e10vk
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2009
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or
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to .
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Commission File Number 1-13796
GRAY TELEVISION, INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Georgia
(State or Other Jurisdiction
of
Incorporation or Organization)
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58-0285030
(I.R.S. Employer
Identification No.)
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4370 Peachtree Road, NE
Atlanta, GA
(Address of Principal
Executive Offices)
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30319
(Zip Code)
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Registrants telephone number, including area code:
(404) 504-9828
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Class A Common Stock (no par value)
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New York Stock Exchange
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Common Stock (no par value)
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding
12 months. Yes o No o
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 the registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See definition of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one).:
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ
The aggregate market value of the voting stock (based upon the
closing sales price quoted on the New York Stock Exchange) held
by non-affiliates as of June 30, 2009: Class A and
Common Stock; no par value $20,854,311.
The number of shares outstanding of the registrants
classes of common stock as of April 6, 2010:
Class A Common Stock; no par value
5,753,020 shares; Common Stock, no par
value 42,880,493 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the registrants definitive proxy statement for
the annual meeting of shareholders, to be filed within
120 days of the registrants fiscal year end, pursuant
to Regulation 14A is incorporated by reference into
Part III hereof.
Gray
Television Inc.
INDEX
PART 1
We were incorporated under the laws of the state of Georgia
in 1897. In this Annual Report, unless otherwise indicated, the
words Gray, we, us, and
our refer to Gray Television, Inc. and its
subsidiaries. Our discussion of the television (or
TV) stations that we own and operate does not
include our interest in the television and radio stations owned
by Sarkes Tarzian, Inc., (Tarzian). Our fiscal years
2007, 2008 and 2009 all ended on December 31, respectively.
When we refer to a year, we are referring to the fiscal year
ended on those respective dates.
Our common stock, no par value, and our Class A common
stock, no par value, have been listed and traded on The New York
Stock Exchange (the NYSE) since September 24,
1996 and June 30, 1995, respectively. The ticker symbols
are GTN for our common stock and GTN.A
for our Class A common stock.
Unless otherwise indicated, all station rank, in-market share
and television household data herein are derived from reports
prepared by A.C. Nielsen Company (Nielsen).
General
We own 36 television stations serving 30 television markets.
Seventeen of the stations are affiliated with CBS Inc.
(CBS), ten are affiliated with the National
Broadcasting Company, Inc. (NBC), eight are
affiliated with the American Broadcasting Company
(ABC), and one is affiliated with FOX Entertainment
Group, Inc. (FOX). Our 17 CBS-affiliated stations
make us the largest independent owner of CBS affiliates in the
United States. Based on the results of the average of the
Nielsen March, May, July, and November 2009 ratings reports, our
combined station group has 23 markets with stations
ranked #1 in local news audience and 21 markets with
stations ranked #1 in overall audience within their
respective markets. Of the 30 markets that we serve, we operate
the #1 or #2 ranked station in 29 of those markets. In
addition to our primary channels that we broadcast from our
television stations, we currently broadcast 39 digital second
channels including one affiliated with ABC, four affiliated with
FOX, seven affiliated with The CW Network, LLC (CW),
18 affiliated with Twentieth Television, Inc.
(MyNetworkTV or MyNet.), two affiliated
with Universal Sports Network or (Univ.) and seven
local news/weather channels in certain of our existing markets.
We created our digital second channels to better utilize our
excess broadcast spectrum. The digital second channels are
similar to our primary broadcast channels; however, our digital
second channels are affiliated with networks different from
those affiliated with our primary broadcast channels. Our
combined TV station group reaches approximately 6.3% of total
United States households.
Acquisitions,
Investments and Divestitures
In 1993, we implemented a strategy to foster a significant
portion of our growth through strategic acquisitions and select
divestitures. Since January 1, 1994, our significant
acquisitions have included 33 television stations. We completed
our most recent acquisition on March 3, 2006. Our
acquisition, investment and divestiture activities during the
most recent five years are described below.
2006
Acquisition
On March 3, 2006, we completed the acquisition of the stock
of Michiana Telecasting Corp., owner of
WNDU-TV, the
NBC affiliate in South Bend, Indiana, from the University of
Notre Dame for $88.9 million, which included certain
working capital adjustments and transaction fees. We financed
this acquisition with borrowings under our senior credit
facility.
2005
Spinoff
On December 30, 2005, we completed the spinoff of all of
the outstanding stock of Triple Crown Media, Inc.
(TCM). Immediately prior to the spinoff, we
contributed all of the membership interests in Gray
1
Publishing, LLC which owned and operated our Gray Publishing and
GrayLink Wireless businesses and certain other assets, to TCM.
In the spinoff, each of the holders of our common stock received
one share of TCM common stock for every ten shares of our common
stock and each holder of our Class A common stock received
one share of TCM common stock for every ten shares of our
Class A common stock. As part of the spinoff, we received a
cash dividend of approximately $44.0 million from TCM. We
used the dividend proceeds to reduce our outstanding
indebtedness.
2005
Acquisitions
On November 30, 2005, we completed the acquisition of the
assets of
WSAZ-TV, the
NBC affiliate in Charleston-Huntington, West Virginia. We
purchased these assets from Emmis Communications Corp. for
approximately $185.8 million in cash plus certain
transaction fees. We financed this acquisition with borrowings
under the senior credit facility we then had in place.
On November 10, 2005, we completed the acquisition of the
assets of
WSWG-TV, the
UPN affiliate serving the Albany, Georgia television market. We
purchased these assets from P.D. Communications, LLC for
$3.75 million in cash. We used a portion of our cash on
hand to fund this acquisition. After the acquisition, we
obtained a CBS affiliation for this station.
On January 31, 2005, we completed the acquisition of
KKCO-TV from
Eagle III Broadcasting, LLC. We acquired this station for
approximately $13.5 million plus certain transaction fees.
KKCO-TV
serves the Grand Junction, Colorado television market and is an
NBC affiliate. We used a portion of our cash on hand to fully
fund this acquisition.
During 2005, we acquired a Federal Communications Commission
(FCC) license to operate a low power television
station,
WAHU-TV, in
the Charlottesville, Virginia television market. We currently
operate
WAHU-TV as a
FOX affiliate.
