby further amended by adding the following definition of "Third Amendment Effective Date" thereto in alphabetical order: `"THIRD AMENDMENT EFFECTIVE DATE" has the meaning assigned to that term in the Third Amendment to Fourth Amended and Restated Credit Agreement dated as of March __, 2000 by and among Company, Lenders and Administrative Agent." 1.2 AMENDMENTS TO SECTION 2.3A: COMMITMENT FEES. Section 2.3A of the Credit Agreement is hereby amended and restated in its entirety as follows: "A. COMMITMENT FEES. (i) Company agrees to pay to Administrative Agent, for distribution to each Lender in proportion to that Lender's Pro Rata Share, commitment fees for the period from and including the Closing Date to and excluding the Revolving Loan Commitment Termination Date equal to (a) the average of the daily excess of the Revolving Loan Commitments over the sum of (x) the aggregate principal amount of Revolving Loans outstanding PLUS (y) the Letter of Credit Usage, MULTIPLIED BY (b) 1/4 of 1% per annum, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on the first such date to occur after the Closing Date, and on the Revolving Loan Commitment Termination Date; PROVIDED HOWEVER that from and after the Third Amendment Effective Date, such per annum percentage shall be 1/2 of 1% per annum (PROVIDED FURTHER HOWEVER that such per annum percentage shall be 2 decreased to 3/8 of 1% per annum during any period in which the Pricing Leverage Ratio is less than 5.00:1.00); and (ii) Company agrees to pay to Administrative Agent, with respect to the Additional Credit Commitments made under each Additional Credit Facility Supplement, for distribution to each Additional Credit Lender in proportion to that Additional Credit Lender's Pro Rata Share, commitment fees for the period from and including the applicable Additional Credit Closing Date to and excluding the Revolving Loan Commitment Termination Date (a) the average of the daily excess of the applicable Additional Credit Commitments over the aggregate principal amount of Additional Credit Loans outstanding thereunder, MULTIPLIED BY (b) 1/2 of 1% per annum, such commitment fees to be calculated on the basis of a 360-day year and the actual number of days elapsed and to be payable quarterly in arrears on January 31, April 30, July 31 and October 31 of each year, commencing on the first such date to occur after the applicable Additional Credit Facility Closing Date, and on the Revolving Loan Commitment Termination Date (PROVIDED HOWEVER that such per annum percentage shall be decreased to 3/8 of 1% per annum during any period in which the Pricing Leverage Ratio is less than 5.00:1.00)." 1.3 AMENDMENTS TO SECTION 7.6A: MAXIMUM TOTAL DEBT RATIO. Section 7.6A of the Credit Agreement is hereby amended by inserting the following proviso at the end thereof: "; PROVIDED STILL FURTHER, HOWEVER, that notwithstanding anything in the foregoing to the contrary, for any fiscal quarter ending during any period set forth below, the following ratios shall apply:
- ------------------------------------------------ ----------------------------------------------- PERIOD MAXIMUM TOTAL DEBT RATIO - ------------------------------------------------ ----------------------------------------------- 1/01/2000-3/31/2000 7.25 to 1 - ------------------------------------------------ ----------------------------------------------- 4/01/2000-6/30/2000 7.25 to 1 - ------------------------------------------------ ----------------------------------------------- 7/01/2000-9/30/2000 6.75 to 1 - ------------------------------------------------ ----------------------------------------------- 10/01/2000-12/31/2000 6.50 to 1" - ------------------------------------------------ -----------------------------------------------
1.4 AMENDMENTS TO SECTION 7.8: RESTRICTION ON LEASES. Section 7.8 of the Credit Agreement is hereby amended and restated in its entirety as follows: "7.8 RESTRICTION ON LEASES. 3 Company shall not, and shall not permit any of its Subsidiaries to, become or remain liable in any way, whether directly or by assignment or as a guarantor or other surety, for the obligations of the lessee under any Capital Lease (other than intercompany leases between Company and its wholly-owned Subsidiaries), unless the aggregate portion of the obligations with respect to all Capital Leases of Company and its Subsidiaries at any time in effect that is properly classified as a liability on a balance sheet in conformity with GAAP does not exceed $20,000,000." 1.5 AMENDMENTS TO SCHEDULE 5.1: SUBSIDIARIES OF COMPANY. Schedule 5.1 of the Credit Agreement is hereby amended and restated in its entirety as set forth on Exhibit A hereto. SECTION 2. COMPANY'S REPRESENTATIONS AND WARRANTIES In order to induce Lenders to enter into this Amendment and to amend the Credit Agreement in the manner provided herein, Company represents and warrants to each Lender that the following statements are true, correct and complete: A. CORPORATE POWER AND AUTHORITY. Company has all requisite corporate power and authority to enter into this Amendment and to carry out the transactions contemplated by, and perform its obligations under, the Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT"). B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of this Amendment and the performance of the Amended Agreement have been duly authorized by all necessary corporate action on the part of Company. C. NO CONFLICT. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not (i) violate any provision of any law or any governmental rule or regulation applicable to Company or any of its Subsidiaries, the Certificate of Incorporation or Bylaws of Company or any of its Subsidiaries or any order, judgment or decree of any court or other agency of government binding on Company or any of its Subsidiaries, (ii) conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any Contractual Obligation of Company or any of its Subsidiaries, (iii) result in or require the creation or imposition of any Lien upon any of the properties or assets of Company or any of its Subsidiaries (other than Liens created under any of the Loan Documents in favor of Administrative Agent on behalf of Lenders), or (iv) require any approval of stockholders or any approval or consent of any Person under any Contractual Obligation of Company or any of its Subsidiaries. D. GOVERNMENTAL CONSENTS. The execution and delivery by Company of this Amendment and the performance by Company of the Amended Agreement do not and will not require any registration with, consent or approval of, or notice to, or other action to, with or by, any federal, state or other governmental authority or regulatory body. 4 E. BINDING OBLIGATION. This Amendment and the Amended Agreement have been duly executed and delivered by Company and are the legally valid and binding obligations of Company, enforceable against Company in accordance with their respective terms, except as may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws relating to or limiting creditors' rights generally or by equitable principles relating to enforceability. F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT AGREEMENT. The representations and warranties contained in Section 5 of the Credit Agreement are and will be true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. G. ABSENCE OF DEFAULT. After giving effect to the amendment set forth herein, no event has occurred and is continuing or will result from the consummation of the transactions contemplated by this Amendment that would constitute an Event of Default or a Potential Event of Default. SECTION 3. ACKNOWLEDGEMENT AND CONSENT Company is a party to the Borrower Pledge and Security Agreement and the Borrower Mortgage, in each case as amended through the date hereof, pursuant to which Company has created Liens in favor of Agent on certain Collateral to secure the Obligations. Each of Company's Subsidiaries is a party to the Subsidiary Guaranty and the Subsidiary Pledge Agreement and each of Company's Subsidiaries (other than the License Cos. and Granite Response Television Inc.) is a party to one or more Subsidiary Mortgages, in each case as amended through the date hereof, pursuant to which such Subsidiary has (i) guarantied the Obligations and (ii) created Liens (subject to Liens permitted by the Credit Agreement) in favor of Administrative Agent on certain Collateral (except to the extent prohibited by the FCC or the Communications Act) to secure the obligations of such Subsidiary under the Subsidiary Guaranty. Company, and each Subsidiary Guaranty are collectively referred to herein as the "CREDIT SUPPORT PARTIES", and the Borrower Pledge and Security Agreement, the Borrower Mortgage, the Subsidiary Guaranty, the Subsidiary Pledge Agreement and the Subsidiary Mortgages are collectively referred to herein as the "CREDIT SUPPORT DOCUMENTS". Each Credit Support Party hereby acknowledges that it has reviewed the terms and provisions of the Credit Agreement and this Amendment and consents to the amendment of the Credit Agreement effected pursuant to this Amendment. Each Credit Support Party hereby confirms that each Credit Support Document to which it is a party or otherwise bound and all Collateral encumbered thereby will continue to guaranty or secure, as the case may be, to the fullest extent possible the payment and performance of all "Guarantied Obligations" and "Secured Obligations," as the case may be (in each case as such terms are defined in the applicable Credit Support Document), including without limitation the payment and performance of all such "Guarantied Obligations" or "Secured Obligations," as the case may 5 be, in respect of the Obligations of Company now or hereafter existing under or in respect of the Amended Agreement and the Notes defined therein. Each Credit Support Party acknowledges and agrees that any of the Credit Support Documents to which it is a party or otherwise bound shall continue in full force and effect and that all of its obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment. Each Credit Support Party represents and warrants that all representations and warranties contained in the Amended Agreement and the Credit Support Documents to which it is a party or otherwise bound are true, correct and complete in all material respects on and as of the date hereof to the same extent as though made on and as of that date, except to the extent such representations and warranties specifically relate to an earlier date, in which case they were true, correct and complete in all material respects on and as of such earlier date. Each Credit Support Party (other than Company) acknowledges and agrees that (i) notwithstanding the conditions to effectiveness set forth in this Amendment, such Credit Support Party is not required by the terms of the Credit Agreement or any other Loan Document to consent to the amendments to the Credit Agreement effected pursuant to this Amendment and (ii) nothing in the Credit Agreement, this Amendment or any other Loan Document shall be deemed to require the consent of such Credit Support Party to any future amendments to the Credit Agreement. SECTION 4. MISCELLANEOUS A. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS. (i) On and after the date hereof, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Credit Agreement, and each reference in the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or words of like import referring to the Credit Agreement shall mean and be a reference to the Amended Agreement. (ii) Except as specifically amended by this Amendment, the Credit Agreement and the other Loan Documents shall remain in full force and effect and are hereby ratified and confirmed. (iii) The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of Administrative Agent or any Lender under, the Credit Agreement or any of the other Loan Documents. B. FEES AND EXPENSES. Company acknowledges that all costs, fees and expenses as described in Section 10.2 of the Credit Agreement incurred by Administrative Agent and its counsel with respect to this Amendment and the documents and transactions contemplated hereby shall be for the account of Company. 6 C. HEADINGS. Section and subsection headings in this Amendment are included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose or be given any substantive effect. D. APPLICABLE LAW. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES. E. COUNTERPARTS; EFFECTIVENESS; AMENDMENT FEE. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed and delivered shall be deemed an original, but all such counterparts together shall constitute but one and the same instrument; signature pages may be detached from multiple separate counterparts and attached to a single counterpart so that all signature pages are physically attached to the same document. This Amendment shall become effective (the "THIRD AMENDMENT EFFECTIVE DATE") upon (i) the execution of a counterpart hereof by Company, Requisite Lenders and each of the Credit Support Parties and receipt by Company and Administrative Agent of written or telephonic notification of such execution and authorization of delivery thereof and (ii) the payment by Company to Administrative Agent, for distribution to the Lenders that have executed this Amendment, of a non-refundable amendment fee in immediately available funds in an amount equal to 0.125% of each such Lender's Commitment. [Remainder of page intentionally left blank] 7 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their respective officers thereunto duly authorized as of the date first written above. ADMINISTRATIVE AGENT: BANKERS TRUST COMPANY, individually and as Administrative Agent and Collateral Agent By: ---------------------------------- Name: Title: LENDERS: THE BANK OF NEW YORK, as Documentation Agent and a Lender By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- GOLDMAN SACHS CREDIT PARTNERS L.P., as a Co-Agent and a Lender By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- UNION BANK OF CALIFORNIA, N.A., as a Co-Agent and a Lender By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- S-1 ABN AMRO BANK N.V., NEW YORK BRANCH, as a Co-Agent and a Lender By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- NATEXIS BANQUE BFCE, as a Lender By: -------------------------------------- Name: -------------------------------- Title: ------------------------------- CREDIT INDUSTRIEL ET COMMERCIAL as a Lender By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- By: ------------------------------------ Name: -------------------------------- Title: ------------------------------ HELLER FINANCIAL, INC., as a Lender By: ------------------------------------- Name: -------------------------------- Title: ------------------------------- S-2 PARIBAS, as a Lender By: ------------------------------------- Name: ------------------------------- Title: ------------------------------ By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ THE BANK OF NOVA SCOTIA, as a Lender By: ----------------------------------- Name: ------------------------------ Title: ----------------------------- BANQUE NATIONALE DE PARIS, as a Lender By: ----------------------------------- Name: ------------------------------ Title: ----------------------------- By: ----------------------------------- Name: ------------------------------ Title: ----------------------------- S-3 MELLON BANK, N.A., as a Lender By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ BANK OF TOKYO-MITSUBISHI TRUST, as a Lender By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ FINOVA CAPITAL CORPORATION, as a Lender By: ------------------------------------ Name: ------------------------------- Title: ------------------------------ SOUTHERN PACIFIC BANK, as a Lender By: ------------------------------------ Name: ------------------------------- Title: ------------------------------- S-4 COMPANY: GRANITE BROADCASTING CORPORATION By: ------------------------------------ Lawrence I. Wills Vice President SUBSIDIARIES: GRANITE RESPONSE TELEVISION, INC. KBVO, INC. KBVO LICENSE, INC. KNTV, INC. KNTV LICENSE, INC. RJR COMMUNICATIONS, INC. KBJR LICENSE, INC. SAN JOAQUIN COMMUNICATIONS CORPORATION KSEE LICENSE, INC., WPTA-TV, INC. WPTA-TV LICENSE, INC. WTVH L.L.C. WTVH LICENSE, INC. WWMT-TV, INC. WWMT-TV LICENSE, INC. WKBW-TV LICENSE, INC. QUEEN CITY BROADCASTING OF NEW YORK, INC. WEEK, INC. WEEK LICENSE, INC. WXON, INC. WXON LICENSE, INC. WLAJ, INC. WLAJ LICENSE, INC. WEEK-TV LICENSE, INC. PACIFIC FM INCORPORATED KOFY-TV LICENSE, INC. By: ------------------------------------- Lawrence I. Wills Vice President S-5 EXHIBIT A TO THIRD AMENDMENT SCHEDULE 5.1 SUBSIDIARIES OF COMPANY EX-10.45 7 EXHIBIT 10.45 EXHIBIT 10.45 EXECUTION COPY ASSET PURCHASE AGREEMENT BETWEEN CAROLINE K. POWLEY AND GRANITE BROADCASTING CORPORATION DATED AS OF NOVEMBER 12, 1999 TABLE OF CONTENTS
Page ---- 1. Definitions.....................................................................................1 1.1 Defined Terms...................................................................................1 1.2 Accounting Terms................................................................................1 1.3 Other Definition Provisions.....................................................................1 2. Purchase of Broadcasting Assets; Purchase Price.................................................1 2.1 Purchase of Broadcasting Assets.................................................................1 2.2 Consideration; Accounts Receivable; Allocation of Purchase Price................................2 2.2.1 Purchase Price..................................................................................2 2.2.2 Prorations......................................................................................2 2.2.3 Manner of Determining Prorations................................................................3 2.2.4 Payment of Purchase Price.......................................................................4 2.2.5 Allocation of Purchase Price/Appraisal..........................................................5 2.3 Accounts Receivable.............................................................................6 2.4 Assumption of Obligations.......................................................................6 2.4.1 Limitation on Obligations of Buyer..............................................................6 2.4.2 Assumed Obligations.............................................................................7 2.4.3 Substitution Where Not Transferable.............................................................7 3. FCC and Related Matters.........................................................................8 3.1 Grant of License................................................................................8 3.2 Application and Request.........................................................................8 3.3 Final Order.....................................................................................9 3.4 Local Ownership Rules..........................................................................10 4. Representations and Warranties Relating to WNGS and Seller.....................................10 4.1 Organization and Standing......................................................................10 4.2 Authorization and Binding Obligations..........................................................11 4.3 No Contravention; Consents.....................................................................11 4.3.1 No Contravention...............................................................................11 4.3.2 Consent........................................................................................11 4.4 Year 2000......................................................................................11 4.5 Title to Assets................................................................................12 4.5.1 Real Property..................................................................................12 4.5.2 Personal Property..............................................................................12 4.5.3 Assets Sufficient..............................................................................12 4.5.4 Condemnation...................................................................................12 4.5.5 Permits........................................................................................13 4.5.6 Access.........................................................................................13 4.6 Condition of Assets............................................................................13 4.7 Licenses and Authorizations....................................................................13 4.7.1 Licenses.......................................................................................13 4.7.2 Pending Applications...........................................................................13 4.7.3 Authorizations.................................................................................14 4.8 Contracts......................................................................................14