Revenues
Our revenues are derived primarily from local, regional and
national advertising. Our revenues are derived to a much lesser
extent from retransmission consent fees; network compensation;
studio and tower space rental; and commercial production
activities. Advertising refers primarily to
advertisements broadcast by television stations, but it also
includes advertisements placed on a television stations
website. Advertising rates are based upon a variety of factors,
including: (i) a programs popularity among the
viewers an advertiser wishes to attract, (ii) the number of
advertisers competing for the available time, (iii) the
size and demographic makeup of the market served by the station
and (iv) the availability of alternative advertising media
in the market area. Rates are also determined by a
stations overall ratings and in-market share, as well as
the stations ratings and market share among particular
demographic groups that an advertiser may be targeting. Because
broadcast stations rely on advertising revenues, they are
consequently sensitive to cyclical changes in the economy. The
sizes of advertisers budgets, which can be affected by
broad economic trends, can affect the broadcast industry in
general and the revenues of individual broadcast television
stations.
Our revenues fluctuate significantly between years, consistent
with, among other things, increased political advertising
expenditures in even-numbered years.
We derive a material portion of our advertising revenue from the
automotive and restaurant industries. In 2009, we earned
approximately 17% and 12% of our total revenue from the
automotive and restaurant categories, respectively. In 2008, we
earned approximately 19% and 10% of our total revenue from the
automotive and restaurant categories, respectively. Our business
and operating results could be materially adversely affected if
automotive- or restaurant-related advertising revenues decrease.
Our business and operating results could also be materially
adversely affected if revenue decreased from one or more other
significant advertising categories, such as the communications,
entertainment, financial services, professional services or
retail industries.
2
Our
Stations and Their Markets
Each of our stations is affiliated with a major network pursuant
to an affiliation agreement. Each affiliation agreement provides
the affiliated station with the right to broadcast all programs
transmitted by the affiliated network. Our affiliation
agreements expire at various dates through January 1, 2016.
The following table is a list of all our owned and operated
television stations.
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Primary Network
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DMA
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Primary
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Secondary
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Broadcast
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Station
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News
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Rank
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Network
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Network
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License
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Rank in
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Rank in
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(a)
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Market
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Station
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Affil.(b)
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Exp.(c)
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Affil.(b)
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Exp.(c)
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Expiration
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DMA(d)
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DMA(e)
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59
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Knoxville, TN
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WVLT
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CBS
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12/31/14
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MyNet.
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10/04/11
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08/01/05(i)
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2
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2
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62
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Lexington, KY
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WKYT
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CBS
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12/31/14
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CW
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09/17/14
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08/01/05(i)
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1
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1
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63
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Charleston/Huntington, WV
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WSAZ
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NBC
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01/01/12
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MyNet.
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10/04/11
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10/01/12
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1
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1
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69
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Wichita/Hutchinson, KS
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KAKE
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ABC
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12/31/13
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NA
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NA
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06/01/06(i)
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2
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2
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(Colby, KS)
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KLBY(f)
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ABC
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12/31/13
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NA
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NA
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06/01/06(i)
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2
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2
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(Garden City, KS)
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KUPK(f)
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ABC
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12/31/13
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NA
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NA
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06/01/06(i)
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2
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2
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76
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Omaha, NE
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WOWT
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NBC
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01/01/12
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Univ.
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12/31/11
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06/01/06(i)
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2
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1
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85
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Madison, WI
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WMTV
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NBC
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01/01/12
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News
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NA
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12/01/05(i)
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2
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2
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89
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Waco-Temple-Bryan, TX
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KWTX
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CBS
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12/31/14
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CW
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12/31/14
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08/01/06(i)
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1
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1
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(Bryan, TX)
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KBTX(g)
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CBS
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12/31/14
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CW
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12/31/14
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08/01/06(i)
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1
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1
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91
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South Bend, IN
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WNDU
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NBC
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01/01/12
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NA
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NA
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08/01/13
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2
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2
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92
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Colorado Springs, CO
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KKTV
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CBS
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12/31/14
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MyNet.
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10/04/11
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04/01/06(i)
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1
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2
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103
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Greenville/New Bern/
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WITN
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NBC
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01/01/12
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MyNet.
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10/04/11
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12/01/04(i)
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2
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1
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Washington, NC
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105
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Lincoln/Hastings/Kearney, NE
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KOLN
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CBS
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12/31/14
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MyNet.
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10/04/11
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06/01/06(i)
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1
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1
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Grand Island, NE
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KGIN(h)
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CBS
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12/31/14
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NA
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NA
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06/01/06(i)
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1
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1
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106
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Tallahassee, FL/
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WCTV
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CBS
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12/31/14
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MyNet.
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10/04/11
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04/01/13
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1
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1
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Thomasville, GA
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108
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Reno, NV
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KOLO
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ABC
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12/31/13
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Univ.
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01/09/11
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10/01/06(i)
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1
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1
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114
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Augusta, GA
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WRDW
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CBS
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12/31/14
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MyNet
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10/04/11
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04/01/13
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1
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1
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News
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NA
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115
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Lansing, MI
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WILX
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NBC
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01/01/12
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News
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NA
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10/01/05(i)
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2
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1
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127
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La Crosse/Eau Claire, WI
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WEAU
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NBC
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01/01/12
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News
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NA
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12/01/05(i)
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1
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1
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134
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Rockford, IL
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WIFR
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CBS
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12/31/14
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News
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NA
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12/01/05(i)
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1
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1
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135
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Wausau/Rhinelander, WI
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WSAW
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CBS
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12/31/14
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MyNet.
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10/04/11
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12/01/05(i)
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1
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1
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News
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NA
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136
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Topeka, KS
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WIBW
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CBS
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12/31/14
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MyNet.
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10/04/11
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06/01/06(i)
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1
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1
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145
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Albany, GA
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WSWG
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CBS
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12/31/14
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MyNet.
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10/04/11
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04/01/13
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3
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NA(j)
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151
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Panama City, FL
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WJHG
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NBC
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01/01/12
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CW
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09/17/12
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02/01/05(i)
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1
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1
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MyNet.