Page ---- 4.9 Franchises, Trademarks and Trade Names.........................................................15 4.10 ERISA..........................................................................................15 4.11 Liabilities....................................................................................16 4.12 Litigation; Violations.........................................................................16 4.12.1 Litigation.....................................................................................16 4.12.2 Violations.....................................................................................16 4.13 DTV............................................................................................16 4.14 Reports........................................................................................17 4.15 No Misleading Statements.......................................................................17 4.16 Affiliated and Recent Transactions.............................................................17 4.17 Taxes..........................................................................................17 4.17.1 Filing of Tax Returns..........................................................................17 4.17.2 Payment of Taxes...............................................................................17 4.17.3 Audits.........................................................................................18 4.17.4 Sole Proprietorship............................................................................18 4.18 Environmental Matters..........................................................................18 4.18.1 USTs...........................................................................................18 4.18.2 Studies; Investigations........................................................................18 4.18.3 Relevant Property..............................................................................18 4.19 Labor..........................................................................................19 4.19.1 Labor Problems.................................................................................19 4.19.2 Employees and Compensation.....................................................................19 4.20 Cable Carriage.................................................................................19 4.21 Insurance......................................................................................20 5. Representations and Warranties of Buyer........................................................20 5.1 Organization and Standing......................................................................20 5.2 Authorization and Binding Obligations..........................................................21 5.3 No Contravention...............................................................................21 5.4 Litigation.....................................................................................21 5.5 No Misleading Statements.......................................................................21 6. Conduct Pending Closing........................................................................22 6.1 Seller's Covenants.............................................................................22 6.1.1 Conduct of Business............................................................................22 6.1.2 Assets.........................................................................................22 6.1.3 Employee Compensation and Benefits.............................................................22 6.1.4 Organization, Etc..............................................................................22 6.1.5 Insurance......................................................................................22 6.1.6 Transfer of Broadcasting Assets................................................................23 6.1.7 [RESERVED].....................................................................................23 6.1.8 Litigation.....................................................................................23 6.1.9 Agreements.....................................................................................23 6.1.10 Consents and Approvals.........................................................................23 6.1.11 Licenses.......................................................................................24 6.1.12 Offers to Purchase.............................................................................24 6.1.13 No Breach of Representations and Warranties....................................................24 6.1.14 Employee Notification Requirements.............................................................24 6.1.15 Compliance with Laws...........................................................................24
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Page ---- 6.1.16 [RESERVED].....................................................................................24 6.1.17 No Violations..................................................................................24 6.1.18 Access and Information.........................................................................25 6.1.19 Delivery of Supplement.........................................................................25 6.1.20 Film Contracts.................................................................................25 6.1.21 Satisfaction of Funded Debt and Pre-Closing Liabilities; Removal of Encumbrances........................................................................25 6.2 Buyer's Covenants..............................................................................26 6.2.1 Organization, Etc..............................................................................26 6.2.2 Litigation.....................................................................................26 6.2.3 No Breach of Representations and Warranties....................................................26 6.2.4 No Violations..................................................................................26 6.3 [RESERVED].....................................................................................26 6.4 Due Diligence..................................................................................26 7. Conditions Precedent to the Obligations of the Parties.........................................27 7.1 Conditions Precedent to the Obligation of Buyer................................................27 7.1.1 FCC............................................................................................27 7.1.2 Accuracy of Representations and Warranties.....................................................27 7.1.3 Compliance with Agreement......................................................................27 7.1.4 No Obstructive Proceeding......................................................................27 7.1.5 No Changes.....................................................................................28 7.1.6 Consents.......................................................................................28 7.1.7 Officers' Certificates.........................................................................29 7.1.8 Opinion of Counsel.............................................................................29 7.1.9 Certifications.................................................................................29 7.1.10 HSRA Waiting Period............................................................................29 7.1.11 Copies of Documents............................................................................29 7.1.12 Analog Authorization...........................................................................29 7.1.13 Proceedings....................................................................................29 7.1.14 Delivery of Instruments of Conveyance and Transfer.............................................30 7.1.15 Tower Space Lease..............................................................................30 7.2 Conditions to Obligations of Seller............................................................30 7.2.1 FCC Consent....................................................................................30 7.2.2 Accuracy of Representations and Warranties.....................................................30 7.2.3 Compliance with Agreement......................................................................30 7.2.4 No Obstructive Proceeding......................................................................30 7.2.5 Proceedings....................................................................................31 7.2.6 Opinion of Counsel.............................................................................31 7.2.7 HSRA Waiting Period............................................................................31 7.2.8 Officer's Certificate..........................................................................31 8. Instruments of Conveyance and Transfer.........................................................31 9. [RESERVED].....................................................................................32 10. Employees......................................................................................32 10.1 [RESERVED].....................................................................................32 10.2 Continued Employment; Prorations...............................................................32
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Page ---- 10.2.1 Right to Continue Employment...................................................................32 10.2.2 Cooperation....................................................................................32 10.2.3 Accrued Compensation...........................................................................32 10.3 No Liability for Employee Plans................................................................33 11. Risk of Loss; Casualty or Condemnation.........................................................33 11.1 Risk of Loss...................................................................................33 11.2 Casualty.......................................................................................33 11.3 Repair Parameters..............................................................................34 11.4 Failure of Broadcast Transmission..............................................................34 12. Books and Records..............................................................................34 13. Possession and Control of WNGS.................................................................35 14. Brokers........................................................................................35 15. Survival; Indemnification......................................................................35 15.1 Survival.......................................................................................35 15.2 Seller's Indemnification.......................................................................36 15.2.1 Generally......................................................................................36 15.2.2 Limitations....................................................................................36 15.3 Buyer's Indemnification........................................................................37 15.3.1 Generally......................................................................................37 15.3.2 Taxes..........................................................................................37 15.4 Seller's Satisfaction of Retained Liabilities..................................................37 15.5 Limitations....................................................................................37 15.6 Method of Asserting Claim......................................................................37 15.6.1 Third Party Claims.............................................................................37 15.6.2 Indemnification Claims by the Parties..........................................................39 15.7 Indemnitor's Obligations.......................................................................41 15.8 Limitation on Liability........................................................................41 15.9 Termination of Indemnification.................................................................41 16. Hart-Scott-Rodino Filings......................................................................41 17. [RESERVED].....................................................................................41 18. Termination....................................................................................42 18.1 Termination....................................................................................42 18.1.1 Buyer..........................................................................................42 18.1.2 Seller.........................................................................................42 18.1.3 Mutual Consent.................................................................................42 18.1.4 By Seller Upon Breach..........................................................................42 18.1.5 By Buyer Upon Breach...........................................................................42 18.1.6 Seller or Buyer................................................................................42 18.1.7 Other..........................................................................................42 18.2 Effects of Termination.........................................................................42 18.2.1 Survival.......................................................................................42
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Page ---- 18.2.2 Event of Termination...........................................................................43 18.2.3 Instructions to Escrow Agent...................................................................43 19. Security Deposit...............................................................................43 20. Covenant Against Competition; Confidentiality..................................................43 20.1 Non-Competition................................................................................43 20.2 Seller's Confidentiality.......................................................................44 20.3 Buyer Confidentiality..........................................................................44 21. Miscellaneous..................................................................................45 21.1 Grace Period...................................................................................45 21.1.1 Default Grace Period...........................................................................45 21.1.2 FinalOrder Grace Period........................................................................45 21.2 Costs, Expenses, Etc...........................................................................45 21.3 Further Assurances.............................................................................45 21.4 Notice of Proceedings..........................................................................46 21.5 Bulk Sales Law.................................................................................46 21.6 Notices........................................................................................46 21.7 Headings and Entire Agreement; Amendment.......................................................47 21.8 Waiver.........................................................................................47 21.9 Binding Effect and Assignment..................................................................47 21.10 Counterparts...................................................................................48 21.11 Exhibits, Schedules and Attachments............................................................48 21.12 Rights Cumulative..............................................................................48 21.13 Governing Law..................................................................................48 21.14 Severability...................................................................................48 21.15 Third Party Rights.............................................................................48 21.16 Press Releases.................................................................................48 21.17 Specific Performance...........................................................................49 21.18 Right to Payments..............................................................................49
(v) EXHIBITS Exhibit A - Form of Deposit Escrow Agreement Exhibit B - Form of Tower Lease Exhibit C - Form of Proration Statement Exhibit D - Form of Opinion of Counsel to Seller Exhibit E - Form of Opinion of Buyer's Counsel SCHEDULES Schedule 1-A - Owned and Leased Real Property of WNGS Schedule 1-B - Owned and Leased Tangible Personal Property of WNGS Schedule 1-C - Network Affiliation Agreements and Other Contracts of WNGS Schedule 1-D - Licenses, Permits and Authorizations of WNGS Schedule 1-E - Franchises, Trademarks, Copyrights, etc. of WNGS Schedule 1-F - Excluded WNGS Assets; Excluded Contracts Schedule 4.1 - Broadcasting Assets Not Owned by Sellers Schedule 4.3.2 - Consents Schedule 4.5.1 - Real Estate Encumbrances Schedule 4.5.2 - Personal Property Encumbrances Schedule 4.5.3 - Sufficiency of Assets Schedule 4.10 - WNGS Benefit Plans Schedule 4.11 - Liabilities Schedule 4.12 - Schedule of Litigation and Claims Schedule 4.16 - Affiliated Transactions Schedule 4.17 - Taxes Schedule 4.18 - Environmental Disclosures Schedule 4.19 - Employee Matters Schedule 4.19.2 - Employees and Compensation Schedule 4.20 - Cable Carriage Schedule 4.21 - Insurance Schedule 5.4 - Litigation Schedule 6.1.21 - Unsatisfied Liabilities
(i) PURCHASE AND SALE AGREEMENT THIS AGREEMENT, dated as of November 12, 1999, between GRANITE BROADCASTING CORPORATION, a Delaware corporation ("Buyer"), and CAROLINE K. POWLEY ("Seller"). WITNESSETH: WHEREAS, Seller owns and operates, under license from the Federal Communications Commission (the "FCC"), television station WNGS, Channel 67, Buffalo, New York and its auxiliary facilities ("WNGS"), including all of the Broadcasting Assets (as hereinafter defined); WHEREAS, Buyer desires to purchase all of the Broadcasting Assets from Seller and to obtain from Seller assignment of all WNGS Licenses (as hereinafter defined), and Seller desires to sell all of the Broadcasting Assets to Buyer and to assign to Buyer all WNGS Licenses; WHEREAS, concurrently with the execution of this Agreement, Buyer is depositing in escrow a cash security deposit in the amount of $2,000,000 (the "Deposit"), which escrow shall be governed by the terms and conditions of this Agreement and the Deposit Escrow Agreement. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the parties hereto hereby agree as follows: 1. DEFINITIONS. 1.1. DEFINED TERMS. As used herein, the capitalized terms not otherwise defined herein have the meanings set forth on APPENDIX A hereto. 1.2. ACCOUNTING TERMS. All terms of an accounting nature not specifically defined herein shall have the respective meanings given to them under GAAP. 1.3. OTHER DEFINITION PROVISIONS. The masculine form of words includes the feminine and the neuter and vice versa, and, unless the context otherwise requires, the singular form of words includes the plural and vice versa. The words "herein," "hereof," "hereunder" and other words of similar import when used in this Agreement refer to this Agreement as a whole, and not to any particular section or subsection. 2. PURCHASE OF BROADCASTING ASSETS; PURCHASE PRICE. 2.1. PURCHASE OF BROADCASTING ASSETS. Subject to the terms upon satisfaction of the conditions contained in this Agreement, at the Closing: (i) Seller shall sell, assign, transfer, convey and deliver to Buyer, and Buyer shall purchase from Seller, the Broadcasting Assets; (ii) Seller shall assign and deliver to Buyer, and Buyer shall accept assignment from Seller of, the WNGS Licenses; and (iii) Seller shall transfer and deliver to Buyer, and Buyer shall assume, the Assumed Obligations. 2.2. CONSIDERATION; ACCOUNTS RECEIVABLE; ALLOCATION OF PURCHASE PRICE. 2.2.1. PURCHASE PRICE. For and in full consideration of the assignments, conveyances, and transfers described herein, at the Closing, Buyer shall: (i) pay to Seller the sum of Twenty Three Million Dollars ($23,000,000.00) (the "Base Purchase Price"), subject to adjustment as provided in Section 2.2.2 and 2.2.3 (as so adjusted the "Purchase Price"); and (ii) assume the Assumed Obligations in accordance with Section 2.4 hereof. 2.2.2. PRORATIONS. The Purchase Price shall be increased or decreased as required to effectuate the proration of expenses relating to the operation of WNGS. All expenses arising solely from the operations of WNGS and incurred by WNGS, including business and license fees, utility charges, real and personal property taxes and assessments levied against the Broadcasting Assets, property and equipment rentals, applicable copyright or other fees, sales and service charges, employee compensation (including wages and salaries, accrued sick leave, severance pay and personal days) and similar prepaid and deferred items, shall be prorated between Seller and Buyer in accordance with the principle that Seller shall be responsible for all expenses, costs and liabilities allocable to the operations of WNGS for the period prior to and including the Effective Time, and Buyer shall be responsible for all expenses, costs and obligations allocable to the operations of WNGS for the period after the Effective Time as determined in accordance with Section 2.2.3 below, subject to the following: (a) There shall be no adjustment for, and Seller shall be solely liable with respect to, Liabilities and obligations under any Contracts listed on SCHEDULE 1-F or under any WNGS Employee Plans. (b) Payments due under film or programming license agreements for the month in which the Closing occurs shall be prorated based on the number of days in such month on or before the Effective Time and the number of days in such month after and including the Effective Time. (c) There shall be no adjustment for any difference between the value of the goods or services to be received by Seller as of the Effective Time under trade or barter agreements relating to WNGS and the value of any advertising time -2- remaining to be run by Seller as of the Effective Time under trade or barter agreements relating to WNGS ("Trade Agreements"); PROVIDED, HOWEVER, that this provision shall not apply to barter arrangements that do not arise under programming Contracts or which pertain to goods or services to be retained by Seller or her Affiliates after the Effective Date, which shall be prorated. (d) Seller shall be responsible for (i) any overdue amounts under film or programming license agreements to the extent relating to periods prior to the Closing, and (ii) any payments that contractually have been deferred but for which Seller or WNGS have already received the benefit of the asset to which they relate prior to Closing. 