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10/04/11
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161
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Sherman,TX/Ada, OK
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KXII
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CBS
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12/31/14
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FOX
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06/30/11
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08/01/06(i)
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1
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1
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MyNet.
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10/04/11
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172
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Dothan, AL
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WTVY
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CBS
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12/31/14
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CW
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09/01/12
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04/01/13
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1
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1
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MyNet.
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10/04/11
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178
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Harrisonburg, VA
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WHSV
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ABC
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12/31/13
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ABC
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12/31/13
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10/01/12
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1
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1
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FOX
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06/30/11
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MyNet.
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10/04/11
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3
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Primary Network
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DMA
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Primary
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Secondary
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Broadcast
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Station
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News
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Rank
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Network
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Network
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License
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Rank in
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Rank in
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(a)
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Market
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Station
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Affil.(b)
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Exp.(c)
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Affil.(b)
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Exp.(c)
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Expiration
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DMA(d)
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DMA(e)
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182
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Bowling Green, KY
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WBKO
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ABC
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12/31/13
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FOX
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06/30/11
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08/01/05(i)
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1
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1
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CW
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09/01/13
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183
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Charlottesville, VA
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WCAV
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CBS
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12/31/14
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NA
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NA
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10/01/12
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2
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2
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WVAW
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ABC
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12/31/13
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NA
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NA
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10/01/12
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|
4
|
|
4
|
|
|
|
|
|
|
WAHU
|
|
FOX
|
|
06/30/11
|
|
MyNet.
|
|
10/04/11
|
|
10/01/12
|
|
3
|
|
3
|
|
184
|
|
|
Grand Junction, CO
|
|
KKCO
|
|
NBC
|
|
01/01/16
|
|
NA
|
|
NA
|
|
04/01/06(i)
|
|
1
|
|
1
|
|
185
|
|
|
Meridian, MS
|
|
WTOK
|
|
ABC
|
|
12/31/13
|
|
CW
|
|
09/15/12
|
|
06/01/05(i)
|
|
1
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
MyNet.
|
|
10/04/11
|
|
|
|
|
|
|
|
194
|
|
|
Parkersburg, WV
|
|
WTAP
|
|
NBC
|
|
01/01/12
|
|
FOX
|
|
06/30/11
|
|
10/01/04(i)
|
|
1
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
MyNet.
|
|
10/04/11
|
|
|
|
|
|
|
|
(k)
|
|
|
Hazard, KY
|
|
WYMT
|
|
CBS
|
|
12/31/14
|
|
NA
|
|
NA
|
|
08/01/05(i)
|
|
1
|
|
1
|
|
|
|
(a) |
|
Designated market area (DMA) rank based on data
published by Nielsen or other public sources for the
2009-2010
television season. |
|
(b) |
|
Indicates network affiliations. The majority of our stations are
affiliated with a network. We also have independent stations and
stations broadcasting local news and weather. Such stations are
identified as News. |
|
(c) |
|
Indicates date of expiration of network license. |
|
(d) |
|
Based on the average of Nielsen data for the March, July, May
and November 2009 rating periods, Sunday to Saturday,
6 a.m. to 2 a.m. |
|
(e) |
|
Based on our review of Nielsen data for the March, July, May and
November 2009 rating periods for various news programs. |
|
(f) |
|
KLBY-TV and
KUPK-TV are
satellite stations of
KAKE-TV
under FCC rules.
KLBY-TV and
KUPK-TV
retransmit the signal of the primary station and may offer some
locally originated programming, such as local news. |
|
(g) |
|
KBTX-TV is a
satellite station of
KWTX-TV
under FCC rules.
KBTX-TV
retransmits the signal of the primary station and may offer some
locally originated programming, such as local news. |
|
(h) |
|
KGIN-TV is a
satellite station of
KOLN-TV
under FCC rules.
KGIN-TV
retransmits the signal of the primary station and may offer some
locally originated programming, such as local news. |
|
(i) |
|
We have filed a license renewal application with the FCC, and
renewal is pending. We anticipate that all pending applications
will be renewed in due course. |
|
(j) |
|
This station does not currently broadcast local news that is
specific to the Albany, Georgia market. |
|
(k) |
|
We consider
WYMT-TVs
service area to be a separate television market. This area is a
special 17-county trading area as defined by Nielsen and is part
of the Lexington, Kentucky DMA. |
Television
Industry Background
The FCC grants broadcast licenses to television stations.
Historically, there have been a limited number of channels
available for broadcasting in any one geographic area.
Television station revenues are derived primarily from local,
regional and national advertising. Television station revenues
are derived to a much lesser extent from retransmission consent
fees; network compensation; studio and tower space rental; and
commercial production activities. Advertising refers
primarily to advertisements broadcast by television stations,
but it also includes advertisements placed on a television
stations website. Advertising rates are based upon a
variety of factors, including: (i) a programs
popularity among the viewers an advertiser wishes to attract,
(ii) the number of advertisers competing for the available
4
time, (iii) the size and demographic makeup of the market
served by the station and (iv) the availability of
alternative advertising media in the market area. Rates are also
determined by a stations overall ratings and in-market
share, as well as the stations ratings and market share
among particular demographic groups that an advertiser may be
targeting. Because broadcast stations rely on advertising
revenues, they are sensitive to cyclical changes in the economy.
The sizes of advertisers budgets, which can be affected by
broad economic trends, can affect the broadcast industry in
general and the revenues of individual broadcast television
stations.
Television stations in the country are grouped by Nielsen, a
national audience measuring service, into approximately 210
generally recognized television markets or DMAs. These markets
are ranked in size according to various formulae based upon
actual or potential audience. Each DMA is an exclusive
geographic area consisting of all counties in which the
home-market commercial stations receive the greatest percentage
of total viewing hours. Nielsen periodically publishes data on
estimated audiences for the television stations in the various
television markets throughout the country.
Station
Network Affiliations
Four major broadcast networks, ABC, NBC, CBS and FOX, dominate
broadcast television in terms of the amount of original
programming provided to network affiliates. CW and MyNetworkTV
provide their affiliates with a smaller portion of each
days programming compared to ABC, NBC, CBS and FOX.