2.2.3. MANNER OF DETERMINING PRORATIONS. The Purchase Price, taking into account the adjustments and prorations outlined in Section 2.2.2, shall be determined in accordance with the following procedures: (a) PRORATED OBLIGATIONS. Seller shall, no later than five (5) business days prior to the Closing Date, prepare a document (the "Proration Statement"), a copy of the form of which is attached as EXHIBIT C, listing by item, all of the expenses, costs, obligations and other Liabilities of WNGS of the type identified in Section 2.2.2 that are attributable solely to the operations of WNGS, either in whole or in part, during the period after the Effective Time but either payable in advance prior to the Effective Time or in arrears after the Effective Time ("Prorated Obligations"). For each Prorated Obligation, there shall be listed (i) the amount of such Prorated Obligation incurred by WNGS or attributable to operations of WNGS on or prior to the Effective Time ("Pre-Closing Incurred Obligations") and (ii) the actual amount paid by Seller with respect to such Prorated Obligation on or prior to the Effective Time ("Pre-Closing Paid Obligations"). Notwithstanding anything to the contrary contained herein, Prorated Obligations shall be expressly limited to those items listed on EXHIBIT C and amounts listed on the Proration Statement, with any obligations in excess of such amounts being Retained Liabilities. (b) CLOSING ADJUSTMENT. The Base Purchase Price paid to Seller shall be adjusted on an estimated basis in accordance with Section 2.2.3(a) at Closing (with a final adjustment to be completed in accordance with Section 2.2.3(c) below): (i) upward dollar-for-dollar by the amount, if any, by which Pre-Closing Paid Obligations exceed Pre- -3- Closing Incurred Obligations; or (ii) downward dollar-for-dollar by the amount, if any, by which, Pre-Closing Incurred Obligations exceed Pre-Closing Paid Obligations. (c) POST-CLOSING ADJUSTMENT. (i) As promptly as possible after the Closing, but in any event not later than forty-five (45) days after the Closing Date, Buyer shall deliver to Seller a statement setting forth Buyer's determination of the Purchase Price and the calculation thereof pursuant to Section 2.2.3(b). Buyer's statement shall contain all information reasonably necessary to determine the adjustments to the Purchase Price under Section 2.2.3(b), and such other information as may be reasonably requested by Seller. If Seller disputes the amount of the Purchase Price determined by Buyer, Seller shall deliver to Buyer within thirty (30) days after its receipt of Buyer's statement a statement setting forth Seller's determination of the amount of the Purchase Price. If Seller notifies Buyer of its acceptance of Buyer's statement, or if Seller fails to deliver its statement within the thirty-day period specified in the preceding sentence, Buyer's determination of the Purchase Price shall be conclusive and binding on the parties as of the last day of the thirty-day period. (ii) Buyer and Seller shall use good faith efforts to resolve any dispute involving the determination of the Purchase Price. If the parties are unable to resolve the dispute within thirty (30) days following the delivery of Seller's statement pursuant to Section 2.2.3(c)(i), Buyer and Seller shall jointly designate an independent public accounting firm of national stature that has not been employed by any party hereto for the two years preceding the date of such designation, who shall be knowledgeable and experienced in the operation of television broadcasting stations, to resolve the dispute. This accounting firm's resolution of the dispute shall be final and binding on the parties, and a judgment may be entered thereon in any court of competent jurisdiction. Any fees of this firm shall be split equally between Buyer and Seller. 2.2.4. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid as follows: (a) PAYMENT OF ESTIMATED PURCHASE PRICE AT CLOSING. The Base Purchase Price, adjusted by the estimated Closing adjustments pursuant to Section 2.2.3(b), is referred to as the "Estimated Purchase Price," and shall be paid to Seller by wire transfer, -4- pursuant to wire transfer instructions delivered by Seller to Buyer at least 3 business days prior to the Closing, in immediately available funds, as follows: (i) FROM BUYER. Buyer shall pay Seller the Estimated Purchase Price, less the Deposit Amount. (ii) FROM THE DEPOSIT ESCROW AGENT. The Deposit Escrow Agent shall pay Seller the Deposit Amount. (b) PAYMENTS TO REFLECT POST-CLOSING ADJUSTMENTS. (i) If the Purchase Price as finally determined pursuant to Section 2.2.3(c) exceeds the Estimated Purchase Price, Buyer shall pay to Seller, in immediately available funds within five business days after the date on which the Purchase Price is determined pursuant to Section 2.2.3(c), the difference between the Purchase Price and the Estimated Purchase Price. (ii) If the Purchase Price as finally determined pursuant to Section 2.2.3(c) is less than the Estimated Purchase Price, Seller shall pay to Buyer, in immediately available funds within five business days after the date on which the Purchase Price is determined pursuant to Section 2.2.3(c), the difference between the Purchase Price and the Estimated Purchase Price. 2.2.5. ALLOCATION OF PURCHASE PRICE/APPRAISAL. For the purpose of determining the value of the Broadcasting Assets for Tax purposes, if Buyer and Seller cannot reach a mutually acceptable agreement on allocation of the Purchase Price, Buyer shall have the right to cause an appraisal (the "Appraisal"), with expenses therefor to be borne by Buyer, of the Broadcasting Assets, by a nationally known appraisal firm as Buyer and Seller mutually designate, no later than twenty (20) days prior to the Closing Date. The Appraisal shall comply in all respects with the applicable requirements of Section 1060 of the Code and the regulations promulgated thereunder. Buyer and Seller shall report the allocation of the Purchase Price consistently with the Appraisal, to the extent permitted by law, on Internal Revenue Service Form 8594, which both parties shall cooperate in preparing and which both parties will timely file with the Internal Revenue Service. If any taxing authority makes or proposes an allocation of the Purchase Price which differs materially from that contained in the Appraisal, Buyer and Seller shall each have the right, at such party's election and expense, to contest such taxing authority's determination. -5- 2.3. ACCOUNTS RECEIVABLE. As of the Closing Date, Seller appoints Buyer, as Seller's agent without compensation but without Liability except for willful misconduct, to collect the Accounts Receivable. Buyer shall account to Seller, and remit to Seller, the amounts collected during the period in respect of Accounts Receivable as follows: (i) on or before the twentieth (20th) day of the second complete calendar month after the Closing Date, pay the amounts collected up to the end of the previous month; and (ii) on or before the twentieth (20th) day of each succeeding month, remit the amounts collected during the month previous thereto. With each remittance, Buyer shall furnish a statement of the amounts collected and the Persons from whom such amounts were collected. Buyer shall, unless the remittance or an Accounts Receivable debtor specifies otherwise, apply all amounts it receives from or for the benefit of any Accounts Receivable debtor first to pay the oldest undisputed Accounts Receivable of such debtor before applying any of such amounts to pay any obligation of such debtor to Buyer arising during, or otherwise attributable to, the period after the Effective Time. Buyer's agency to collect the Accounts Receivable shall expire as of midnight on the 120th day following the Closing Date. Within fifteen (15) business days thereafter, Buyer shall remit to Agent the amounts collected from the Closing Date until the date thereof that remain in Buyer's possession. Upon expiration of the agency, Buyer shall turn over to Seller all documents and records evidencing the Accounts Receivable which were paid to Seller hereunder and which remain uncollected and Seller shall assume sole responsibility for collection of any remaining Accounts Receivable. Buyer shall use commercially reasonable collection efforts to collect the Accounts Receivable consistent with its practice for collection of Accounts Receivable, but shall not be required to institute any legal proceedings to collect the Accounts Receivable or to otherwise incur any cost or obligations in respect thereof other than in the ordinary course of business. Buyer shall remit all amounts collected during the period of Buyer's agency to collect the Accounts Receivable to Seller without any deductions for Taxes, agency, sales or other commissions, or employee related costs and expenses (collectively, "Receivables Expenses"), and Seller shall be responsible for, and shall indemnify Buyer against, all such Receivables Expenses. 2.4. ASSUMPTION OF OBLIGATIONS. 2.4.1. LIMITATION ON OBLIGATIONS OF BUYER. Except for Assumed Obligations, Buyer expressly does not, and shall not, assume or be deemed to have assumed, -6- under this Agreement or by reason of any transactions contemplated hereunder, any Liabilities or obligations of WNGS, Seller or any of her Affiliates of any nature whatsoever (including any Retained Liabilities). 2.4.2. ASSUMED OBLIGATIONS. Subject to the provisions of Section 2.4.3 below, the following obligations shall be the only obligations or other Liabilities of Seller or WNGS assumed by Buyer at Closing (collectively, the "Assumed Obligations"): (a) the obligations of Seller arising subsequent to, and relating solely to, the operations of WNGS after the Effective Time, under, (i) all Contracts included in the Broadcasting Assets and set forth on SCHEDULE 1-C in effect as of the date hereof, and (ii) all Contracts, amendments, renewals and other modifications thereof that are entered into by Seller in connection with WNGS between the date hereof and the Closing as expressly permitted by and subject to the terms of this Agreement; (b) any other Prorated Obligations which accrued prior to the Effective Time to the extent that the Purchase Price has been reduced therefor in accordance with Section 2.2 hereof; and (c) any other Prorated Obligations which accrue after the Effective Time. It is understood and agreed that Assumed Obligations shall not include trade or other accounts payable (other than barter obligations remaining on Trade Agreements listed on SCHEDULE 1-A), accrued payroll, employee sales commissions, payroll Taxes, or unemployment Taxes, that are not Prorated Obligations, any obligations relating to any funded or other indebtedness or under Employee Plans, collective bargaining agreements, or any other Retained Liabilities. 2.4.3. SUBSTITUTION WHERE NOT TRANSFERABLE. (a) If any transfer or assignment by Seller to, or any assumption by Buyer of, any interest in, or Liability under, any Contract, requires the consent of a third party, then such assignment or assumption shall be made subject to such consent being obtained. Subject to subsection (b) below, to the extent any Contract may not be assigned to Buyer by reason of the absence of any such consent, Buyer shall not be required to assume any Assumed Obligations arising under such Contract. (b) If Seller shall be unable, or prior to the Closing, to obtain a consent necessary for the assignment of its title to, interest in and rights under any Contract to be assigned hereunder, then Seller and Buyer will cooperate to enter into any lawful and reasonable arrangement reasonably proposed by Buyer designed to provide Buyer with the economic claims, rights and benefits under any such Contract, including enforcement at the cost -7- and for the account of Seller of such rights. To the extent, and only to the extent, Buyer is able to receive the economic claims, rights and benefits under any such Contract, Buyer shall be responsible for the Assumed Obligations, if any, arising under such Contract. 3. FCC AND RELATED MATTERS. 3.1. GRANT OF LICENSE. Seller shall take such action as is necessary to obtain a grant of the License Application. Seller shall pay all filing fees in connection with the License Application. Seller covenants to Buyer that within thirty (30) days from the date hereof, the FCC shall have granted the Modification Application and issued to Seller a construction permit to construct the facilities specified in the Modification Application ("Modification Authorization"). 3.2. APPLICATION AND REQUEST. On or prior to November 16, 1999, Buyer and Seller shall file with the FCC complete and accurate applications requesting the consent of the FCC to the assignment of the WNGS Licenses from Seller to Buyer or its permitted assignee as contemplated herein (the "FCC Applications"). In addition, Seller shall cooperate with Buyer in the preparation and filing by Seller of an application to modify the Modification Authorization, to relocate the transmitter site to a location acceptable to Buyer in Colden, New York, with technical parameters acceptable to Buyer (including, but not limited to, a minimum transmitter power output of 5,000 kilowatts, a minimum height of antenna radiation center above average terrain of 415 meters and transmitting antenna beam tilt and other technical parameters equivalent to or greater than those specified in the Modification Application), and further timely amend such application at Buyer's request if necessary to obtain the Relocation Authorization (as so amended, the "Relocation Application"). Seller shall also cooperate with Buyer in the preparation and filing by Seller of an amendment to the Initial DTV Application, to authorize digital operation of WNGS on channel 46 at a transmitter power output, transmitting antenna height and other technical parameters equivalent to or greater than those specified in the Modification Application, and further amend such application at Buyer's request (as so amended the "DTV Application"). Such DTV Application shall request a signal contour that enables WNGS to provide a dipole-adjusted DTV signal contour equal to or greater than the Grade B signal contour proposed in the Modification Application. The Relocation Application shall be filed within 10 business days after FCC publication of notice of the grant of the Modification Application and the DTV Application shall be filed on or prior to November 30, 1999. Buyer -8- and Seller shall each pay one half of all FCC filing fees in connection with the FCC Applications. Buyer shall pay all filing fees and other costs associated with the Relocation Application and the DTV Application. Buyer and Seller shall, with respect to the FCC Applications, the DTV Application and the Relocation Application, diligently take, or cooperate in the taking of, all necessary, desirable and proper actions, provide any additional information reasonably required or requested by the FCC, and otherwise use commercially reasonable efforts to prosecute the FCC Applications, the DTV Application and the Relocation Application, and to obtain promptly the requested approval by the FCC of the FCC Applications, the DTV Application and the Relocation Application. Buyer and Seller shall oppose any petitions to deny or other objections filed with respect to the FCC Applications, the DTV Application or the Relocation Application; PROVIDED, HOWEVER, that neither Buyer nor Seller shall have any obligation to participate in an evidentiary hearing on the FCC Applications, the DTV Application or the Relocation Application. If either Seller or Buyer is required by the FCC to participate in an evidentiary hearing on the FCC Applications, the DTV Application or the Relocation Application or, if the FCC Applications, the DTV Application or the Relocation Application are denied, either Seller (only with respect to the FCC Applications) or Buyer, at its option, by written notice of termination to the other party, may terminate this Agreement without liability on the part of such party other than liability for indemnification, if any, pursuant to Section 15 hereof; PROVIDED, HOWEVER, that the terminating party may not so terminate this Agreement if it or any of its Affiliates are in material default under any provision of this Agreement. At Buyer's option, Buyer and Seller shall appeal or otherwise seek review of any action of the FCC denying the FCC Applications, the DTV Application and the Relocation Application, by filing an appropriate request for appeal or review with the FCC or a court of competent jurisdiction, as the case may be. Buyer and Seller shall use reasonable commercial efforts to obtain all necessary local zoning and other approvals required to construct and operate the facilities specified in the Relocation Application and the DTV Application. Notwithstanding anything to the contrary contained herein, nothing in this Agreement shall require any party hereto to make any payment to any Person who has filed a Competing Application or any Affiliate of such Person, regardless of whether such payment may enhance the chances of the FCC Consent being obtained. 3.3. FINAL ORDER. The consummation of the transactions contemplated by this Agreement is conditioned upon: (a) the issuance by the FCC (including, for purposes hereof, -9- the FCC staff acting under delegated authority) of an order or other action approving the (i) FCC Applications (the "FCC Consent"), and (ii) the Relocation Application (the "Relocation Consent"), and compliance by the parties hereto with the conditions imposed in said orders (provided that neither Buyer nor Seller shall be required to accept or comply with any condition which would be unreasonably burdensome or which would have a material adverse effect upon WNGS); and (b) the FCC Consent and the Relocation Consent having become a Final Order; PROVIDED, HOWEVER, that condition (b) may be waived, in whole or in part, by written notice from Buyer to Seller at any time after an FCC Consent is obtained from the FCC. 3.4. LOCAL OWNERSHIP RULES. The parties agree that Buyer's acquisition of WNGS complies with Section 73.3555(b)(2) of the FCC's rules, 47 C.F.R. Section 73.3555(b), which becomes effective on November 16, 1999. The parties acknowledge that one or more applications to assign FCC construction permits or licenses for other television stations in the Buffalo Designated Market Area may be filed with the FCC on November 16, 1999 ("Competing Applications"). The parties further acknowle that if the FCC decides to process any of the Competing Applications before the FCC Applications, the FCC may dismiss, deny or return the FCC Applications or otherwise grant priority to a Competing Application (each an "FCC Denial"). Notwithstanding any provision in this Agreement to the contrary, (a) an FCC Denial shall not be deemed to be a default under this Agreement by either party, and (b) either party shall have a right to terminate the Agreement upon the occurrence of an FCC Denial. 4. REPRESENTATIONS AND WARRANTIES RELATING TO WNGS AND SELLER. Seller represents and warrants to Buyer that, as of the date hereof: 4.1. ORGANIZATION AND STANDING. Seller has full power and authority to own, lease and use the Broadcasting Assets and to conduct the business and operations of WNGS as now being conducted and proposed to be conducted under existing agreements and to perform the obligations required to be performed by her hereunder and to consummate the transactions contemplated hereby. None of the Broadcasting Assets are held by, and none of the business or operations of WNGS are or have ever been conducted through, any corporation or Person other than Seller, except as set forth on SCHEDULE 4.1 hereto (which Schedule lists the names of any such corporation or Person). Seller shall acquire title to all of the Broadcasting Assets, including the assets listed on SCHEDULE 4.1 hereto, prior to Closing. -10- 4.2. AUTHORIZATION AND BINDING OBLIGATIONS. This Agreement and the agreements, exhibits and other documents to be executed and delivered by Seller pursuant hereto or in connection herewith have been duly and validly authorized and, upon execution thereof, will be duly executed and delivered by Seller, and constitute valid and binding agreements of Seller enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally and the exercise of judicial discretion in accordance with general equitable principles. 4.3. NO CONTRAVENTION; CONSENTS. 4.3.1. NO CONTRAVENTION. The execution, delivery and performance of this Agreement and the other documents to be executed in connection herewith, the consummation of the transactions contemplated hereby and thereby and the compliance with the provisions hereof and thereof by Seller do not and will not, after the giving of notice, or the lapse of time, or otherwise: (a) result in the breach of any of the terms of, constitute a default under, conflict with, result in, or constitute grounds for, the termination or alteration of, or result in the acceleration of the performance required by the terms of, any agreement, arrangement, license, permit or other instrument to which Seller or WNGS is a party or by which Seller, WNGS or any of their property is bound or affected, or result in the creation of any Encumbrance upon any of the assets of Seller or WNGS, including any of the Broadcasting Assets or the WNGS Licenses; (b) violate, result in the breach of, or conflict with, any laws, regulations, orders, writs, ordinances, injunctions, decrees, rules, or judgments applicable to Seller, WNGS or any of their assets, including the Communications Act. 4.3.2. CONSENT. Except as set forth in SCHEDULE 4.3.2, no consent, waiver, authorization or approval from, or filing of any notice or report with, any Governmental Authority or other Person is necessary in connection with the execution, delivery or performance by Seller of this Agreement or any of the documents or transactions contemplated hereby (with or without the giving of notice, the lapse of time or both). 4.4. YEAR 2000. Seller is using all reasonable efforts to assure that all material computer software used by WNGS in its business as currently conducted and other applicable material technology used by WNGS in its business as currently conducted will be able to operate consistently after December 31, 1999 to accurately process, provide and receive date data (including calculating, comparing and sequencing) from, into and between the Twentieth -11- and Twenty-First Centuries, including the years 1999 and 2000 and make leap-year calculations. Seller believes that it is using all reasonable efforts to assure that the Year 2000 date change will not adversely affect the systems and facilities that support the operation of WNGS and its business as currently conducted, except as could not reasonably be expected to have a Material Adverse Effect on WNGS. 4.5. TITLE TO ASSETS. 4.5.1. REAL PROPERTY. (a) Seller has good and marketable fee simple or leasehold title to all of the real property Used in the operation of WNGS, free and clear of all Encumbrances, except for and subject only to: (i) liens for real estate and other taxes not yet due and payable; and (ii) those matters set forth in SCHEDULE 4.5.1, including the leases listed thereon, none of which is violated by existing structures or their use and none of which materially impairs or pursuant to its terms would materially impair the present operations of WNGS or the present use of such property. (b) SCHEDULE 1-A sets forth and accurately describes: (i) all real estate Used in the operation of WNGS; and (ii) the nature of the right, title or interest Seller has in such real estate. There are no leases, tenancies, licenses or other rights of occupancy or use for any portion of such real property or any assignments or sublets thereunder other than as set forth on SCHEDULE 1-A. 4.5.2. PERSONAL PROPERTY. Seller has good and marketable title to all tangible personal property included in the Broadcasting Assets, in each case free and clear of all Encumbrances, except for and subject only to: (a) liens for taxes not yet due or payable; and (b) the liens set forth in SCHEDULE 4.5.2. 