Most successful commercial television stations obtain their
brand identity from locally produced news programs.
Notwithstanding this, however, the affiliation of a station with
one of the four major networks can have a significant impact on
the stations programming, revenues, expenses and
operations. A typical affiliate of these networks receives the
majority of each days programming from the network. The
network provides an affiliate this programming, along with cash
payments (network compensation) in certain
instances, in exchange for a substantial majority of the
advertising time available for sale during the airing of network
programs. The network then sells this advertising time and
retains the revenues. The affiliate retains revenues from
advertising time sold for time periods between network programs
and for programs the affiliate produces or purchases from
non-network
sources. In seeking to acquire programming to supplement
network-supplied programming, the affiliates compete primarily
with other affiliates and independent stations in their markets.
Cable systems generally do not compete with local stations for
programming, although various national cable networks from time
to time have acquired programs that would have otherwise been
offered to local television stations.
A television station may also acquire programming through barter
arrangements. Under a barter arrangement, a national program
distributor retains a fixed amount of advertising time within
the program in exchange for the programming it supplies. The
television station may pay a fixed fee for such programming.
We account for trade or barter transactions involving the
exchange of tangible goods or services with our customers. The
revenue is recorded at the time the advertisement is broadcast
and the expense is recorded at the time the goods or services
are used. The revenue and expense associated with these
transactions are based on the fair value of the assets or
services received.
We do not account for barter revenue and related barter expense
generated from network or syndicated programming.
In contrast to a network-affiliated station, independent
stations purchase or produce all of the programming they
broadcast, generally resulting in higher programming costs.
Independent stations, however, retain their entire inventory of
advertising time and all related revenues. When compared to
major networks such as ABC, CBS, NBC and FOX, certain networks
such as CW and MyNetworkTV produce a smaller amount of
network-provided programming. Affiliates of CW or MyNetworkTV
must purchase or produce a greater amount of their
non-network
programming, generally resulting in higher programming costs.
Affiliates of CW or MyNetworkTV retain a larger portion of their
advertising time inventory and the related revenues compared to
stations affiliated with the major networks.
Cable-originated programming is a significant competitor of
broadcast television programming. However, no single cable
programming network regularly attains audience levels exceeding
a small fraction of those of
5
any major broadcast network. Cable networks advertising
share has increased due to the growth in cable penetration (the
percentage of television households that are connected to a
cable system). Despite increases in cable viewership, and
increases in advertising, growth in direct broadcast satellite
(DBS) and other multi-channel video program
distribution services,
over-the-air
broadcasting remains the dominant distribution system for
mass-market television advertising.
Seasonality
Broadcast advertising revenues are generally highest in the
second and fourth quarters each year. This seasonality results
partly from increases in consumer advertising in the spring and
retail advertising in the period leading up to and including the
holiday season. Broadcast advertising revenues are also
generally higher in even-numbered years, due to spending by
political candidates, political parties and special interest
groups. This political spending typically is heaviest during the
fourth quarter.
Competition
Television stations compete for audiences, certain programming
(including news) and advertisers. Signal coverage and assigned
frequency also materially affect a television stations
competitive position.
Audience
Stations compete for audience based on broadcast program
popularity, which has a direct effect on advertising rates.
Affiliated networks supply a substantial portion of our
stations daily programming. Stations depend on the
performance of the network programs to attract viewers. There
can be no assurance that any such current or future programming
created by our affiliated networks will achieve or maintain
satisfactory viewership levels in the future. Stations program
non-network
time periods with a combination of locally produced news, public
affairs and other entertainment programming, including national
news or syndicated programs purchased for cash, cash and barter,
or barter only.
Cable and satellite television have significantly altered
competition for audience in the television industry. Cable and
satellite television can increase a broadcasting stations
competition for viewers by bringing into the market distant
broadcasting signals not otherwise available to the
stations audience and by serving as a distribution system
for non-broadcast programming.
Other sources of competition include home entertainment systems,
wireless cable services, satellite master antenna
television systems, low-power television stations, television
translator stations, DBS video distribution services and the
internet.
Recent developments by many companies, including internet
service providers, are expanding the variety and quality of
broadcast content on the internet. Internet companies have
developed business relationships with companies that have
traditionally provided syndicated programming, network
television and other content. As a result, additional
programming is becoming available through non-traditional
methods, which can directly impact the number of TV viewers, and
thus indirectly impact station rankings, popularity and revenue
possibilities from our stations.
Programming
Competition for
non-network
programming involves negotiating with national program
distributors, or syndicators, that sell first-run and rerun
programming packages. Each station competes against the other
broadcast stations in its market for exclusive access to
off-network
reruns (such as Friends) and first-run programming (such
as Oprah). Broadcast stations compete also for exclusive
news stories and features. Cable systems generally do not
compete with local stations for programming, although various
national cable networks from time to time have acquired programs
that would have otherwise been offered to local television
stations.
6
Advertising
Advertising rates are based upon: (i) the size of a
stations market, (ii) a stations overall
ratings, (iii) a programs popularity among targeted
viewers, (iv) the number of advertisers competing for
available time, (v) the demographic makeup of the
stations market, (vi) the availability of alternative
advertising media in the market, (vii) the presence of
effective sales forces and (viii) the development of
projects, features and programs that tie advertiser messages to
programming. Advertising revenues comprise the primary source of
revenues for our stations. Our stations compete with other
television stations for advertising revenues in their respective
markets. Our stations also compete for advertising revenue with
other media, such as newspapers, radio stations, magazines,
outdoor advertising, transit advertising, yellow page
directories, direct mail, internet and local cable systems. In
the broadcasting industry, advertising revenue competition
occurs primarily within individual markets.
Federal
Regulation of Our Business
General
Under the Communications Act of 1934, as amended (the
Communications Act), television broadcast operations
such as ours are subject to the jurisdiction of the FCC. Among
other things, the Communications Act empowers the FCC to:
(i) issue, revoke and modify broadcasting licenses; (ii)
regulate stations operations and equipment; and
(iii) impose penalties for violations of the Communications
Act or FCC regulations. The Communications Act prohibits the
assignment of a license or the transfer of control of a licensee
without prior FCC approval.