4.5.3. ASSETS SUFFICIENT. Except as set forth on SCHEDULE 4.5.3, the Broadcasting Assets include all assets that are Used in, and/or necessary to conduct the business and operations of WNGS as presently conducted. 4.5.4. CONDEMNATION. There is no pending, or to the best of Seller's knowledge, threatened, condemnation or eminent domain proceeding affecting any portion of the Tower Property. -12- 4.5.5. PERMITS. Seller possesses all licenses, permits, authorizations, approvals, non-residential use permits and all other approvals necessary for the current use and operation of the Tower. 4.5.6. ACCESS. All means of access to the Tower: (a) are permanent and no special access or other permits from the applicable Governmental Authorities are required to operate and maintain such means of access; and (b) are obtained from public streets, sidewalks, alleys or other public space without the need for easements, rights-of-way, or licenses, or across lands or premises not owned by Seller. 4.6. CONDITION OF ASSETS. The Broadcasting Assets and the Tower are in Seller's possession and in good operating condition and repair, ordinary wear and tear excepted and are suitable for the uses and purposes for which they are being used or intended. To the best of Seller's knowledge, the broadcasting transmission tower(s) used by WNGS (the "Tower") is properly anchored and secured, is structurally sound and is in conformance in all respects with generally accepted engineering standards of the television broadcasting industry applicable to transmission towers and all applicable laws (including zoning, land use and FAA marking and lighting requirements). 4.7. LICENSES AND AUTHORIZATIONS. 4.7.1. LICENSES. SCHEDULE 1-D hereto contains a true and complete list of all WNGS Licenses, and all other licenses, permits and authorizations issued under federal (including the Communications Act), state or local law of Seller or WNGS. Seller is the authorized and legal holder of all of the foregoing. 4.7.2. PENDING APPLICATIONS. (a) Seller has pending before the FCC an application for a license to cover the construction permit for WNGS's operations (FCC File No. BLCT-970303KE) (the "License Application"). Seller presently is validly operating WNGS pursuant to program test authority pending FCC action on the License Application. The License Application complies in all material respects with the Communications Act and Seller has no reason to believe, after due inquiry (including but not limited to consultation with FCC counsel and engineering consultants) that the License Application will not be granted by the FCC within sixty (60) days from the date hereof. -13- (b) Seller has pending before the FCC an application for a construction permit to modify the facilities of WNGS filed on April 7, 1998, and amended on May 8, 1998 and February 18, 1999 (FCC File No. BPCT-980407KF) (the "Modification Application"). The Modification Application complies in all material respects with the Communications Act and Seller has no reason to believe, after due inquiry (including but not limited to consultation with FCC counsel and engineering consultants) that the Modification Application, the Relocation Application and the DTV Application will not be granted in the ordinary course by the FCC. 4.7.3. AUTHORIZATIONS. The WNGS Licenses and all other items identified in Section 4.7.1 were (and upon the grant of the License Application, the License issued pursuant thereto shall be) validly issued, are (and upon the grant of the License Application, the License issued pursuant thereto shall be) valid and in full force and effect, and have been (and upon the grant of the License Application, the License issued pursuant thereto shall be) complied with in all material respects. No FCC investigation, notice of investigation, notice of apparent liability, order of forfeiture, violation, notice of apparent violation, order, complaint, action or other proceeding is (and upon the issuance of the License Application, shall be) pending or, to the knowledge of Seller, threatened before the FCC or any other Governmental Authority to revoke, refuse to renew or modify such FCC licenses or other authorizations or which could in any manner threaten or adversely affect the WNGS Licenses or WNGS's operations as presently conducted or which otherwise relate to WNGS. No event has occurred (and upon issuance of the License Application, no event shall have occurred) that permits, or after notice or lapse of time would permit, the revocation or termination of the WNGS Licenses or such other authorizations or the imposition of any restriction thereon of such a nature as may materially limit the business or operations of WNGS as now conducted. Seller has no reason to believe that the WNGS Licenses will not be renewed in the ordinary course. 4.8. CONTRACTS. SCHEDULES 1-C, 1-F AND 4.10 hereto, contain a true and complete list of all contracts, leases, national and local advertising representation agreements, employment agreements, programming contracts and other agreements and commitments of every nature as of the date hereof, written or otherwise, constituting part of the Broadcasting Assets or otherwise relating to WNGS (collectively the "Contracts"). Neither Seller, WNGS, nor, to the best of the knowledge of Seller, any other party to the Contracts, is now, or shall be as -14- of the Closing, in material default under any of the Contracts, and no event, occurrence or condition exists which with the giving of notice, lapse of time, or both, or the happening of any further event or condition, would become a material default thereunder. Neither Seller nor WNGS has released or waived (by action or inaction) any of its material rights under any of the Contracts. All such Contracts are in full force and effect and valid and binding and enforceable against the parties thereto in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally. Neither Seller nor WNGS has assigned any of its rights under any of the Contracts or is in any way restricted from enforcing its rights thereunder. True and complete copies of all Contracts (or accurate descriptions of any verbal Contracts) and all amendments and modifications thereto have been delivered or made available to Buyer. Seller has not amended, or otherwise altered the payment terms of or under, any Contract. 4.9. FRANCHISES, TRADEMARKS AND TRADE NAMES. All franchises, trademarks, patents, tradenames, intellectual property rights and interests, service marks, know-how, call letters, telephone numbers, copyrights in literary property of any kind, jingles and privileges Used in the operations of WNGS are set forth on SCHEDULE 1-E hereto, are owned by Seller or licensed for her use and are valid and in full force and effect. To the knowledge of Seller, the ownership and operation of WNGS and the other assets utilized in connection with its business and operations, as presently owned and operated, do not infringe upon or conflict in any respect with any franchise, patent, trademark, tradename, service mark, brand name, copyright or other intellectual property rights or interests of any other Person and no other Person is infringing upon any such rights of Seller or WNGS. 4.10. ERISA. Except as set forth on SCHEDULE 4.10 hereto, neither Seller nor any entity which is considered one employer with Seller under Section 4001 of ERISA or Section 414 of the Code (an "ERISA Affiliate") contributes or has ever contributed to, maintains or has ever maintained, or has any liability (whether contingent or otherwise) with respect to, any plan, program, policy, payroll practice, contract, agreement or other arrangement providing for compensation, severance, termination pay, performance awards, stock or stock related awards, fringe benefits, change in control, deferred compensation or other employee benefits of any kind, whether formal or informal, funded or unfunded, written or oral and whether or not legally binding, including, without limitation, each "employee benefit plan," within the meaning of -15- Section 3(3) of ERISA and each "multiemployer plan" within the meaning of Sections 3(37) or 4001(a)(3) of ERISA (any such plan or arrangement, an "Employee Plan"), maintained or contributed to on behalf of, or for the benefit of, any current or former employee, consultant, service provider or director of the Seller or any ERISA Affiliate (any such plan or other arrangement, a "WNGS Benefit Plan"). Each WNGS Benefit Plan has been maintained and is in substantial compliance with all applicable law, including ERISA, the Code and the New York Insurance Code. 4.11. LIABILITIES. Except as set forth on SCHEDULE 4.11, there are no Liabilities or any unrealized or anticipated losses or expenses relating to or affecting WNGS or any of the Broadcasting Assets. 4.12. LITIGATION; VIOLATIONS. 4.12.1. LITIGATION. Except for administrative rulemaking or other proceedings of general applicability to the broadcast industry and except as set forth in SCHEDULE 4.12: (a) there is no civil, criminal or administrative action, suit, demand, claim, hearing, litigation, action, arbitration, proceeding or investigation of any nature pending or, to the best of Seller's knowledge, threatened against or relating to Seller or any of her Affiliates relating to or affecting WNGS, WNGS, the Broadcasting Assets or the transactions contemplated hereby or affecting the same; (b) no writ, injunction, judgment, award, order or decree has been rendered or is pending against or, to the best of Seller's knowledge, threatened against affecting Seller or any of its Affiliates relating to or affecting WNGS, WNGS, the Broadcasting Assets or the transactions contemplated hereby; and (c) to the best of Seller's knowledge, there is no basis for any of the foregoing set forth in (a) and (b) above. 4.12.2. VIOLATIONS. Neither Seller nor its Affiliates has violated or is in default under any order, law, rule, regulation, ordinance, policy, judgment, writ or decree of any court or other Governmental Authority in any respect which might materially adversely affect the business, operations, prospects or condition, financial or otherwise, of WNGS, any of the WNGS Licenses, the Broadcasting Assets or the transactions contemplated hereby. 4.13. DTV. WNGS has been assigned Channel 46 by the FCC for the provision of digital television service. Such assignment has not been vacated, reversed, stayed, set aside, annulled or suspended, is not the subject of any pending timely appeal, request for stay, or petition for rehearing, reconsideration or review by any Person or by the FCC on its motion, -16- and the time for filing any appeal, request, petition, or similar document or for the reconsideration or review by the FCC on its own motion has expired. Seller has filed an application with the FCC for a construction permit to implement WNGS's digital television allotment (the "Initial DTV Application"). 4.14. REPORTS. All returns, notices, reports, statements or other filings currently required to be filed by Seller or any of its Affiliates with the FCC, and all material returns, notices, reports, statements or other filings currently required to be filed by Seller or any of its Affiliates (relating to or affecting WNGS) with any other federal, state, or local Governmental Authority, have been filed and complied with and shall continue to be filed and be in compliance on a current basis until the Closing Date. All such reports, returns and statements are (or will be, in the case of future reports) complete and correct. 4.15. NO MISLEADING STATEMENTS. No representation or warranty made by Seller in this Agreement (without reference to any "materiality," qualifying or limiting language set forth therein), and no statement made in any schedule, exhibit, certificate or other document furnished pursuant to this Agreement, contains any untrue statement of a material fact or omits or fails to state any material fact or information necessary to make such representation or warranty or any such statement not materially misleading. 4.16. AFFILIATED AND RECENT TRANSACTIONS. Except as described on SCHEDULE 4.16, neither Seller nor any of its Affiliates is a party to any transaction relating to or affecting WNGS (each an "Affiliated Transaction"). 4.17. TAXES. 4.17.1. FILING OF TAX RETURNS. Seller and her Tax Affiliates have timely filed with the appropriate taxing authorities all federal, state, local and foreign returns (including, without limitation, information returns and other material information) in respect of all Taxes required to be filed through the date hereof. All such income tax returns were complete and accurate in all material respects. Except as specified in SCHEDULE 4.17, no returns are subject to an automatic extension and, in addition, neither Seller nor any of her Tax Affiliates have requested any extension of time within which to file returns (including, without limitation, information returns) in respect of any Taxes. 4.17.2. PAYMENT OF TAXES. Seller and her Tax Affiliates have accurately computed and timely paid all Taxes of any kind that have become due and payable. -17- 4.17.3. AUDITS. Except as set forth in SCHEDULE 4.17, no material deficiencies for Taxes have been claimed, proposed, or assessed by any taxing or other Governmental Authority against Seller or any of her Tax Affiliates. Except as set forth in SCHEDULE 4.17, there are no pending or, to the best knowledge of Seller, threatened audits, investigations or claims for or relating to any material Liability in respect of Taxes, and there are no matters under discussion with any Governmental Authorities with respect to Taxes that, in the reasonable judgment of Seller or her counsel, are likely to result in a material additional amount of Taxes. Audits of federal, state, and local returns for Seller and her Tax Affiliates for Taxes by the relevant taxing authorities have been completed for each period set forth in SCHEDULE 4.17 and, except as set forth in such schedule, Seller and her Tax Affiliates have not been notified that any taxing authority intends to audit a return for any other period. Except as set forth in SCHEDULE 4.17, no extension of a statute of limitations relating to Taxes is in effect with respect to Seller and her Tax Affiliates. No claim has ever been made by an authority in a jurisdiction where Seller and her Tax Affiliates do not file Tax Returns that any of them is or may be subject to taxation by that jurisdiction. 4.17.4. SOLE PROPRIETORSHIP. Except as set forth on SCHEDULE 4.1 hereto, Seller, at all times, has owned and operated WNGS and the Broadcasting Assets as a sole proprietorship and has been treated as such for federal income tax purposes. 4.18. ENVIRONMENTAL MATTERS. 4.18.1. USTS. Except as described on SCHEDULE 4.18, no underground storage tanks ("USTs"), as defined in RCRA, 42 U.S.C. Section 6991(1), or applicable state law, exist or, to the best of Seller's knowledge, has ever existed on, under, in or about any of the Relevant Property. 4.18.2. STUDIES; INVESTIGATIONS. SCHEDULE 4.18 sets forth all environmental investigations, studies, audits, tests, reviews or other analyses conducted by, or which are in the possession of, Seller, or of which Seller is aware, in relation to any Relevant Property, all of which have been delivered to Buyer prior to the execution of this Agreement. 4.18.3. RELEVANT PROPERTY. For purposes of this Agreement, Relevant Property shall mean all real property and equipment owned, leased, occupied, controlled or used by WNGS and all real property and equipment formerly owned, occupied or used by WNGS or used by WNGS. -18- 4.19. LABOR. 4.19.1. LABOR PROBLEMS. Except as set forth on SCHEDULE 4.19, there are no and, during the three year period immediately preceding the date hereof, there have been no, strikes, work stoppages, grievance proceedings, labor grievances, labor controversies or union organization efforts or, to the knowledge of Seller, have any been threatened between WNGS, Seller or any of her Affiliates (with respect to WNGS) and any of their employees or agents or any union or collective bargaining unit. Except as set forth on SCHEDULE 4.19.2, neither Seller nor WNGS is a party to any written or oral agreement, consent decree or court order, and there is no employment manual, employment handbook or employment practice or policy governing the employment of any of the employees of Seller or WNGS under which such employment is not terminable on 30 days' (or less) notice by Seller without penalty or Liability to WNGS, Seller or Buyer. 4.19.2. EMPLOYEES AND COMPENSATION. SCHEDULE 4.19 contains a true, correct and complete list of all employees of WNGS and Seller, including those currently engaged (or at any time during the sixty (60) days prior to the date hereof engaged) in the business and operations of WNGS (the "WNGS Employees"), which employees are separately identified on such Schedule, and a description of all compensation arrangements affecting all of the scheduled employees. 4.20. CABLE CARRIAGE. SCHEDULE 4.20 sets forth: (a) a list of all U.S. cable television systems which carry WNGS's signal (including the channel position), other than those which have fewer than 300 subscribers; (b) a list of all Market Cable Systems to which WNGS has provided a must-carry notice or retransmission consent notice in accordance with the provisions of the Cable Television Consumer Protection and Competition Act of 1992, as amended, and the applicable FCC regulations (collectively, the "Cable Act Requirements") for the three-year period ending 2002, and a list of all Market Cable Systems to which WNGS has not provided any such must-carry or retransmission consent notice; (c) a list of all retransmission consent and/or copyright indemnification agreements entered into by Seller with respect to WNGS for the three-year period ending 2002; -19- (d) a list, to Seller's knowledge, of all Market Cable Systems to which WNGS has provided a must-carry notice, for the three-year period ending 2002, which have given notice to Seller or WNGS of such Market Cable System's intention not to carry WNGS or to delete WNGS from carriage or to change WNGS's channel position on such cable system, other than pursuant to any agreement described in clause (c) above; (e) a list, to Seller's knowledge, of all notices received during the three-year periods ending 1999 and 2002, respectively, from any Market Cable System alleging that WNGS does not deliver an adequate signal level, as defined in 47 C.F.R. Section 76.55(c)(3), to such Market Cable System's principal headend (other than any such notice as to which such failure has been remedied or been determined not to exist), and a list of all further correspondence with or from any such Market Cable System relating to such notice; (f) a list, to Seller's knowledge, of all pending petitions for special relief filed by Seller with the FCC to include any additional community or area as part of WNGS's television market, as defined in 47 C.F.R. Section 76.55(e); and (g) a list of all pending petitions for special relief filed by, or served upon, Seller with the FCC requesting the deletion of any community or area from WNGS's television market. Seller has delivered to Buyer true and correct copies of all material notices, agreements, correspondence, petitions and other items described in clauses (c) - (g) of this Section 4.20 that are in Seller's possession. 4.21. INSURANCE. SCHEDULE 4.21 is a true and complete list as of the date of this Agreement of all insurance policies that insure any part of the Broadcasting Assets or the business or operation of WNGS. All policies of insurance listed in SCHEDULE 4.21 are in full force and effect and no notice of cancellation has been received with respect to any such policy. 5. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and warrants to Seller that: 5.1. ORGANIZATION AND STANDING. Buyer: (a) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) has full corporate power and authority to own its properties and to transact the business in which it is currently engaged and to perform the obligations required to be performed by it hereunder and to consummate the transactions contemplated hereby; and (c) is duly qualified to do business and in -20- good standing as a foreign corporation in every jurisdiction in which the nature of the business to be conducted by it requires such qualification, except where the failure to so qualify would not materially adversely affect the transactions contemplated hereby. 5.2. AUTHORIZATION AND BINDING OBLIGATIONS. The execution, delivery and performance of this Agreement and the agreements, exhibits and other documents to be executed and delivered by Buyer pursuant hereto have been duly and validly authorized and, upon execution thereof, will be duly executed and delivered by Buyer and constitute valid and binding agreements of Buyer enforceable in accordance with their terms except as such enforceability may be limited by bankruptcy, insolvency, moratorium or other laws relating to or affecting creditors' rights generally and the exercise of judicial discretion in accordance with general equitable principles. 5.3. NO CONTRAVENTION. The execution, delivery and performance of this Agreement and the other documents to be executed in connection herewith, the consummation of the transactions contemplated hereby and thereby in accordance with the terms and conditions hereof and thereof and the compliance with the provisions hereof and thereof by Buyer do not and will not, after the giving of notice, or the lapse of time, or otherwise: (a) conflict with or violate any provisions of the Certificate of Incorporation or Bylaws of Buyer; (b) result in the breach of, conflict with, or constitute a default under, the provisions of any agreement or other instrument to which Buyer is a party or by which the property of Buyer is bound or affected; or (c) violate or conflict with any laws, regulations, orders, writs, decrees, injunctions or judgments applicable to Buyer, including the Communications Act. 5.4. LITIGATION. As of the date hereof, except for administrative rulemaking or other proceedings of general applicability to the broadcast industry or as set forth on SCHEDULE 5.4, there is no civil, criminal or administrative action, suit, demand, claim, litigation, action, proceeding or investigation of any nature pending or, to the best of Buyer's knowledge, threatened against or affecting Buyer that would adversely affect its or, if Buyer assigns its rights hereunder to a permitted assignee, its permitted assignee's ability to consummate the transactions contemplated in this Agreement. 