License
Grant and Renewal
The FCC grants broadcast licenses to television stations for
terms of up to eight years. Broadcast licenses are of paramount
importance to the operations of our television stations. The
Communications Act requires the FCC to renew a licensees
broadcast license if the FCC finds that: (i) the station
has served the public interest, convenience and necessity;
(ii) there have been no serious violations of either the
Communications Act or the FCCs rules and regulations; and
(iii) there have been no other violations which, taken
together, would constitute a pattern of abuse. Historically the
FCC has renewed broadcast licenses in substantially all cases.
While we are not currently aware of any facts or circumstances
that might prevent the renewal of our stations licenses at
the end of their respective license terms, we cannot provide any
assurances that any license could be renewed. Our failure to
renew any licenses upon the expiration of any license term could
have a material adverse effect on our business. Under FCC rules,
a license expiration date is automatically extended pending the
review and approval of the renewal application. For further
information regarding the expiration dates of our stations
current licenses and renewal application status, see the table
under the heading Our Stations and Their Markets.
Ownership
Rules
The FCCs broadcast ownership rules affect the number, type
and location of broadcast and newspaper properties that we may
hold or acquire. The rules now in effect limit the common
ownership, operation or control of, and attributable
interests or voting power in: (i) television stations
serving the same area; (ii) television stations and daily
newspapers serving the same area; and (iii) television
stations and radio stations serving the same area. The rules
also limit the aggregate national audience reach of television
stations that may be under common ownership, operation and
control, or in which a single person or entity may hold an
official position or have more than a specified interest or
percentage of voting power. The FCCs rules also define the
types of positions and interests that are considered
attributable for purposes of the ownership limits, and thus also
apply to our principals and certain investors.
The FCC is required by statute to review all of its broadcast
ownership rules every four years to determine if such rules
remain necessary in the public interest. The FCC completed a
comprehensive review of its ownership rules in 2003,
significantly relaxing restrictions on the common ownership of
television stations, radio stations and daily newspapers within
the same local market. However, in 2004, the United
7
States Court of Appeals for the Third Circuit vacated many of
the FCCs 2003 rule changes. The court remanded the rules
to the FCC for further proceedings and extended a stay on the
implementation of the new rules. In 2007, the FCC adopted a
Report and Order addressing the issues remanded by the Third
Circuit and fulfilling the FCCs obligation to review its
media ownership rules every four years. That Order left most of
the FCCs pre-2003 ownership restrictions in place, but
made modifications to the newspaper/broadcast cross-ownership
restriction. A number of parties appealed the FCCs order;
those appeals were consolidated in the Third Circuit in 2008 and
remain pending. The Third Circuit initially stayed
implementation of the 2007 changes to the newspaper/broadcast
cross-ownership restriction but recently lifted the stay and set
a briefing schedule for the pending appeals. We cannot provide
any assurances regarding the outcome of these appeals, or the
potential impact thereof on our business. In 2010, the FCC again
will be required to undertake a comprehensive review of its
broadcast ownership rules to determine whether the rules remain
necessary in the public interest.
Local
TV Ownership Rule
The FCCs 2007 actions generally reinstated the FCCs
pre-2003 local television ownership rules. Under those rules,
one entity may own two commercial television stations in a DMA
as long as no more than one of those stations is ranked among
the top four stations in the DMA and eight independently owned,
full-power stations will remain in the DMA. Waivers of this rule
may be available if at least one of the stations in a proposed
combination qualifies, pursuant to specific criteria set forth
in the FCCs rules, as failed, failing, or unbuilt.
Cross-Media
Limits
The newspaper/broadcast cross-ownership rule generally prohibits
one entity from owning both a commercial broadcast station and a
daily newspaper in the same community. The radio/television
cross-ownership rule allows a party to own one or two TV
stations and a varying number of radio stations within a single
market. The FCCs 2007 decision left the pre-2003
newspaper/broadcast and radio/television cross-ownership
restrictions in place, but provided that the FCC would evaluate
newly-proposed newspaper/broadcast combinations under a
non-exhaustive list of four public interest factors and apply
positive or negative presumptions in specific circumstances. As
noted above, a stay implemented by the Third Circuit that
precluded these rule changes from taking effect recently was
lifted.
National
Television Station Ownership Rule
The maximum percentage of U.S. households that a single
owner can reach through commonly owned television stations is
39 percent. This limit was specified by Congress in 2004
and is not affected by the December 2007 FCC decision. The FCC
applies a 50 percent discount for ultra-high
frequency (UHF) stations, but the FCC indicated in
the 2007 decision that it will conduct a separate proceeding to
determine how or whether the UHF discount will operate in the
future.
As indicated above, the FCCs latest actions concerning
media ownership are subject to further judicial and FCC review.
We cannot predict the outcome of potential appellate litigation
or FCC action.
Attribution
Rules
Under the FCCs ownership rules, a direct or indirect
purchaser of certain types of our securities could violate FCC
regulations if that purchaser owned or acquired an
attributable interest in other media properties in
the same areas as our stations. Pursuant to FCC rules, the
following relationships and interests are generally considered
attributable for purposes of broadcast ownership restrictions:
(i) all officers and directors of a corporate licensee and
its direct or indirect parent(s); (ii) voting stock
interests of at least five percent; (iii) voting stock
interests of at least 20 percent, if the holder is a
passive institutional investor (such as an investment company,
bank, or insurance company); (iv) any equity interest in a
limited partnership or limited liability company, unless
properly insulated from management activities;
(v) equity
and/or debt
interests that in the aggregate exceed 33 percent of a
licensees total assets, if the interest holder supplies
more than
8
15 percent of the stations total weekly programming
or is a same-market broadcast company or daily newspaper
publisher; (vi) time brokerage of a broadcast station by a
same-market broadcast company; and (vii) same-market radio
joint sales agreements. The FCC is also considering deeming
same-market television joint sales agreements attributable.
Management services agreements and other types of shared
services arrangements between same-market stations that do not
include attributable time brokerage or joint sales components
generally are not deemed attributable under the FCCs rules.