5.5. NO MISLEADING STATEMENTS. No representation or warranty made by Buyer in this Agreement (without reference to any "materiality," qualifying or limiting language set forth therein), and no statement made in any schedule, exhibit, certificate or other document -21- furnished pursuant to this Agreement, contains any untrue statement of a material fact or omits or fails to state any material fact or information necessary to make such representation or warranty or any such statement not materially misleading. 6. CONDUCT PENDING CLOSING. 6.1. SELLER'S COVENANTS. Seller covenants and agrees that pending the Closing, except with the prior written consent of Buyer: 6.1.1. CONDUCT OF BUSINESS. Subject to the provisions of this Agreement, Seller shall conduct its business and operations in the normal and ordinary course of business in substantially the same manner as heretofore conducted and shall use all reasonable efforts consistent with normal business practices to preserve and promote such business and to avoid any act which might have a Material Adverse Effect. 6.1.2. ASSETS. Consistent with normal business practices, Seller shall maintain the Broadcasting Assets in the condition specified in Section 4.6 hereof. 6.1.3. EMPLOYEE COMPENSATION AND BENEFITS. Seller shall not increase the compensation, expense allowance or other benefits payable or to become payable to any of the WNGS Employees or pay or arrange to pay any bonus payment to any such employee; PROVIDED, HOWEVER, that, Seller shall be permitted to grant bonuses and increases in compensation in the normal and ordinary course of business consistent with past practices if, in the case of a bonus, such bonus is paid in full prior to Closing and Buyer shall not have any obligation with respect thereto after Closing. 6.1.4. ORGANIZATION, ETC. Consistent with normal business practices, Seller shall use commercially reasonable efforts to: (a) maintain the present quality of the operations of WNGS; (b) preserve the value of WNGS as a going concern; (c) keep available to WNGS the services of all current WNGS Employees and make available for employment by Buyer all current WNGS Employees; and (d) preserve for WNGS the existing relationships with employees, suppliers, customers, advertisers and their agencies and others having business with WNGS, including notifying advertisers of the pending sale of the Broadcasting Assets and providing Buyer with access to WNGS's advertisers to aid in the transition of ownership of WNGS. 6.1.5. INSURANCE. Seller shall cause to be maintained in effect until the Closing adequate property damage, Liability and other insurance with respect to its assets, -22- including the Broadcasting Assets and WNGS, the list of the policies governing which are set forth on SCHEDULE 4.21. 6.1.6. TRANSFER OF BROADCASTING ASSETS. Seller shall not sell, assign, lease or otherwise transfer or dispose of any of the Broadcasting Assets, except where such disposition is in the ordinary course of business and the assets involved are either: (a) no longer used or useful; or (b) replaced with a substantially equivalent asset of substantially equivalent kind, condition and value. 6.1.7. [RESERVED] 6.1.8. LITIGATION. Seller shall notify Buyer: (a) of any litigation pending or, to its knowledge, threatened against or affecting WNGS or Seller or which challenges or seeks any damages or other payments in connection with the transactions contemplated hereby; and (b) of any material damage to or destruction of the Broadcasting Assets. 6.1.9. AGREEMENTS. Seller and WNGS shall perform all obligations (including, without limitation, all payment obligations) required to be performed by them under all Contracts, and shall not amend or terminate any Contract or series of related Contracts or other obligations (or waive any material right thereunder) or enter into any new agreements or arrangements or series of related Contracts involving payments of or other obligations over $5,000 which might be binding on or affect WNGS or Buyer after Closing. Except as required by law, Seller shall not enter into any collective bargaining agreement, network affiliation agreement, employment agreement (other than an employment agreement terminable at will), agreement restricting the operation of WNGS or Benefit Plan or any amendment, extension or other modification of any existing employment agreement or network affiliation agreement. 6.1.10. CONSENTS AND APPROVALS. Seller will, prior to the Closing Date, use its best efforts to obtain or cause to be obtained: (a) consents under the Contracts (without any change in the terms and conditions of any such Contracts that could have an adverse affect on Buyer or the operations of WNGS) which require the consent of any Person by reason of the transactions provided for or contemplated in this Agreement; and (b) any other consents, approvals, waivers, authorizations (without any conditions attached that could have an adverse affect on Buyer, or the operations of WNGS) and make all necessary filings identified on -23- SCHEDULE 4.3.2 hereof. Each party shall cooperate with the other to obtain any such consents or approvals. 6.1.11. LICENSES. Except as provided in Section 6.3 hereof, Seller shall not, by any act or omission to act within its reasonable knowledge and power, surrender, modify, adversely affect or forfeit any of the WNGS Licenses or cause the FCC to institute any proceedings for the cancellation, non-renewal or modification of any of the WNGS Licenses. 6.1.12. OFFERS TO PURCHASE. Neither Seller, nor any of its officers, directors, employees, agents, representatives or Affiliates shall, either directly or indirectly, entertain or conduct discussions or negotiations with any Person with respect to any offer or proposal for the, direct or indirect, purchase or sale of any portion of the assets or interests of Seller or WNGS, or with respect to any financing, merger, acquisition, combination, consolidation or similar transaction involving Seller, WNGS or any significant assets or business of WNGS, or enter into any agreement or transaction relating to any of the foregoing. 6.1.13. NO BREACH OF REPRESENTATIONS AND WARRANTIES. Seller shall not take any action or pursue any other course of conduct, or fail to take any action, that would cause any of the representations and warranties made by Seller in this Agreement (or any document delivered in connection herewith) to be materially untrue, incorrect or inaccurate. 6.1.14. EMPLOYEE NOTIFICATION REQUIREMENTS. (a) NOTICE. Seller shall provide timely notice to her employees pursuant to the Worker Adjustment and Retraining Notification Act, 29 U.S.C.ss.ss.2102-09, if applicable. (b) AUTHORITY. Seller shall immediately notify the Buyer of any activity by any labor organization at WNGS or any activity by any labor organization directed at organizing the employees or any group of employees of WNGS. 6.1.15. COMPLIANCE WITH LAWS. Seller shall comply with all laws, rules and regulations applicable or relating to Seller, WNGS and the business, operations and assets of Seller, including the Broadcasting Assets. 6.1.16. [RESERVED]. 6.1.17. NO VIOLATIONS. Seller shall take all reasonable actions to prevent, and Seller shall not take any action that would cause, a breach of this Agreement. -24- 6.1.18. ACCESS AND INFORMATION. Seller shall give Buyer and its counsel, accountants, engineers, investment bankers, potential lenders and other authorized representatives reasonable access upon reasonable advance notice during normal business hours throughout the period prior to the Closing Date, to all of WNGS's and Seller's books, records (including all employee files), agreements, reports, and other documents and all of the Broadcasting Assets and shall furnish Buyer, its counsel, accountants, engineers, investment bankers, potential lenders and other authorized representatives during such period with all information concerning the affairs of Seller and WNGS as they may reasonably request in order to enable Buyer to make such examinations and investigations thereof as it shall deem necessary, and Seller will make employees, attorneys, agents and accountants available to discuss with Buyer and its representatives such aspects of the business and operations of WNGS and Seller as Buyer may require (it being understood that the foregoing shall include such access as Buyer may reasonably require to the management of WNGS to enable Buyer to obtain information about the WNGS Employees that Buyer may elect to retain in connection with the transactions contemplated hereby). 6.1.19. DELIVERY OF SUPPLEMENT. Seller shall deliver to Buyer a supplement to the Schedules to this Agreement promptly after she becomes aware of any event that changes any representation or warranty made by Seller in this Agreement or any statement made in any of Seller's Schedules or in any supplement; PROVIDED, HOWEVER, nothing contained in any supplement shall be deemed to modify, amend or supplement said representations or warranties for purposes of Section 4 of this Agreement unless Buyer shall have consented specifically thereto in writing. 6.1.20. FILM CONTRACTS. Subject to the provision of Section 2.2.2(c), Seller shall, at or prior to Closing, satisfy in full any and all payment and other obligations under: (a) all film and other programming Contracts that have become or are due and payable at or prior to the Closing Date without regard to any extension of time for payment therefrom; and (b) any Contract that is not included in the Broadcasting Assets. 6.1.21. SATISFACTION OF FUNDED DEBT AND PRE-CLOSING LIABILITIES; REMOVAL OF ENCUMBRANCES. (a) Except as set forth on SCHEDULE 6.1.21 hereto, Seller shall, prior to Closing, pay off or otherwise satisfy, fully and completely, any and all of the -25- Liabilities and other obligations arising out of events occurring on or prior to the Closing relating to or affecting WNGS or the Broadcasting Assets, other than Assumed Obligations; (b) Seller shall, prior to Closing, have removed any and all Encumbrances of any kind and nature from the Broadcasting Assets and the WNGS Licenses other than Permitted Encumbrances; and (c) Seller shall, prior to Closing, have terminated any Affiliated Transaction without any further cost or Liability to Buyer. 6.2. BUYER'S COVENANTS. Buyer covenants and agrees that prior to Closing: 6.2.1. ORGANIZATION, ETC. Consistent with normal business practices, Buyer shall use its reasonable best efforts to prevent any change in its business organization or financial capacity that would materially impair its ability to consummate the transactions contemplated hereby. 6.2.2. LITIGATION. Buyer shall notify Seller: (a) of any litigation pending or, to its knowledge, threatened against or affecting Buyer or which challenges or seeks any damages or other payments in connection with the transactions contemplated hereby; and (b) any change that would adversely affect its ability to own the WNGS Licenses. 6.2.3. NO BREACH OF REPRESENTATIONS AND WARRANTIES. Buyer shall not take any action or pursue any other course of conduct, or fail to take any action, that would cause any of the representations and warranties made by the Buyer in this Agreement to be materially untrue, incorrect or inaccurate. 6.2.4. NO VIOLATIONS. Buyer shall take all reasonable actions to prevent, and Buyer shall not take any action that would cause, a breach of this Agreement. 6.3. [RESERVED]. 6.4. DUE DILIGENCE. Buyer may terminate this Agreement at any time prior to January 5, 2000 if Buyer is not satisfied with its due diligence review of the business, operations and affairs of WNGS. Notwithstanding and without limiting the foregoing, Buyer may terminate this Agreement at any time prior to January 15, 2000, if Buyer is not satisfied that it will obtain necessary authorizations for, or be able to commence in a timely manner, digital operations of WNGS on channel 46 at a transmitter site and with transmitter power output, transmitting antenna height and other technical parameters satisfactory to Buyer. -26- 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE PARTIES. 7.1. CONDITIONS PRECEDENT TO THE OBLIGATION OF BUYER. The obligations of the Buyer under this Agreement are subject, at the Buyer's option, to the satisfaction on or prior to the Closing Date of each of the following express conditions precedent: 7.1.1. FCC. The conditions specified in Section 3.3 hereof shall have been met and the FCC shall have granted the License Application (in form reasonably satisfactory to Buyer), which grant shall not have been vacated, reversed, stayed, enjoined, set aside, annulled or suspended, shall not be subject to any pending timely appeal, request for stay, request or petition for rehearing, reconsideration or review by any Person or by the FCC on its motion and the time for filing any appeal, request, petition, or similar document or for the reconsideration or review by the FCC on its own motion shall have expired. 7.1.2. ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of Seller contained in this Agreement (and in any document delivered in connection herewith) shall be true and correct in all respects when made and at and as of the Closing Date as though made at and as of that time (without regard to any "materiality," "knowledge," or "awareness" limiting or qualifying language stated therein), except to the extent the failure to be true and correct, in the aggregate, would not or could not reasonably be expected to have a Material Adverse Effect, and Buyer shall have received a certificate, executed by Seller, repeating, as of the Closing Date, all such representations and warranties. 7.1.3. COMPLIANCE WITH AGREEMENT. Seller shall have performed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed or complied with by her prior to or on the Closing Date. 7.1.4. NO OBSTRUCTIVE PROCEEDING. (a) NO LITIGATION. No action, suit, investigation, or proceeding shall have been instituted or be pending against or affecting any of the parties to this Agreement or any of their Affiliates before any court or any other Governmental Authority to restrain or prohibit, or to obtain substantial damages in respect of, this Agreement or the consummation of the transactions contemplated hereby, which may reasonably be expected to result in a preliminary or permanent injunction against consummating the transactions contemplated hereby or, if the transactions contemplated hereby were consummated, an order to nullify or render ineffective this Agreement or such transactions, or the recovery against Buyer -27- of substantial damages or otherwise have a material adverse effect on Buyer, the business or operations of WNGS or the Broadcasting Assets; (b) NO GOVERNMENTAL INTERVENTION. None of the parties to this Agreement or their Affiliates shall have received written notice from any Governmental Authority of: (i) its intention to institute any action or proceeding to restrain or enjoin or nullify or render ineffective this Agreement or the transactions contemplated hereby if consummated, or commence any investigation into the consummation of this Agreement or the transactions contemplated hereby; or (ii the actual commencement of such an investigation; (c) NO ORDER. No order, decree or judgment of any Governmental Authority shall be subsisting against any of the parties which would render it unlawful or materially restrain or limit Buyer's ability, as of the Closing Date, to effect the transactions contemplated hereunder in accordance with the terms hereof or to operate WNGS as presently being conducted. 7.1.5. NO CHANGES. (a) At the Closing, WNGS's network affiliation agreement with UPN shall be in full force and effect, with no amendments thereto between the date hereof and the Closing. (b) From the date hereof until the Closing, there shall have been no adverse change in WNGS's relationship with UPN or any cable system on which WNGS is broadcast on the date hereof; and (c) From the date hereof until the Closing, neither UPN nor any cable system on which WNGS is broadcast on the date hereof shall have sent any notice of cancellation of, or intention to modify, its relationship with Seller or WNGS. 7.1.6. CONSENTS. Seller shall have (a) obtained and delivered to Buyer all consents, approvals, and permits necessary for the consummation of transactions contemplated hereby, with no adverse condition attached (including any adverse change in the terms and conditions of any Contract included in the Assumed Obligations) and no material expense imposed upon Buyer and (b) made all necessary filings identified on SCHEDULE 4.3.2 hereto. All necessary local zoning and other approvals required to construct and operate the facilities specified in the Relocation Application shall have been obtained and such approvals shall not have been vacated, reversed, stayed, set aside, annulled or suspended, shall not be -28- subject to any pending timely appeal, request for stay, or petition for rehearing, reconsideration or review by any Person or by the local zoning or other authority on its own motion, and the time for filing any appeal, request, petition or similar document or for the reconsideration or review by the local zoning or other authority on its own motion shall have expired. 7.1.7. OFFICERS' CERTIFICATES. Seller shall have delivered to Buyer a certificate, dated the Closing Date to the effect that the conditions set forth in Sections 7.1.2, 7.1.3, 7.1.4, 7.1.5, 7.1.6 and 7.1.11 have been satisfied. 7.1.8. OPINION OF COUNSEL. Buyer shall have received the written opinion of McQuaid, Metzler, Bedford and Van Zandt, L.L.P., counsel for Seller, dated the Closing Date, substantially in the form attached to this Agreement as EXHIBIT D. 7.1.9. CERTIFICATIONS. Seller shall have delivered to Buyer a schedule and certification showing in all material respects: (a) the fees payable after the Closing Date under all WNGS program license agreements; (b) all Contracts or amendments, renewals or other modifications thereof that have been entered into by Seller after the date of this Agreement with respect to WNGS. 7.1.10. HSRA WAITING PERIOD. The applicable waiting period(s) under HSRA with respect to the transactions contemplated by this Agreement shall have expired. 7.1.11. COPIES OF DOCUMENTS. Seller shall have delivered to Buyer copies of all documents required to be delivered pursuant to the Agreement, including but not limited to, all Contracts listed in the schedule delivered pursuant to Section 7.1.9(b) hereof. 7.1.12. ANALOG AUTHORIZATION. The FCC shall have issued a construction permit to modify WNGS's Modification Authorization to authorize WNGS's operation at a transmitter site in Colden, New York selected by Seller with transmitter power output, transmitting antenna height, transmitting antenna beam tilt and other technical parameters equivalent to or greater than those specified in the Modification Application ("Relocation Authorization"). Such Relocation Authorization shall enable WNGS to provide a Grade A signal contour, Grade B signal contour, and City Grade signal contour equal to or greater than that proposed in the Modification Application. 7.1.13. PROCEEDINGS. All proceedings to be taken in connection with the consummation of the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to Buyer and its counsel, -29- and Buyer and its counsel shall have received copies of such documents as Buyer or its counsel, as the case may be, may reasonably request in connection with said transactions. 7.1.14. DELIVERY OF INSTRUMENTS OF CONVEYANCE AND TRANSFER. Buyer shall have received the instruments and other documents (in form and substance reasonably satisfactory to its counsel) required to be delivered to it pursuant to Section 8 hereof. 7.1.15. TOWER SPACE LEASE. If WNGS is not broadcasting on a tower in Colden, New York at the time of Closing, the Tower Space Lease shall be in effect. 7.2. CONDITIONS TO OBLIGATIONS OF SELLER. The obligations of Seller at Closing are subject, at Seller's option, to the fulfillment prior to or at the Closing Date of each of the following conditions: 7.2.1. FCC CONSENT. The FCC Consent shall have been obtained. 7.2.2. ACCURACY OF REPRESENTATIONS AND WARRANTIES. All representations and warranties of Buyer or its permitted assignee contained in this Agreement (and any document delivered in connection herewith) shall be true and correct in all respects at and as of the Closing Date as though made at and as of that time (without regard to any "materiality," "knowledge," or "awareness" limiting or qualifying language stated therein), except where the failure to be true and correct, in the aggregate, would not have a material adverse effect on the ability of Seller to consummate the transactions contemplated hereby, and Seller shall have received a certificate, executed on behalf of Buyer or its permitted assignee by an officer thereof, to that effect. 7.2.3. COMPLIANCE WITH AGREEMENT. Buyer or its permitted assignee shall have performed and complied in all material respects with all covenants, agreements and conditions required by this Agreement to be performed or complied with by it prior to or on the Closing Date. 7.2.4. NO OBSTRUCTIVE PROCEEDING. (a) NO LITIGATION. No action, suit, investigation, or proceeding shall be pending against any of the parties to this Agreement or any of their Affiliates before any court or any other Governmental Authority to restrain or prohibit, or to obtain substantial damages in respect of, this Agreement or the consummation of the transactions contemplated hereby, which may reasonably be expected to result in a preliminary or permanent injunction against consummating the transactions contemplated hereby or, if the transactions -30- contemplated hereby were consummated, an order to nullify or render ineffective this Agreement or such transactions, or the recovery against Seller of substantial damages or otherwise have a material adverse effect on Seller. (b) NO GOVERNMENTAL INTERVENTION. None of the parties to this Agreement or their Affiliates shall have received written notice from any Governmental Authority of: (i) its intention to institute any action or proceeding to restrain or enjoin or nullify or render ineffective this Agreement or the transactions contemplated hereby if consummated, or commence any investigation into the consummation of this Agreement and the transactions contemplated hereby; or (ii) the actual commencement of such an investigation. (c) NO ORDER. No order, decree or judgment of any Governmental Authority shall be subsisting against any of the parties which would render it unlawful or materially restrain or limit Seller's ability, as of the Closing Date, to effect the transactions contemplated hereunder in accordance with the terms hereof. 7.2.5. PROCEEDINGS. All proceedings to be taken in connection with the consummation of the transactions contemplated by this Agreement, and all documents incident thereto, shall be reasonably satisfactory in form and substance to Seller and her counsel, and Seller and her counsel shall have received copies of such documents as Seller or her counsel, as the case may be, may reasonably request in connection with said transactions. 7.2.6. OPINION OF COUNSEL. Agent shall have received the written opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for Buyer, dated the Closing Date, substantially in the form attached hereto as EXHIBIT E. 7.2.7. HSRA WAITING PERIOD. The applicable waiting period(s) under HSRA with respect to the transactions contemplated by this Agreement shall have expired. 7.2.8. OFFICER'S CERTIFICATE. Buyer shall have delivered to Seller a certificate signed by its Chairman, President or Vice President and its Secretary or Assistant Secretary dated the Closing Date, to the effect that the conditions set forth in Sections 7.2.2, 7.2.3 and 7.2.4 have been satisfied. 8. INSTRUMENTS OF CONVEYANCE AND TRANSFER. Subject to Section 2.4.3 hereof, at the Closing, to effect the transfers, conveyances and assignments from Seller to Buyer, Seller shall deliver to Buyer bills of sale, certificates, assignments and other instruments of transfer assigning, transferring and conveying to Buyer all of Seller's right, title and interest in, to and -31- under all of the property included in the Broadcasting Assets, free and clear of all Encumbrances of any kind other than Permitted Encumbrances, all in form and substance reasonably satisfactory to counsel for Buyer, and dated the Closing Date, including: (a) ASSIGNMENT OF LEASES. Assignments of all of Seller's right, title and interest in, to and under the leases and leasehold interests in property included in the Broadcasting Assets, including all rights of Seller under the lease agreements referred to in SCHEDULE 1-C hereto; (b) BILL OF SALE. A bill of sale for all tangible personal property included in the Broadcasting Assets; (c) ASSIGNMENTS OF LICENSES. Assignments of the WNGS Licenses; and (d) ASSIGNMENTS OF CONTRACTS. Assignments of all of Seller's right, title and interest in, to and under all contracts and other intangible assets included in the Broadcasting Assets. 9. [RESERVED]. 10. EMPLOYEES. 10.1. [RESERVED]. 10.2. CONTINUED EMPLOYMENT; PRORATIONS. 10.2.1. RIGHT TO CONTINUE EMPLOYMENT. On the Closing Date, Buyer shall have the right but not the obligation to offer employment to any WNGS Employee ("Buyer's Employees"), with such compensation, benefits and other terms of employment as Buyer shall determine; PROVIDED, THAT, nothing herein shall require Buyer to continue the employment of any such person for any period of time. 10.2.2. COOPERATION. To the extent permitted by law, Seller shall cooperate with Buyer's attempts to obtain information relating to the WNGS Employees, including making available to Buyer the employees personnel files and performance evaluations. Seller will make all reasonable efforts to assist Buyer in making a smooth transition after Closing. 10.2.3. ACCRUED COMPENSATION. All personal days, vacation and bonuses of the WNGS Employees that are accrued but unpaid at the Closing Date shall be paid by Seller. -32- 10.3. NO LIABILITY FOR EMPLOYEE PLANS. Seller shall be solely liable and responsible for providing continuation coverage under Code Section 4980B and Part 6 of Title I of ERISA or under the New York Insurance Code with respect to any qualifying event that occurs on or prior to the Closing Date, including any continuation coverage requirements that arise as a result of the failure of Buyer to continue employment or to maintain a Group Health Plan as defined in section 4980B(g) of the Code or a group policy under the New York Insurance Code. Any expenses and benefits with respect to medical claims incurred by any current or former employees of Seller or their covered dependents on or before the Closing Date shall be the responsibility of Seller. 11. RISK OF LOSS; CASUALTY OR CONDEMNATION. 11.1. RISK OF LOSS. The risk of any loss, damage or impairment, confiscation or condemnation of the Broadcasting Assets or any part thereof from fire or any other casualty or cause shall be borne by Seller at all times prior to the Closing. 11.2. CASUALTY. (a) If the Broadcasting Assets are damaged or destroyed by fire or other casualty or cause between the date hereof and the Closing Date and the repair cost, individually or in the aggregate (the "Repair Cost"), will exceed $200,000, Buyer shall have the option either: (i) to accept the Broadcasting Assets in their damaged or destroyed condition with (x) Seller and her Affiliates assigning or delivering to Buyer all of their rights to any insurance proceeds for such damage or destruction and (y) the Purchase Price being reduced by the difference between the amount, if any, that the Repair Cost exceeds such insurance proceeds received by Buyer (the "Insurance Deficiency") up to an amount not to exceed $1,000,000; or (ii) unless Seller agrees to pay the full amount of such repair cost and such repairs can be so substantially completed prior to the Closing Date that broadcast activities can be conducted unabated from and after the Closing, to cancel this Agreement by giving written notice to Seller not later than fifteen (15) days after the Repair Cost is determined. Seller shall promptly notify Buyer in writing of any fire or other casualty occurring with respect to the Broadcasting Assets. Seller shall provide Buyer and its agents and contractors with access to any damaged Broadcasting Assets following any fire or other casualty so that Buyer can obtain an estimate of the Repair Cost within thirty (30) days after Seller notifies Buyer of the fire or other casualty. -33- (b) If any of the Broadcasting Assets are damaged or destroyed by fire or other casualty or cause between the date hereof and the Closing Date and the Repair Cost is equal to or less than $200,000, the Buyer shall accept the Broadcasting Assets in their damaged or destroyed condition with Seller and her Affiliates assigning or delivering to Buyer all of their rights to any insurance proceeds for such damage or destruction and the Purchase Price being reduced by the amount of the Insurance Deficiency, if any. 11.3. REPAIR PARAMETERS. If any of the Broadcasting Assets are damaged or destroyed by fire or other casualty or cause between the date hereof and the Closing Date and Buyer elects to have Seller repair such damage, all repairs shall be: (a) completed at least fifteen (15) days prior to the Closing Date; (b) completed in a good and workmanlike manner, using materials, labors and finishes resulting in the completed repairs being of the same or better quality than immediately prior to the damage; and (c) subject to the reasonable approval of Buyer's engineers or contractors. 11.4. FAILURE OF BROADCAST TRANSMISSION. Notwithstanding any provision of this Agreement to the contrary and except in connection with relocation of WNGS's broadcasting transmission tower at Buyer's request, in the event WNGS's signal ceases to be carried by any U.S. cable television system which carries WNGS's signal on the date hereof as a result of a reduction in the power of WNGS's broadcast transmission: (a) for a period of five consecutive days, Buyer shall have the right, by written notice to Seller, to terminate this Agreement without further obligation to Seller hereunder; or (b) on the scheduled Closing Date, the Closing shall not take place on the scheduled Closing Date and the Buyer shall have the right to terminate this Agreement, if such failure is not cured within two (2) days. 12. BOOKS AND RECORDS. Buyer shall be entitled to all records, including but not limited to, books of account, technical information and engineering data, programming information, employment records, customer lists and files, advertising records, FCC logs, asset history files and other files relating to WNGS operations on or prior to the Closing Date as shall be reasonably necessary to the maintenance of the business affairs of WNGS after the Closing Date; PROVIDED, HOWEVER, that for a period of six (6) years, Buyer shall retain and make available for inspection by Seller for any reasonable purpose all such records, books of account, files, documents and correspondence, and Buyer shall not dispose of, alter or destroy any such materials without giving sixty (60) days' prior written notice to Seller and Seller may, at its -34- expense, examine, make copies of, or take possession of such materials. Within five (5) days after the Closing, Seller shall deliver to Buyer in accordance with Buyer's instructions all documents relating to WNGS that are in the possession of Seller or any of her representatives, agents or Affiliates. For a period of six (6) years after the Closing Date Seller and her Affiliates shall give Buyer and its counsel and accountants reasonable access, during normal business hours and in accordance with mutually satisfactory prior arrangements, to such other records, books of account, files, documents and correspondence relating to WNGS prior to the Closing Date which Buyer may reasonably deem necessary to comply with applicable federal or state securities laws in connection with any financing the Buyer may be effecting. 13. POSSESSION AND CONTROL OF WNGS. Notwithstanding any other provision of this Agreement, between the date of this Agreement and the Closing Date, Seller shall retain ultimate control over the management and operations of WNGS. Neither title to the Broadcasting Assets, nor right to possession at WNGS shall, directly or indirectly, pass to Buyer until the Closing Date. 14. BROKERS. Seller represents and warrants to Buyer that neither Seller nor any of her Affiliates has engaged any broker, finder or consultant in connection with this Agreement or the transactions contemplated herein or any aspect hereof, other than The Exline Company, the brokerage commission of which shall be paid by Seller at Closing. Buyer represents and warrants to Seller that it has not engaged any broker, finder or consultant in connection with this Agreement. Subject to the previous sentence, each party agrees to indemnify and hold the other parties harmless from any and all loss, cost, Liability, damage and expense (including legal and other expenses incident thereto) in respect of any claim for a broker, finder or consultant's fee or commission or similar payment by virtue of any alleged agreements, arrangements or understandings with the indemnifying party or any of its Affiliates. Buyer is not aware that any of Buyer's officers were contacted by Blackburn & Company, Inc. in connection with the transactions contemplated by this Agreement. 15. SURVIVAL; INDEMNIFICATION. 15.1. SURVIVAL. The several representations and warranties of the parties contained in this Agreement (or in any document delivered in connection herewith) shall be deemed to have been made on the date of this Agreement and on the Closing Date, shall survive the Closing Date and shall remain operative and in full force and effect without limitation; -35- PROVIDED, HOWEVER, that any claim made with respect to the representations and warranties of: Seller contained in (a) Sections 4.3 (No Contravention; Consents), 4.4 (Year 2000), 4.6 (Condition of Assets), 4.8 (Contracts), 4.16 (Affiliated Transactions) and 4.21 (Insurance) must be made within one (1) year from the Closing Date; (b) Section 4.10 (ERISA), must be made within seven (7) years from the Closing Date; and (c) Section 4.19 (Labor), must be made within four (4) years from the Closing Date. The several covenants and agreements of the parties contained in this Agreement (or in any document delivered in connection herewith) shall remain operative and in full force and effect without any time limitation, except as any such covenant or agreement shall be limited in duration by the express terms hereof. 15.2. SELLER'S INDEMNIFICATION. 15.2.1. GENERALLY. Subject to the limitations contained in this Section 15, Seller shall indemnify, defend and hold harmless Buyer, its Affiliates and each of their respective officers, directors, employees, stockholders, agents and representatives and each of the heirs, executors, successors and assigns of any of the foregoing (the "Buyer Indemnitees") from and against, and pay or reimburse the Buyer Indemnitees for, any and all losses, Liabilities, damages, obligations, fines, expenses, claims, demands, actions, suits, proceedings, judgments or settlements, whether or not resulting from Third Party Claims, including interest and penalties recovered by a third party with respect thereto and reasonable out-of-pocket expenses and reasonable attorneys' and accountants' fees and expenses incurred in the investigation or defense of any of the same or in asserting, preserving or enforcing any rights hereunder, suffered or incurred (collectively, "Damages") by the Buyer Indemnitees, relating to or arising from: (a) any breach by Seller of any of its covenants or agreements contained in this Agreement; (b) any breach or inaccuracy of any representation or warranty of Seller contained in this Agreement or in any certificate delivered pursuant hereto (without regard to any materiality, limitation or qualification language contained therein); or (c) any of the Retained Liabilities. 15.2.2. LIMITATIONS. Seller shall not have any liability under Section 15.2.1(b) unless the aggregate of all Damages for which Seller would, but for this provision, be liable under Section 15.2.1(b) exceed on a cumulative pre-tax basis an amount equal to $50,000 (the "Indemnity Basket"), and in such event payments shall be made from dollar one. -36- 15.3. BUYER'S INDEMNIFICATION. 15.3.1. GENERALLY. Buyer shall indemnify, defend and hold harmless Seller, her Affiliates and each of their respective officers, directors, employees, agents and representatives and each of the heirs, executors, successors and assigns of any of the foregoing (the "Seller Indemnitees"), from and against, and pay or reimburse the Seller Indemnitees for, all Damages suffered or incurred by the Seller Indemnitees, relating to or arising from: (a) Buyer's breach of any of its covenants or agreements contained in this Agreement; (b) any breach of inaccuracy of any representation or warranty of Buyer contained in this Agreement or in any certificate delivered pursuant hereto; or (c) except to the extent of Seller's indemnification obligation under Section 15.2, any of the Assumed Obligations. 15.3.2. TAXES. All payments made pursuant to Section 15 of this Agreement shall be made free and clear of, and without reduction or withholding of, any Taxes. If any Taxes are payable in respect of any such payment, the amount of such payment shall be increased to the extent necessary to yield (after payment of all Taxes) the same amount that would have been received if no Taxes were payable in respect of the payment. 15.4. SELLER'S SATISFACTION OF RETAINED LIABILITIES. Seller agrees to discharge all contingent Retained Liabilities as the same become due and payable. 15.5. LIMITATIONS. No officer, director, employee, agent or partner of Buyer, or any Affiliate thereof shall have any personal liability under this Agreement or any document delivered in connection herewith arising from or in connection with its execution of any agreement, certificate or other instrument executed by such officer, director, employee, agent or partner in connection with the transactions contemplated by this Agreement. 15.6. METHOD OF ASSERTING CLAIM. 15.6.1. THIRD PARTY CLAIMS. (a) A Person seeking indemnification under this Section 15 (an "Indemnified Person") shall give written notification to the Person from whom indemnification is sought (the "Indemnifying Person") of the commencement of any suit or proceeding relating to a third party (each a "Third Party Claim"). Such notification shall be given within twenty (20) business days after receipt by the Indemnified Person of notice of such -37- Third Party Claim; PROVIDED, HOWEVER, that no delay or failure on the part of the Indemnified Person in notifying the Indemnifying Person shall relieve the Indemnifying Person of any Liability or obligation hereunder except to the extent of any Damages caused by or arising out of such delay or failure. Such notice shall be accompanied by copies of any summons, complaint or other pleading which may have been served on, and any written demand received by, the Indemnified Person relating to such Third Party Claim. (b) Within fifteen (15) days after delivery of such notification, the Indemnifying Person may, upon written notice thereof to the Indemnified Person, assume control of the defense of such suit, claim or proceeding (at the expense of the Indemnifying Person) with counsel reasonably satisfactory to the Indemnified Person. If the Indemnifying Person does not so assume control of such defense, the Indemnified Person shall control such defense. The Indemnifying Person shall be liable for the fees and expenses of counsel employed by the Indemnified Person for any period during which the Indemnifying Person has not assumed the defense thereof (other than during any period in which the Indemnified Person shall have failed to give notice of the Third Party Claim as provided above). Notwithstanding the foregoing, the Indemnifying Person shall not be entitled to assume the defense of any Third Party Claim (and shall be liable for the reasonable fees and expenses of counsel incurred by the Indemnified Person in defending such Third Party Claim) if the Third Party Claim seeks an order, injunction or other relief for other than money damages against the Indemnified Person which the Indemnified Person reasonably determines, after conferring with its outside counsel, cannot be separated from any related claim for money damages. If such injunctive relief or other nonmonetary relief portion of the Third Party Claim can be so separated from that for money damages, the Indemnifying Person shall be entitled to assume the defense of the portion relating to money damages. Any party not controlling a defense (the "Non-controlling Party") of a Third Party Claim may participate therein at its own expense. The party controlling such defense (the "Controlling Party") shall keep the Non-controlling Party advised of the status of such suit or proceeding and the defense thereof and shall consider in good faith recommendations made by the Non-controlling Party with respect thereto. The Non-controlling Party shall furnish the Controlling Party with such information as it may have with respect to such suit or proceeding (including copies of any summons, complaint or other pleading that may have been served on such party and any written claim, demand, invoice, -38- billing or other document evidencing or asserting the same) and shall otherwise cooperate with and assist the Controlling Party in the defense of such suit or proceeding. If the Indemnifying Person chooses to defend or prosecute any Third Party Claim, the Indemnified Person will agree to any settlement, compromise or discharge of such Third Party Claim which the Indemnifying Person may recommend and which by its terms obligates the Indemnifying Person to pay the full amount of liability in connection with such Third Party Claim; PROVIDED, HOWEVER, that without the Indemnified Person's consent (which consent shall not be unreasonably withheld in the case of clause (ii) below), the Indemnifying Person shall not consent to entry of any judgment or enter into any settlement (i) that provides for injunctive or other nonmonetary relief adversely affecting the Indemnified Person or (ii) that does not include as an unconditional term thereof the giving by each claimant or plaintiff to such Indemnified Person of a release from all liability with respect to such claim. The Indemnified Person shall not admit any liability with respect to, or settle, compromise or discharge, any Third Party Claim (A) for which the Indemnifying Person shall have assumed the defense or (B) which involves a claim for monetary relief for which indemnification may be sought hereunder, without the Indemnifying Person's prior written consent (which consent shall not be unreasonably withheld). 