To our knowledge, no officer, director or five percent
stockholder currently holds an attributable interest in another
television station, radio station or daily newspaper that is
inconsistent with the FCCs ownership rules and policies or
with our ownership of our stations.
Alien
Ownership Restrictions
The Communications Act restricts the ability of foreign entities
or individuals to own or hold interests in broadcast licenses.
The Communications Act bars the following from holding broadcast
licenses: foreign governments, representatives of foreign
governments, non-citizens, representatives of non-citizens, and
corporations or partnerships organized under the laws of a
foreign nation. Foreign individuals or entities, collectively,
may directly or indirectly own or vote no more than
20 percent of the capital stock of a licensee or
25 percent of the capital stock of a corporation that
directly or indirectly controls a licensee. The 20 percent
limit on foreign ownership of a licensee may not be waived.
While the FCC has the discretion to permit foreign ownership in
excess of 25 percent in a corporation controlling a
licensee, it has rarely done so in the broadcast context.
We serve as a holding company of wholly owned subsidiaries, one
of which is a licensee for our stations. Therefore we may be
restricted from having more than one-fourth of our stock owned
or voted directly or indirectly by non-citizens, foreign
governments, representatives of non-citizens or foreign
governments, or foreign corporations.
Programming
and Operations
Rules and policies of the FCC and other federal agencies
regulate certain programming practices and other areas affecting
the business or operations of broadcast stations.
The Childrens Television Act of 1990 limits commercial
matter in childrens television programs and requires
stations to present educational and informational
childrens programming. Broadcasters are required to
provide at least three hours of childrens educational
programming per week on their primary digital channels. This
requirement increases proportionately with each free video
programming stream a station broadcasts simultaneously
(multicasts). In October 2009, the FCC issued a
Notice of Inquiry (NOI) seeking comment on a broad
range of issues related to childrens usage of electronic
media and the current regulatory landscape that governs the
availability of electronic media to children. The NOI remains
pending, and we cannot predict what recommendations or further
action, if any, will result from it.
In 2007 the FCC adopted an order imposing on broadcasters new
public filing and public interest reporting requirements. These
new requirements must be approved by the Office of Management
and Budget before they become effective, and the OMB has not yet
approved them. It is unclear when, if ever, these rules will be
implemented. Pursuant to these new requirements, stations that
have websites will be required to make certain portions of their
public inspection files accessible online. Stations also will be
required to file electronically every quarter a new,
standardized form that will track various types and quantities
of local programming. The form will require information about
programming related to: (i) local news and community
issues, (ii) local civic affairs, (iii) local
electoral affairs, (iv) underserved communities,
(v) public service announcements (vi) independently
produced programming, and (vii) religious programming.
Stations will also have to describe: (i) any efforts made
to assess the programming needs of their stations
community, (ii) whether the station is providing required
close captioning, (iii) efforts to make emergency
information accessible to persons with disabilities and (iv), if
applicable, any local marketing or joint sales agreements
involving the station. If implemented as proposed by the FCC,
the new standardized form will significantly increase
recordkeeping requirements for television broadcasters. Several
station owners and other interested
9
parties have asked the FCC to reconsider the new reporting
requirements and have sought to postpone their implementation.
In addition, the order imposing the new rules is currently on
appeal in the U.S. Court of Appeals for the District of
Columbia Circuit.
In 2007, the FCC issued a Report on Broadcast Localism and
Notice of Proposed Rulemaking (the Report). The
Report tentatively concluded that broadcast licensees should be
required to have regular meetings with permanent local advisory
boards to ascertain the needs and interests of their
communities. The Report also tentatively adopted specific
renewal application processing guidelines that would require
broadcasters to air a minimum amount of local programming. The
Report sought public comment on two additional rule changes that
would impact television broadcasters. These rule changes would
restrict a broadcasters ability to locate a stations
main studio outside the community of license and the right to
operate a station remotely. To date, the FCC has not issued a
final order on the matter. We cannot predict whether or when the
FCC will codify some or all of the specific localism initiatives
discussed in the Report.
Over the past few years, the FCC has increased its enforcement
efforts regarding broadcast indecency and profanity. In 2006,
the statutory maximum fine for broadcast indecency material
increased from $32,500 to $325,000 per incident. Several
judicial appeals of FCC indecency enforcement actions are
currently pending, and their outcomes could affect future FCC
policies in this area.
EEO
Rules
The FCCs Equal Employment Opportunity (EEO)
rules impose job information dissemination, recruitment,
documentation and reporting requirements on broadcast station
licensees. Broadcasters are subject to random audits to ensure
compliance with the EEO rules and could be sanctioned for
noncompliance.
Cable
and Satellite Transmission of Local Television
Signals
Under FCC regulations, cable systems must devote a specified
portion of their channel capacity to the carriage of local
television station signals. Television stations may elect
between must carry rights or a right to restrict or
prevent cable systems from carrying the stations signal
without the stations permission (retransmission
consent). Stations must make this election at the same
time once every three years, and did so most recently on
October 1, 2008. All broadcast stations that made carriage
decisions on October 1, 2008 will be bound by their
decisions until the end of the current three year cycle on
December 31, 2011. Our stations have generally elected
retransmission consent and have entered into carriage agreements
with cable systems serving their markets.
For those markets in which a DBS carrier provides any local
signal, the FCC also has established a market-specific
requirement for mandatory carriage of local television stations
by DBS operators similar to that for cable systems. The FCC has
also adopted rules relating to station eligibility for DBS
carriage and subscriber eligibility for receiving signals. There
are specific statutory requirements relating to satellite
distribution of distant network signals to unserved
households, households that do not receive a Grade B
signal from a local network affiliate. A law governing DBS
distribution, the Satellite Home Viewer Extension and
Reauthorization Act of 2004 (SHVERA), was scheduled
to expire at the end of 2009. Congress has extended SHVERA three
times. The most recent extension maintains the current law until
April 30, 2010. A long-term extension and revision of
SHVERA is still expected to be finalized in the near future. We
cannot predict the impact of DBS service on our business. We
have, however, entered into retransmission consent agreements
with DISH Network and DirectTV for the retransmission of our
television stations signals into the local markets that
each of these DBS providers respectively serves.