15.6.2. INDEMNIFICATION CLAIMS BY THE PARTIES. (a) In the event any Indemnified Person should have a claim against any Indemnifying Person under Section 15.2 or 15.3 hereof that does not involve a Third Party Claim being asserted against or sought to be collected from such Indemnified Party, an Indemnified Person shall give written notification (a "Claim Notice") to the Indemnifying Person which contains (i) a description and the amount (the "Claimed Amount"), including the basis therefor, of any Damages incurred by the Indemnified Person, (ii) a statement that the Indemnified Person is entitled to indemnification under this Section 15 for such Damages and a reasonable explanation of the basis therefor, and (iii) a demand for payment in the amount of such Damages, subject to the limitations contained in this Section 15; PROVIDED, HOWEVER, that no delay or failure in giving a Claim Notice shall relieve the Indemnifying Person of any Liability or obligation hereunder except to the extent of any Damages caused by or arising out of such delay or failure. (b) Within fifteen (15) days after delivery of a Claim Notice, the Indemnifying Person shall deliver to the Indemnified Person a written response (the -39- "Response") in which the Indemnifying Person shall: (i) agree that the Indemnified Person is entitled to receive all of the Claimed Amount; (ii) agree that the Indemnified Person is entitled to receive part, but not all, of the Claimed Amount (the "Agreed Amount"); or (iii) dispute that the Indemnified Person is entitled to receive any of the Claimed Amount. If the Indemnifying Person in the Response disputes the payment of all or part of the Claimed Amount, the Indemnifying Person and the Indemnified Person shall follow the procedures set forth in Section 15.6.2(c) for the resolution of such dispute (a "Dispute"). If the Indemnifying Person does not deliver a Response within thirty (30) days after receipt of a Claim Notice, the claim shall be conclusively deemed a Liability of the Indemnifying Person under Section 15.2 or 15.3, as the case may be, and the Indemnifying Person shall pay the Claimed Amount to the Indemnified Person on demand. (c) During the 60-day period following the delivery of a Response that reflects a Dispute, the Indemnifying Person and the Indemnified Person shall use good faith efforts to resolve the Dispute. If the Dispute is not resolved within such 60-day period, the Indemnifying Person and the Indemnified Person shall discuss in good faith the submission of the Dispute to a mutually acceptable alternative dispute resolution procedure (which may be non-binding or binding upon the parties, as they agree in advance) (the "ADR Procedure"). In the event the Indemnifying Person and the Indemnified Person agree upon an ADR Procedure, such parties shall, in consultation with the chosen dispute resolution service (the "ADR Service"), promptly agree upon a format and timetable for the ADR Procedure, agree upon the rules applicable to the ADR Procedure, and promptly undertake the ADR Procedure. The provisions of this Section 15.6.2(c) shall not obligate the Indemnifying Person and the Indemnified Person to pursue an ADR Procedure or prevent either such party from pursuing the Dispute in a court of competent jurisdiction; PROVIDED, THAT, if the Indemnifying Person and the Indemnified Person agree to pursue an ADR Procedure, neither the Indemnifying Person nor the Indemnified Person may commence litigation or seek other remedies with respect to the Dispute prior to the completion of such ADR Procedure. Any ADR Procedure undertaken by the Indemnifying Person and the Indemnified Person shall be considered a compromise negotiation for purposes of federal and state rules of evidence, and all statements, offers, opinions and disclosures (whether written or oral) made in the course of the ADR Procedure by or on behalf of the Indemnifying Person, the Indemnified Person or the ADR Service shall be treated as -40- confidential and, where appropriate, as privileged work product. Such statements, offers, opinions and disclosures shall not be discoverable or admissible for any purposes in any litigation or other proceeding relating to the Dispute (provided that this sentence shall not be construed to exclude from discovery or admission any matter that is otherwise discoverable or admissible). The fees and expenses of any ADR Service used by the Indemnifying Person and the Indemnified Person shall be shared equally by the Indemnifying Person, on the one hand, and the Indemnified Person on the other hand. 15.7. INDEMNITOR'S OBLIGATIONS. Except for Third Party Claims being defended in good faith or any amounts sought in an unresolved Dispute, the Indemnifying Person shall satisfy its obligations hereunder in cash within twenty (20) days after the Claim Notice. 15.8. LIMITATION ON LIABILITY. The parties hereto acknowledge and agree that from and after the Closing the sole and exclusive remedy with respect to any and all claims relating to the subject matter of this Agreement (other than any claims relating to a breach of a covenant or agreement under this Agreement which by its terms contemplates performance after the Closing) shall be made pursuant to the provisions of this Section 15, except in the case of fraud or intentional breach or misrepresentation. 15.9. TERMINATION OF INDEMNIFICATION. The obligations to indemnify and hold harmless any party: (a) pursuant to Section 15.2.1(b) or 15.3.1(b) shall terminate when the applicable representation or warranty terminates pursuant to Section 15.1; PROVIDED, HOWEVER, that such obligations to indemnify and hold harmless shall not terminate with respect to any item as to which an Indemnified Person shall have, before the expiration of the applicable period, previously made a claim by delivering a notice of such claim pursuant to Section 15.6.1 or 15.6.2 to the Indemnifying Person; and (b) pursuant to clauses (a) and (c) of Section 15.2.1 or clauses (a) and (c) of Section 15.3.1 shall not terminate. 16. HART-SCOTT-RODINO FILINGS. Within 30 days' of the execution of this Agreement, each party shall make or cause to be made any and all filings which are required under HSRA with respect to the transactions contemplated by this Agreement, the filing fees for which shall be borne by Buyer, and shall cooperate in the taking of all steps that are necessary, proper or desirable to expedite the preparation and filing of such notification and the furnishing of all information required in connection therewith. 17. [RESERVED]. -41- 18. TERMINATION. This Agreement may be terminated: 18.1. TERMINATION. 18.1.1. BUYER. Subject to Section 21.1, by Buyer if the Closing shall not have occurred on or prior to November 15, 2000 (other than as a result of the failure by Buyer to fully comply in all material respects with its obligations under this Agreement); 18.1.2. SELLER. Subject to Section 21.1, by Seller if the Closing shall not have occurred on or prior to November 15, 2000 (other than as a result of the failure by Seller to fully comply in all material respects with its obligations under this Agreement); 18.1.3. MUTUAL CONSENT. By mutual consent of Buyer and Seller, which consent may be withheld at the absolute discretion of each such party; 18.1.4. BY SELLER UPON BREACH. Subject to Section 21.1, by Seller if: (a) Buyer is in material breach of this Agreement; and (b) Seller is not then in material breach of this Agreement. 18.1.5. BY BUYER UPON BREACH. Subject to Section 21.1, by Buyer: if (a) Seller is in material breach of this Agreement; and (b) Buyer is not then in material breach of this Agreement; 18.1.6. SELLER OR BUYER. Subject to Section 21.1, by Seller or by Buyer if, at or before the Closing, any condition set forth herein for the benefit of the party seeking termination, shall not have been timely met and cannot be met by the non-termination party thereto or their permitted assigns on or before the Closing Date and has not been waived; PROVIDED, HOWEVER, that neither party, shall be entitled to terminate this Agreement pursuant to the foregoing provision if the failure of any condition set forth herein is caused, in whole or in part, by such parties, material breach of any covenant or agreement hereunder; or 18.1.7. OTHER. As otherwise provided herein. 18.2. EFFECTS OF TERMINATION. 18.2.1. SURVIVAL. If this Agreement is validly terminated pursuant to Section 18.1 this Agreement will forthwith become null and void and of no further force or effect, except for the provisions of (a) Section 21.2 hereof with respect to expenses (b) Section 20 hereof with respect to confidentiality, (c) Section 14 with respect to brokers' fees and (d) this Section 18.2.1 and (e) Section 15 with respect to indemnification. Nothing in this Section 18.2.1 shall be deemed to release any party from any liability for any breach by such party of the terms -42- and provisions of this Agreement or to impair the right of any party to compel specific performance by any other party of its obligations under this Agreement. 18.2.2. EVENT OF TERMINATION. (a) Notwithstanding anything to the contrary contained in the Agreement, in the event this Agreement is validly terminated by Seller pursuant to Section 18.1.4 hereof, then Buyer shall pay to Seller, within five (5) days of such termination, as liquidated damages, the Deposit Amount (the "Liquidated Damages"), and upon receipt of such payment, neither Seller nor any of her Affiliates, shall have any further recourse against the Buyer, its agents or any of their Affiliates under this Agreement or otherwise. The Seller hereby acknowledges that damages Seller would sustain in the event of any breach of this Agreement by Buyer are difficult or impossible to ascertain. Accordingly, the parties hereto have agreed that Seller sole remedy for any violation by Buyer under this Agreement or otherwise shall be as set forth in this Section 18.2.2 and shall be limited to the Deposit Amount; and (b) The Buyer shall be entitled to receive the Deposit Amount in the event this Agreement is validly terminated other than pursuant to Section 18.1.4, within five (5) days for the date of termination. 18.2.3. INSTRUCTIONS TO ESCROW AGENT. The parties agree that upon termination of this Agreement, they will, within two business days of any such termination, instruct the Deposit Escrow Agent to disburse the Deposit Amount in a manner consistent with Section 18.2.2 above. 19. SECURITY DEPOSIT. Concurrently with the execution of this Agreement, Buyer has deposited in escrow a cash security deposit of $2,000,000 to secure Buyer's obligations under this Agreement, which deposit shall be governed by the terms and conditions of the Deposit Escrow Agreement. 20. COVENANT AGAINST COMPETITION; CONFIDENTIALITY. 20.1. NON-COMPETITION. Seller hereby agrees that for a period of three (3) years from and after the Closing, she shall not, directly or indirectly, including through any of her Affiliates, in any manner (a) engage in the television station business ("Prohibited Business") within the Buffalo, New York Designated Market Area as measured by Nielsen Media Research Company, except on behalf of Buyer, (b) induce or attempt to induce any Buyer Employee to leave the employ of WNGS or (c) hire any Buyer Employee. -43- In the event that any provision of this Section 20 is deemed to be unenforceable, the remainder of this Section 20 shall not be affected thereby and each provision hereof shall be valid and enforced to the fullest extent permitted by law. 20.2. SELLER'S CONFIDENTIALITY. Seller shall and shall cause her respective Affiliates to, at all times from the date hereof until three (3) years after the Closing Date, maintain confidential and not use for any purpose other than the operation of WNGS, any information relating to WNGS (other than information in the public domain not as the result of a breach of this Agreement), its business and operations except: (a) for disclosure to authorized representatives of Buyer; (b) as necessary to the performance of this Agreement; (c) as authorized in writing by the Buyer; or (d) to the extent that disclosure is required by law or the order of any Governmental Authority under color of law; PROVIDED, THAT, prior to disclosing any information pursuant to this clause (d), the disclosing Person shall have given prior written notice thereof to Buyer and provided Buyer with the opportunity to contest such disclosure at Buyer's expense. 20.3. BUYER CONFIDENTIALITY. At all times from the date hereof until three (3) years after the Closing Date in the case of information with respect to Seller and at all times from the date hereof until the earlier of three (3) years from the date hereof and Closing in the case of information with respect to WNGS, Buyer shall keep and cause its Affiliates and agents (collectively, "Buyer's Representatives") to keep all information with respect to Seller and/or WNGS obtained in connection with the negotiation and performance of this Agreement (other than information in the public domain not as the result of a breach of this Agreement) as confidential and shall not disclose, and shall cause Buyer's Representatives not to disclose, such information to any third party (other than Buyer's financing sources or potential financing sources or as may be required in connection with any financing) without Seller's express prior written consent, except: (i) for disclosure to authorized representatives of Seller; (ii) as necessary to the performance of this Agreement; (iii) as authorized in writing by Seller; or (iv) to the extent that disclosure is required by law or the order of any Governmental Authority under color of law; PROVIDED, THAT, prior to disclosing any information pursuant to this clause (iv), the disclosing Person shall have given prior written notice thereof to Seller and provided Seller with the opportunity to contest such disclosure at Seller's expense. If the transactions contemplated by this Agreement are not consummated, Buyer will return to Seller all confidential information -44- obtained from Seller by Buyer or Buyer's Representatives. Buyer shall advise any third party to whom disclosure of confidential information is made hereunder of the confidential nature of such information and shall request that the confidentiality of such information be preserved. 21. MISCELLANEOUS. 21.1. GRACE PERIOD. 21.1.1. DEFAULT GRACE PERIOD. Notwithstanding any other provision of this Agreement, if a default by any party hereto can be cured or a condition satisfied within fifteen (15) business days after the time initially fixed for Closing as set forth herein, then the Closing Date shall be extended for the period (not to exceed fifteen (15) business days) required for such party to make such cure or satisfaction; PROVIDED, THAT, such default does not, and would not reasonably be expected to, have a material adverse effect on WNGS, the Broadcasting Assets or Buyer. If such cure or satisfaction cannot be, or is not, completed within fifteen (15) business days after such initial time, then the rights of the parties shall be governed by the applicable provisions of this Agreement. 21.1.2. FINAL ORDER GRACE PERIOD. Notwithstanding anything to the contrary contained herein, in the event that the FCC Consent shall have been obtained but the FCC Consent shall not have become a Final Order on or prior to November 15, 2000, then such date shall be extended by forty-five (45) days. 21.2. COSTS, EXPENSES, ETC. Except as provided elsewhere herein, each of the parties hereto shall bear all costs and expenses incurred by it in connection with this Agreement and in the preparation for and consummation of the transactions provided for herein. The payment of all sales, use, transfer or similar Taxes, documentation stamps, or other similar charges imposed by any and all Governmental Authorities with respect to the transfer of title to the Broadcasting Assets shall be borne by Seller or Buyer, in accordance with local custom. Any income or gain Taxes shall be borne by Seller. All recording costs and fees incurred in connection with clearing and removing any liens and Encumbrances including costs incurred so as to permit Seller to convey good and marketable title to the Broadcasting Assets free and clear of all Encumbrances, shall be the responsibility of Seller. 21.3. FURTHER ASSURANCES. Each party shall, from time to time, upon the request of another party, execute, acknowledge and deliver to the other party such other -45- documents or instruments, and take any and all actions as are reasonably necessary for the implementation and consummation of the transactions contemplated by this Agreement. 21.4. NOTICE OF PROCEEDINGS. Each party will promptly and in any case within five (5) business days notify the other parties in writing upon becoming aware of any labor organization drive or any order or decree or any complaint praying for an order or decree restraining or enjoining the consummation of this Agreement or the transactions contemplated hereunder, or upon receiving any notice from any Governmental Authority of its intention to institute an investigation into, or institute a suit or proceeding to restrain or enjoin the consummation of this Agreement or such transactions, or to nullify or render ineffective this Agreement or such transactions if consummated. 21.5. BULK SALES LAW. Buyer waives compliance by Seller with the provisions of bulk sales and similar laws applicable to this transaction, if any; PROVIDED, HOWEVER, that any loss, liability, obligation or cost suffered by Buyer as a result of the failure by Seller to comply therewith shall be borne by Seller and that Seller shall indemnify Buyer and hold Buyer harmless therefrom. 21.6. NOTICES. Any notice, request, demand or consent required or permitted to be given under this Agreement shall be in writing (including telexes, telecopies, facsimile transmissions and similar writings) and shall be effective when transmitted and confirmation of receipt is obtained for telexes, telecopies, facsimile transmissions and similar writings; when delivered personally; one day after sent by recognized overnight courier; and five days after sent by mail, first class, postage prepaid, registered mail, return receipt requested; in each case to the following address or telephone number, as applicable: If to Seller to: Caroline K. Powley 9279 Dutch Hill Valley Road West Valley, New York Attention: Caroline K. Powley Telephone: (716) 942-3000 Telecopier: (716) 942-3010 -46- with copies to: McQuaid, Metzler, Bedford & Van Zandt, L.L.P. 221 Main Street 16th Floor San Francisco, California 94105-1936 Attention: Roger J. Metzler Telephone: (415) 905-0200 Telecopier: (415) 905-0202 If to Buyer: Granite Broadcasting Corporation 767 Third Avenue 34th Floor New York, New York 10017 Attention: W. Don Cornwell, Chairman and Chief Executive Officer Telephone: (212) 826-2530 Telecopier: (212) 826-2858 with copies to: Akin, Gump, Strauss, Hauer & Feld, L.L.P. 1333 New Hampshire Avenue, N.W. Suite 400 Washington, D.C. 20036 Attention: Russell W. Parks, Jr. Telephone: (202) 887-4000 Telecopier: (202) 887-4288 or at such other address as either party shall specify by notice to the other. 21.7. HEADINGS AND ENTIRE AGREEMENT; AMENDMENT. The section and subsection headings do not constitute any part of this Agreement and are inserted herein for convenience of reference only. This Agreement embodies the entire agreement between the parties with respect to the subject matter hereof. This Agreement may not be amended, modified or changed orally, and no provision hereof may be waived, except only in writing signed by the party against whom enforcement of any amendment, modification, change, waiver, extension or discharge is sought. 21.8. WAIVER. No waiver of a breach of, or default under, any provision of this Agreement shall be deemed a waiver of such provision or of any subsequent breach or default of the same or similar nature or of any other provision or condition of this Agreement. 21.9. BINDING EFFECT AND ASSIGNMENT. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their successors and permitted assigns. Neither this Agreement nor any obligation hereunder shall be assignable except with the -47- prior written consent of the other party which may be withheld for any reason; PROVIDED, HOWEVER, that Buyer may assign this Agreement, in whole or in part, to any direct or indirect wholly owned subsidiary of Buyer provided such assignment shall not relieve Buyer of its obligations under this Agreement and such assignment application does not cause a material delay in obtaining the FCC Consent. 21.10. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but which taken together shall constitute one agreement. 21.11. EXHIBITS, SCHEDULES AND ATTACHMENTS. The Exhibits, Schedules and attachments attached to this Agreement are incorporated herein and shall be considered a part of this Agreement for the purposes stated herein, except that in the event of any conflict between any of the provisions of such exhibits and the provisions of this Agreement, the provisions in this Agreement shall control. 21.12. RIGHTS CUMULATIVE. Except as set forth herein, all rights, powers and remedies herein given to the parties hereto are cumulative and not alternative, and are in addition to all statutes or rules of law. 21.13. GOVERNING LAW. This Agreement, and the rights and obligations of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed therein. 21.14. SEVERABILITY. If any provision of this Agreement or the application thereof to any Person or circumstance, is held invalid, such invalidity shall not affect any other provision which can be given effect without the invalid provision or application, and to this end the provisions hereof shall be severable. 21.15. THIRD PARTY RIGHTS. Except as expressly provided in Section 15 hereof with respect to Buyer Indemnitees and Seller Indemnitees, nothing in this Agreement (including the Schedules, Exhibits and other attachments hereto, or any ancillary agreement, instrument or document contemplated hereby or relating hereto) shall be deemed to create any right with respect to any Person or property not a party to this Agreement. 21.16. PRESS RELEASES. Except as otherwise required by law, Buyer and Seller shall: (a) prior to the issuance of any press release relating to the transactions contemplated by this Agreement, submit to and consult with the other party with respect to such press release; and (b) use its best efforts to characterize the other party, in any other public statements made by the -48- party making such statement about the other party, on substantially the same basis as in any press release made by the party making such statement. No Affiliate of any party shall be permitted to issue a press release relating to the transactions contemplated hereby. 21.17. SPECIFIC PERFORMANCE. Each party acknowledges that, notwithstanding any other provision of this Agreement, the damages that Buyer would sustain in the event of any violation of the provisions of this Agreement are difficult or impossible to ascertain and that the remedy of indemnity payments pursuant to Section 15 and other remedies at law would be inadequate. Accordingly, the parties hereby agree that Buyer shall be entitled, in addition to any other remedy or damages available to it in the event of any such violation, to equitable relief, including specific performance and injunctive relief with respect to any breach or attempted breach. 21.18. RIGHT TO PAYMENTS. If any party (the "Initial Recipient") hereto receives any payments that another party (the "Proper Recipient") is entitled to hereunder, the Initial Recipient shall promptly notify the Proper Recipient of receipt of, and within ten (10) business days transfer to the Proper Recipient, such payments. -49- IN WITNESS WHEREOF, each party has caused this Agreement to be duly executed and delivered in its name and on its behalf, all as of the date and year first above written. GRANITE BROADCASTING CORPORATION By: /s/ W. DON CORNWELL ------------------------------------ W. Don Cornwell, Chairman and Chief Executive Officer /s/ CAROLINE K. POWLEY ------------------------------------ Caroline K. Powley THE UNDERSIGNED, being the spouse of Caroline K. Powley, does hereby consent to each and all of the transactions contemplated in this Agreement and guarantees each of Seller's obligations hereunder. /s/ WILLIAM. M. SMITH ------------------------------------- William M. Smith APPENDIX A "ACCOUNTS RECEIVABLE" means billed trade accounts receivable of Seller as of the Effective Time for services rendered or products delivered or used on or prior to that time for the benefit of WNGS and listed on a Schedule to be delivered by Seller to Buyer within two (2) business days after the Closing Date. "ADR PROCEDURE" has the meaning set forth in Section 15.6.2 hereof. "ADR SERVICE" has the meaning set forth in Section 15.6.2 hereof. "AFFILIATE" (and, with a correlative meaning, "Affiliated") shall mean, with respect to any Person, any other Person that directly, or through one or more intermediaries, controls or is controlled by or is under common control with such first Person, and, if such Person is an individual, any member of the family (including any parent, sibling, spouse or child) of such individual and any trust whose principal beneficiary is such individual or one or more members of such immediate family and any Person who is controlled by any such member or trust. As used in this definition, "control" (including, with correlative meanings, "controlled by" and "under common control with," shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise)). "AFFILIATED TRANSACTION" has the meaning set forth in Section 4.16 hereof. "AGREED AMOUNT" has the meaning set forth in Section 15.6.2 hereof. "AGREEMENT" means this Asset Purchase Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "APPRAISAL" has the meaning set forth in Section 2.2.5 hereof. "ASSUMED OBLIGATIONS" has the meaning set forth in Section 2.4.2 hereof. "BASE PURCHASE PRICE" has the meaning set forth in Section 2.2.1 hereof. "BROADCASTING ASSETS" means all real, personal and mixed assets, both tangible and intangible (including the business of WNGS as a "going concern"), of every kind, nature and description whether or not carried or reflected on the books of WNGS, Used in connection with the business and operations of WNGS, other than the Excluded Assets (as hereinafter defined), which are expressly excluded from the definition of Broadcasting Assets, and except as otherwise provided in this Agreement, Broadcasting Assets shall include all such assets existing A-1 on the date of this Agreement and all such assets acquired between the date hereof and the Closing Date, including, without limitation: (a) all real property, leasehold interests, estates and improvements of every kind and description (other than Excluded Assets), together with all buildings, structures and improvements of every nature located thereon, Used in connection with the business and operations of WNGS; (b) all broadcasting and other equipment, office furniture and other tangible personal property of every kind and description Used in connection with the business and operations of WNGS on the date hereof, including without limitation the assets set forth in SCHEDULE 1-B hereto; (c) all Contracts (as herein defined), other than Excluded Assets, on the date hereof, including without limitation those contracts, agreements and commitments set forth on SCHEDULE 1-C (NETWORK AFFILIATION AGREEMENTS AND OTHER CONTRACTS OF WNGS) hereto; (d) (i) all WNGS Licenses and (ii) any other permits, certificates, consents, approvals, licenses and authorizations issued or granted by any Governmental Authority or any other Person Used in connection with the business or operations of WNGS as of the date hereof and any applications therefor, as set forth in SCHEDULE 1-D hereto; (e) all files, lists, tapes and books and records, including all FCC logs, of or relating to WNGS; (f) all franchises, trademarks, patents, tradenames, service marks, promotional materials, slogans, intellectual property rights and interests, call letters, copyrights in literary property of any kind, know-how, jingles and privileges, if any, Used in connection with the business and operations of WNGS as of the date hereof; (g) all rights and claims relating to any other Broadcasting Asset, including all guarantees, warranties, indemnities and similar rights in respect of any other Broadcasting Asset; and (h) all of the prepaid expenses useful to Buyer in the operation of WNGS after the Effective Time. "BUYER" has the meaning set forth in the recitals hereto. "BUYER'S EMPLOYEES" has the meaning set forth in Section 10.2.1 hereof. "BUYER'S INDEMNITEES has the meaning set forth in Section 15.2.1 hereof. A-2 "BUYER'S REPRESENTATIVES" has the meaning set forth in Section 20.3 hereof. "CABLE ACT REQUIREMENTS" has the meaning set forth in Section 4.20(b) hereof. "CLAIMED AMOUNT" has the meaning set forth in section 15.6.2 hereof. "CLAIM NOTICE" has the meaning set forth in Section 15.6.2 hereof. "CLOSING" means the consummation of the purchase, assignment and sale of the Broadcasting Assets as contemplated hereby. "CLOSING DATE" means a time and business date to be selected by Buyer, which date shall occur between: (i) two business days after the date on which the conditions specified in Section 7 hereof (excluding conditions that by their terms cannot be satisfied until Closing) shall have been met or waived by the beneficiary thereof; and (ii) subject to the provisions of Section 21.1 hereof, November 15, 2000, unless Buyer and Seller mutually agree to a different time and date. "CLOSING PLACE" means the offices of Akin, Gump, Strauss, Hauer & Feld, L.L.P., 1333 New Hampshire Avenue, N.W., Suite 400, Washington, D.C. 20036 or such other place as the Buyer and Seller may agree. "CODE" means the Internal Revenue Code of 1986, as amended, and the Treasury regulations promulgated thereunder, as in effect from time to time. "COMMUNICATIONS ACT" means the Communications Act of 1934, as amended, The Telecommunications Act of 1996 and the Children's Television Act, and the rules, regulations and policies promulgated thereunder, as in effect from time to time. "COMPETING APPLICATIONS" has the meaning set forth in Section 3.4 hereof. "CONTRACTS" has the meaning set forth in Section 4.8 hereof. "CONTROLLING PARTY" has the meaning set forth in Section 15.6.1 hereof. "DAMAGES" has the meaning set forth in Section 15.2.1 hereof. "DEPOSIT" has the meaning set forth in the recitals hereto. "DEPOSIT AMOUNT" means the amount of the Deposit plus accrued interest thereon minus the fees and expenses of the Deposit Escrow Agent, if any. "DEPOSIT ESCROW AGENT" means the Escrow Agent (as defined in the Deposit Escrow Agreement). "DEPOSIT ESCROW AGREEMENT" means the Deposit Escrow Agreement in the form attached hereto as EXHIBIT A. "DISPUTE" has the meaning set forth in Section 15.6.2 hereof. A-3 "DTV APPLICATION" has the meaning set forth in Section 3.2 hereof. "DTV AUTHORIZATION" has the meaning set forth in Section 6.3(b) hereof. "EFFECTIVE TIME" means 11:59 p.m. on the Closing Date. "EMPLOYEE PLAN" has the meaning set forth in Section 4.10 hereof. "ENCUMBRANCES" means all mortgages, security interests, pledges, claims, liens, charges, covenants, easements, rights of way, restrictions, encroachments, leases, occupancies, tenancies, options, preemptive purchase or other rights or any other encumbrances whatsoever. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the regulations promulgated thereunder, as in effect from time to time. "ERISA AFFILIATE" has the meaning set forth in Section 4.10 hereof. "ESTIMATED PURCHASE PRICE" has the meaning set forth in Section 2.2.4 hereof. "EXCLUDED ASSETS" means: (a) Accounts Receivable; (b) cash on hand and in bank accounts that relate exclusively to the operation of WNGS prior to the Closing Date; and (c) any Contract, WNGS Benefit Plan, agreement or asset listed on SCHEDULES 1-F OR 4.10 hereto. "FCC" has the meaning set forth in the recitals hereto. "FCC APPLICATIONS" has the meaning set forth in Section 3.2 hereof. "FCC CONSENT" has the meaning set forth in Section 3.3 hereof. "FCC DENIAL" has the meaning set forth in Section 3.4 hereof. "FINAL ORDER" means an order of the FCC granting its consent to the applications referred to in Section 3.2 below, which order has become final. For purposes of this Agreement, "final" shall mean action by the FCC: (a) which has not been vacated, reversed, stayed, enjoined, set aside, annulled or suspended; (b) with respect to which no timely appeal, request for stay, request or petition for rehearing, reconsideration or review by any Person or Governmental Authority or by the FCC on its motion, is pending; and (c) as to which the time for filing any such appeal, request, petition, or similar document or for the reconsideration or review by the FCC on its own motion, has expired. "GAAP" means generally accepted accounting principles in effect in the United States of America at the time of determination, and which are consistently applied. "GOVERNMENTAL AUTHORITY" means any court or federal, state, municipal or other governmental or quasi-governmental authority, department, commission, board, agency or instrumentality, foreign or domestic, or any employee or agent thereof. A-4 "HSRA" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the regulations thereunder, as in effect from time to time. "INDEMNIFIED PERSON" has the meaning set forth in Section 15.6.1 hereof. "INDEMNIFYING PERSON" has the meaning set forth in Section 15.6.1 hereof. "INDEMNITY BASKET" has the meaning set forth in Section 15.2.2 hereof. "INITIAL DTV APPLICATION" has the meaning set forth in Section 4.13 hereof. "INITIAL RECIPIENT" has the meaning set forth in Section 21.18 hereof. "INSURANCE DEFICIENCY" has the meaning set forth in Section 11.2 hereof. "LIABILITIES" means all obligations, indebtedness, commitments, and other items constituting "liabilities" under GAAP, whether direct or indirect, absolute, accrued, contingent, or otherwise, or due or to become due, asserted or unasserted, matured or unmatured. "LICENSE APPLICATION" has the meaning set forth in Section 4.7.2(a) hereof. "LIQUIDATED DAMAGES" has the meaning set forth in Section 18.2.2(a). "MARKET CABLE SYSTEM" means any U.S. cable television system within WNGS's market, as defined in 47 C.F.R. Section 76.55(e). "MATERIAL ADVERSE EFFECT" means any material and adverse effect upon the business, assets, prospects, liabilities, financial condition, rights or results of operations of WNGS or the Broadcasting Assets, or upon the ability of Seller to perform in any material respect its respective obligations under this Agreement. "MODIFICATION APPLICATION" has the meaning set forth in Section 4.7.2(b) hereof. "MODIFICATION AUTHORIZATION" has the meaning set forth in Section 3.1 hereof. "NON-CONTROLLING PARTY" has the meaning set forth in Section 15.6.1 hereof. "PERMITTED ENCUMBRANCES" means (a) Encumbrances expressly identified as Permitted Encumbrances on SCHEDULE 4.5.1 and (b) Encumbrances expressly identified as Permitted Encumbrances on SCHEDULE 4.5.2 hereto. "PERSON" shall mean any natural person, corporation, partnership, limited liability company, firm, joint venture, joint-stock company, trust, association, unincorporated entity of any kind, trust, governmental or regulatory body or other entity. "PRE-CLOSING INCURRED OBLIGATIONS" has the meaning set forth in Section 2.2.3(a) hereof. "PRE-CLOSING PAID OBLIGATIONS" has the meaning set forth in Section 2.2.3(a) hereof. "PROHIBITED BUSINESS" has the meaning set forth in Section 20.1 hereof. A-5 "PROPER RECIPIENT" has the meaning set forth in Section 21.18 hereof. "PRORATED OBLIGATIONS" has the meaning set forth in Section 2.2.3(a) hereof. "PRORATION STATEMENT" has the meaning set forth in Section 2.2.3(a) hereof. "PURCHASE PRICE" has the meaning set forth in Section 2.2.1 hereof. "RCRA" means the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sections 6901 - 6992K, and the regulations thereunder, as in effect from time to time. "RECEIVABLE EXPENSE" has the meaning set forth in Section 2.3 hereof. "RELEVANT PROPERTY" has the meaning set forth in Section 4.18.3 hereof. "RELOCATION APPLICATION" has the meaning set forth in Section 3.2 hereof. "RELOCATION AUTHORIZATION" has the meaning set forth in Section 7.1.12 hereof. "RELOCATION CONSENT" has the meaning set forth in Section 3.3 hereof. "REPAIR COST" has the meaning set forth in Section 11.2 hereof. "RESPONSE" has the meaning set forth in Section 15.6.2 hereof. "RETAINED LIABILITIES" means all Liabilities, commitments or other obligations of WNGS, Seller or any of her Affiliates of any kind and nature, whether direct or indirect, absolute, accrued, contingent or otherwise, or due or to become due, asserted or unasserted, matured or unmatured, other than Assumed Obligations, including (a) any severance pay arising in connection with Seller's or any of her Affiliates' employment or termination of any current or former employee of WNGS, Seller or any of her Affiliates; (b) any claim made pursuant to the Worker Adjustment and Retraining and Notification Act arising in connection with Seller's or any of her Affiliates' employment or termination of any current of former employees of WNGS, Seller or any of her Affiliates; (c) claims or Liabilities arising by reason of or relating to any failure of Seller or her Affiliates to comply with Code Section 4980B or Part 6 of Title I of ERISA or the New York Insurance Code or any other similar statute; and (d) any Receivable Expenses. "SELLER" has the meaning set forth in the recitals hereto. "SELLER INDEMNITEES" has the meaning set forth in Section 15.3.1 hereof. "STUDY" has the meaning set forth in Section 17.1 hereof. "TAX" or "TAXES" means all federal, state, local, foreign and other taxes, including but not limited to capital gains, income, estimated income, franchise, gross receipts, employment, license, payroll, excise, stamp, social security, Medicare, unemployment, real property, personal A-6 property, sales, use, transfer and withholding taxes, including interest, penalties and additions in connection therewith, whether disputed or not. "TAX AFFILIATE" means, with respect to any individual, such individual's spouse and any Person that is controlled by or under common control with such individual or such individual's spouse. As used in this definition, "controlled by" and "under common control with" have the meanings given such terms in the definition of "Affiliate" herein. "THIRD PARTY CLAIM" has the meaning set forth in Section 15.6.1 hereof. "TOWER" has the meaning set forth in Section 4.6 hereof. "TOWER SPACE LEASE" means the lease governing the lease of space on the Tower by Buyer after the Closing, substantially in the form of EXHIBIT B hereto. "TOWER PROPERTY" means the Tower and the real property on which the Tower is located. "TRADE AGREEMENTS" has the meaning set forth in Section 2.2.2 hereof. "UPN" means The United Paramount Network. "USED" means (i) owned, (ii) leased, (iii) held and used or (iv) held and useful to, in each case, by Seller or one of her Affiliates. "USTS" has the meaning set forth in Section 4.18.1 hereof. "WNGS" has the meaning set forth in the recitals hereto. "WNGS BENEFIT PLANS" has the meaning set forth in Section 4.10 hereof. "WNGS EMPLOYEES" has the meaning set forth in Section 4.19.2 hereof. "WNGS LICENSES" means all licenses, permits and authorizations issued or granted by the FCC for the ownership and operation of WNGS and all applications therefor, all of which are listed in SCHEDULE 1-D hereto, together with any renewals, extensions or modifications thereof and additions thereto and any licenses, permits or authorizations issued or granted pursuant to any such applications between the date hereof and the Closing Date. A-7 SIDE AGREEMENT Reference is made to Section 6.4 of the Asset Purchase Agreement between Caroline K. Powley and Granite Broadcasting Corporation, dated as of November 12, 1999 (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined are as defined in the Purchase Agreement. Buyer and Seller hereby agree to extend the period to allow Buyer to complete its due diligence review of the business, operations and affairs of WNGS by extending Buyer's due diligence termination right date in the first sentence of Section 6.4 from January 5, 2000 to January 15, 2000. Dated: January 5, 2000 GRANITE BROADCASTING CORPORATION By: /s/ LAWRENCE I. WILLS ----------------------------------------- Name: Lawrence I. Wills Title: Vice President - Finance and Controller /s/ Caroline K. Powley ---------------------------------------------- Caroline K. Powley AMENDMENT NO. 1 TO PURCHASE AGREEMENT Reference is made to Section 6.4 of the Asset Purchase Agreement between Caroline K. Powley and Granite Broadcasting Corporation, dated as of November 12, 1999 (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined are as defined in the Purchase Agreement. The second sentence of Section 6.4 is hereby amended and restated as follows: "Notwithstanding and without limiting the foregoing, Buyer may terminate this Agreement at any time prior to February 7, 2000, if Buyer is not satisfied that it will obtain necessary authorizations for, or be able to commence in a timely manner, digital operations of WNGS on channel 46 at a transmitter site and with transmitter power output, transmitting antenna height and other technical parameters satisfactory to Buyer." Dated: January 14, 2000 GRANITE BROADCASTING CORPORATION By:/s/ W. DON CORNWELL ------------------------------------ Name: W. Don Cornwell --------------------------------- Title: Chief Executive Officer -------------------------------- /s/ CAROLINE K. POWLEY -------------------------------------- Caroline K. Powley AMENDMENT NO. 2 TO PURCHASE AGREEMENT Reference is made to Section 6.4 of the Asset Purchase Agreement between Caroline K. Powley and Granite Broadcasting Corporation, dated as of November 12, 1999, and as amended by Amendment No. 1 dated as of January 14, 2000 (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined are as defined in the Purchase Agreement. The second sentence of Section 6.4 is hereby amended and restated as follows: "Notwithstanding and without limiting the foregoing, Buyer may terminate this Agreement at any time prior to February 21, 2000, if Buyer is not satisfied that it will obtain necessary authorizations for, or be able to commence in a timely manner, digital operations of WNGS on channel 46 at a transmitter site and with transmitter power output, transmitting antenna height and other technical parameters satisfactory to Buyer." This Amendment No. 2 may be executed in counterparts, each of which shall be deemed an original, but which taken together shall constitute one agreement. Dated: February 4, 2000 GRANITE BROADCASTING CORPORATION By:/s/ LAWRENCE I. WILLS ------------------------------------- Name: Lawrence I. Wills ------------------------------------ Title: Vice President - Finance and Controller /s/ CAROLINE K. POWLEY ------------------------------------ Caroline K. Powley AMENDMENT NO. 3 TO PURCHASE AGREEMENT Reference is made to Section 6.4 of the Asset Purchase Agreement between Caroline K. Powley and Granite Broadcasting Corporation, dated as of November 12, 1999, as amended by Amendment No. 1 dated as of January 14, 2000 and as amended by Amendment No. 2 dated as of February 4, 2000 (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined are as defined in the Purchase Agreement. The second sentence of Section 6.4 is hereby amended and restated as follows: "Notwithstanding and without limiting the foregoing, Buyer may terminate this Agreement at any time prior to March 20, 2000, if Buyer is not satisfied that it will obtain necessary authorizations for, or be able to commence in a timely manner, digital operations of WNGS on channel 46 at a transmitter site and with transmitter power output, transmitting antenna height and other technical parameters satisfactory to Buyer." This Amendment No. 3 may be executed in counterparts, each of which shall be deemed an original, but which taken together shall constitute one agreement. Dated: February 18, 2000 GRANITE BROADCASTING CORPORATION By:/s/ LAWRENCE I. WILLS ---------------------------------- Name: Lawrence I. Wills --------------------------------- Title: Vice President - Finance and Controller /s/ CAROLINE K. POWLEY ------------------------------------ Caroline K. Powley AMENDMENT NO. 4 TO PURCHASE AGREEMENT Reference is made to Section 6.4 of the Asset Purchase Agreement between Caroline K. Powley and Granite Broadcasting Corporation, dated as of November 12, 1999, as amended by Amendment No. 1 dated as of January 14, 2000, by Amendment No. 2 dated as of February 4, 2000, and by Amendment No. 3 dated as of February 18, 2000 (the "Purchase Agreement"). Capitalized terms used herein and not otherwise defined are as defined in the Purchase Agreement. The second sentence of Section 6.4 is hereby amended and restated as follows: "Notwithstanding and without limiting the foregoing, Buyer may terminate this Agreement at any time prior to April 17, 2000, if Buyer is not satisfied that it will obtain necessary authorizations for, or be able to commence in a timely manner, digital operations of WNGS on channel 46 at a transmitter site and with transmitter power output, transmitting antenna height and other technical parameters satisfactory to Buyer." This Amendment No. 4 may be executed in counterparts, each of which shall be deemed an original, but which taken together shall constitute one agreement. Dated: March 16, 2000 GRANITE BROADCASTING CORPORATION By:/s/ LAWRENCE I. WILLS ----------------------------------- Name: Lawrence I. Wills ----------------------------------- Title: Vice President - Finance and Controller /s/ CAROLINE K. POWLEY ------------------------------------ Caroline K. Powley EX-21 8 EXHIBIT 21 Exhibit 21 GRANITE SUBSIDIARIES JURISDICTION OF ORGANIZATION Granite Response Television, Inc. Delaware San Joaquin Communications Corporation California RJR Communications, Inc. Minnesota WPTA-TV, Inc. Delaware KNTV, Inc. Virginia WTVH, LLC Delaware WTVH License, Inc. Delaware KSEE License, Inc. Delaware KBJR License, Inc. Delaware KNTV License, Inc. Delaware WPTA-TV License, Inc. Delaware KBVO, Inc. Delaware WLAJ, Inc. Delaware KBVO License, Inc. Delaware WWMT-TV, Inc. Delaware WWMT-TV License, Inc. Delaware WKBW-TV License, Inc. Delaware Queen City Broadcasting of New York, Inc. New York WXON License, Inc. Delaware WXON, Inc. Delaware WEEK, Inc. Delaware WEEK License, Inc. Delaware WEEK-TV License, Inc. Delaware WLAJ License, Inc. Delaware KOFY-TV License, Inc. Delaware Pacific FM Incorporated California EX-23 9 EX-23 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8, No. 333-46629) pertaining to the Employee Stock Plans, collectively, of Granite Broadcasting Corporation, of our report dated February 18, 2000, with respect to the consolidated financial statements and schedule of Granite Broadcasting Corporation included in the Annual Report (Form 10-K) for the year ended December 31, 1999. Ernst & Young LLP New York, New York March 29, 2000 EX-27 10 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GRANITE BROADCASTING CORPORATION'S 1999 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 5,453,542 0 33,017,344 0 0 66,381,544 39,176,169 0 730,590,855 42,911,296 303,874,304 210,708,780 0 181,425 49,902,732 730,590,855 0 149,846,955 0 134,792,774 (101,651,532) 0 37,616,986 79,088,727 31,574,238 47,514,489 0 384,983 0 47,129,506 1.43 1.14
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