Digital
Television Service
In 1997, the FCC adopted rules for implementing digital
television (DTV) service. On June 12, 2009, the
U.S. finalized its transition from analog to digital
service, and full-power television stations were required to
cease analog operations and commence digital-only operations.
The DTV transition has improved the technical quality of
viewers television signals and given broadcasters the
ability to provide new services, such as high definition
television.
10
Broadcasters may use their digital spectrum to provide either a
single DTV signal or multicast several program streams.
Broadcasters also may use some of their digital spectrum to
offer non-broadcast ancillary services such as
subscription video, data transfer or audio signals. However,
broadcasters must pay the government a fee of five percent of
gross revenues received from such ancillary services. Under the
FCCs rules relating to digital broadcasters
must carry rights (which apply to cable and certain
DBS systems) digital stations asserting must carry
rights are entitled to carriage of only a single programming
stream and other program-related content on that
stream, even if they multicast. Now that the DTV transition is
complete, cable operators have two options to ensure that all
analog cable subscribers continue to be able to receive the
signals of stations electing must-carry status. They may choose
either to (i) broadcast the signal in digital format for
digital customers and down-convert the signal to
analog format for analog customers or (ii) deliver the
signal in digital format to all subscribers and ensure that all
subscribers with analog service have set-top boxes that convert
the digital signal to analog format.
Currently, all of our full-power stations are broadcasting
digitally. In 2009, we also began testing mobile DTV broadcasts
in one of our markets. Consumers are able to view these
broadcasts on handheld devices equipped with a DTV receiver. To
date, the FCC has not adopted any regulations that are specific
to mobile DTV services, and we cannot predict whether it will do
so in the future.
The FCC has adopted rules and procedures regarding the digital
conversion of Low Power Television (LPTV) stations,
TV translator stations and TV booster stations. Under these
rules, existing LPTV and TV translator stations may convert to
digital operations on their current channels. Alternatively,
LPTV and translator licenses may seek a digital
companion channel for their analog station
operations. At a later date, the FCC will determine the date by
which those stations obtaining a digital companion channel must
surrender one of their channels.
Beginning December 31, 2006, DTV broadcasters were required
to comply with Emergency Alert System (EAS) rules
and ensure that viewers of all programming streams can receive
EAS messages.
Broadcast
Spectrum
On March 16, 2010, the FCC delivered to Congress a
National Broadband Plan. The National Broadband
Plan, inter alia, makes recommendations regarding the use of
spectrum currently allocated to television broadcasters,
including seeking the voluntary surrender of certain portions of
the television broadcast spectrum and repacking the currently
allocated spectrum to make portions of that spectrum available
for other wireless communications services. If some or all of
our television stations are required to change frequencies or
reduce the amount of spectrum they use, our stations could incur
substantial conversion costs, reduction or loss of
over-the-air
signal coverage or an inability to provide high definition
programming and additional program streams, including mobile
video services. Prior to implementation of the proposals
contained in the National Broadband Plan, further action by the
FCC or Congress or both is necessary. We cannot predict the
likelihood, timing or outcome of any Congressional or FCC
regulatory action in this regard nor the impact of any such
changes upon our business.
The foregoing does not purport to be a complete summary of the
Communications Act, other applicable statutes, or the FCCs
rules, regulations or policies. Proposals for additional or
revised regulations and requirements are pending before, are
being considered by, and may in the future be considered by,
Congress and federal regulatory agencies from time to time. We
cannot predict the effect of any existing or proposed federal
legislation, regulations or policies on our business. Also,
several of the foregoing matters are now, or may become, the
subject of litigation, and we cannot predict the outcome of any
such litigation or the effect on our business.
Employees
As of December 31, 2009, we had 1,954 full-time
employees and 254 part-time employees. As of
December 31, 2009, we had 100 full-time employees and
19 part-time employees that were represented by unions. We
consider relations with our employees to be good.
11
Available
Information
Our web address is
http://www.gray.tv.
We make the following reports filed with the Securities and
Exchange Commission (the SEC) available, free of
charge, on our website under the heading SEC Filings:
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our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on Form
8-K and
amendments to the foregoing reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended, or the Exchange Act;
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our proxy statements; and
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initial statements of beneficial ownership of securities on
Form 3, statements of changes in beneficial ownership on
Form 4 and annual statements of beneficial ownership on
Form 5, in each case as filed by certain of our officers,
directors and large stockholders pursuant to Section 16 of
the Exchange Act.
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These filings are also available at the SECs website
located at
http://www.sec.gov.
The SECs website contains reports, proxy and information
statements, and other information regarding issuers, like us,
that file electronically. The public may read and copy any
materials filed with the SEC at the SECs public reference
room at 100 F Street, N.E., Washington, DC 20549. The
public may obtain information on the operation of the SECs
public reference room by calling the SEC at
1-800-SEC-0330.
The foregoing reports are made available on our website as soon
as practicable after they are filed with, or furnished to, the
SEC. The information found on our website is not incorporated by
reference or part of this or any other report we file with or
furnish to the SEC.
We have adopted a Code of Ethics (the Code) that
applies to all of our directors, executive officers and
employees. The Code is available on our website at
http://www.gray.tv
under the heading of Corporate Governance. If any
waivers of the Code are granted, the waivers will be disclosed
in an SEC filing on
Form 8-K.
We have also filed the Code as an exhibit to the annual report
filed on
Form 10-K
for the year ended December 31, 2004, and it is
incorporated by reference to this report.
Our website also includes our Corporate Governance Principles,
the Charter of the Audit Committee, the Nominating and Corporate
Governance Committee and the Compensation Committee.
All such information is also available to any shareholder upon
request by telephone at
(404) 504-9828.
Risks
Related to Our Business
We
depend on advertising revenues, which are seasonal, and also may
fluctuate as a result of a number of factors.
Our main source of revenue is sales of advertising time and
space. Our ability to sell advertising time and space depends on:
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economic conditions in the areas where our stations are located
and in the nation as a whole;
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the popularity of our programming;
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changes in the population demographics in the areas where our
stations are located;
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local and national advertising price fluctuations, which can be
affected by the availability of programming, the popularity of
programming, and the relative supply of and demand for
commercial advertising;
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our competitors activities , including increased
competition from other forms of advertising-based mediums,
particularly network, cable television, direct satellite
television and internet;
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the duration and extent of any network preemption of regularly
scheduled programming for any reason, including as a result of
the outbreak or continuance of military hostilities or terrorist
attacks, and
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decisions by advertisers to withdraw or delay planned
advertising expenditures for any reason, including as a result
of military action or terrorist attacks; and
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other factors that may be beyond our control. For example, a
labor dispute or other disruption at a major national
advertiser, programming provider or network, or a recession
nationally
and/or in a
particular market, might make it more difficult to sell
advertising time and space and could reduce our revenue.
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Our results are also subject to seasonal fluctuations. Seasonal
fluctuations typically result in higher broadcast operating
income in the second and fourth quarters than first and third
quarters of each year. This seasonality is primarily
attributable to (i) advertisers increased
expenditures in the spring and in anticipation of holiday season
spending and (ii) an increase in viewership during this
period. Furthermore, revenues from political advertising are
significantly higher in even-numbered years, particularly during
presidential election years.
Our
operating and financial flexibility is limited by the terms of
our senior credit facility.
Our senior credit facility prevents us from taking certain
actions and requires us to comply with certain financial and
operating requirements. Among other things, these include
limitations on:
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certain additional indebtedness;
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liens;
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amendments to our by-laws and articles of incorporation;
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mergers and the sale of assets;
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guarantees;
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investments and acquisitions;
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payment of dividends and redemption of our capital stock;
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a specified leverage ratio;
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related party transactions;
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purchases of real estate; and
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entering into multiemployer retirement plans.
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These restrictions and requirements may prevent us from taking
actions that could increase the value of our business, or may
require actions that decrease the value of our business. In
addition, if we fail to maintain compliance with any of these
requirements, we would thereby be in default under such senior
credit facility. If we were in default under this agreement, the
lenders thereunder could require immediate payment of all
obligations under the senior credit facility
and/or
foreclose on the collateral that is pledged to secure those
obligations. If this occurred, we could be forced to sell assets
or take other action that would reduce the value of our business.
Servicing
our debt and other obligations requires a significant amount of
cash, and our ability to generate sufficient cash depends on
many factors, some of which are beyond our
control.
We have significant financial obligations outstanding. Our
ability to service our debt and these other obligations depends
on our ability to generate significant cash flow. This is
partially subject to general economic, financial, competitive,
legislative and regulatory, and other factors that are beyond
our control. We cannot assure you that our business will
generate cash flow from operations, that future borrowings will
be available to us under our senior credit facility, or that we
will be able to complete any necessary financings, in amounts
sufficient to enable us to fund our operations or pay our debts
and other obligations, or to fund other liquidity needs. If we
are not able to generate sufficient cash flow to service our
debt obligations, we may need to refinance or restructure our
debt, sell assets, reduce or delay capital investments, or seek
to raise
13
additional capital. Additional debt or equity financing may not
be available in sufficient amounts, at times or on terms
acceptable to us, or at all. If we are unable to implement one
or more of these alternatives, we may not be able to service our
debt or other obligations, which could result in us being in
default thereon, in which circumstances our lenders could cease
making loans to us and accelerate and declare due all
outstanding obligations under our senior credit facility, which
could have a material adverse effect on the value of our common
stock. In addition, the current volatility in the capital
markets may also impact our ability to obtain additional
financing, or to refinance our existing debt, on terms or at
times favorable to us.
Our
operating and financial flexibility is limited by the terms of
our Series D Perpetual Preferred Stock.
Our Series D Perpetual Preferred Stock prevents us from
taking certain actions and requires us to comply with certain
requirements. Among other things, this includes limitations on:
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additional indebtedness;
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liens;
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amendments to our by-laws and articles of incorporation;
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our ability to issue equity securities having liquidation
preferences senior or equivalent to the liquidation preferences
of the Series D Perpetual Preferred Stock;
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mergers and the sale of assets;
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guarantees;
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investments and acquisitions;
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payment of dividends and the redemption of our capital
stock; and
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related-party transactions.
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These restrictions may prevent us from taking action that could
increase the value of our business, or may require actions that
decrease the value of our business.
We
have suspended cash dividends on both classes of our common
stock and have not paid certain accumulated dividends under our
Series D Perpetual Preferred Stock. To the extent a
potential investor ascribes value to a dividend paying stock,
the value of our stock may be correspondingly
reduced.
Our board of directors has not declared a cash or stock dividend
for our common stock or Class A common stock since the
third quarter of 2008. We can provide no assurance when or if
any future dividends will be declared on either class of common
stock.
We made our most recent Series D Perpetual Preferred Stock
cash dividend payment on October 15, 2008, for dividends
earned through September 30, 2008. We have deferred the
cash payment of our preferred stock dividends earned thereon
since October 1, 2008. As a result of our election to defer
three consecutive cash dividend payments with respect to the
Series D Perpetual Preferred Stock, the dividend rate
thereon has increased from 15.0% per annum to 17.0% per annum.
While any Series D Perpetual Preferred Stock dividend
payments are in arrears, we are prohibited from repurchasing,
declaring
and/or
paying any cash dividend with respect to any equity securities
having liquidation preferences equivalent to or junior in
ranking to the liquidation preferences of the Series D
Perpetual Preferred Stock, including our common stock and
Class A common stock. We can provide no assurances as to
when any future cash payments will be made on any accumulated
and unpaid Series D Perpetual Preferred Stock cash
dividends presently in arrears or that become in arrears in the
future. The Series D Perpetual Preferred Stock has no
mandatory redemption date but may be redeemed at the
stockholders option on or after June 30, 2015.
If and to the extent an investor ascribes value to a
dividend-paying stock, the value of our common and Class A
common stock may be correspondingly reduced due to our current
cessation of dividend payments.
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We may
not be able to maintain the NYSE listings for our common stock
and/or Class A common stock.
The NYSE requires all NYSE-listed companies to maintain
compliance with certain criteria. These criteria include minimum
stock price and minimum market capitalization standards. From
November 3, 2008 until September 30, 2009, our common
stock did not satisfy the NYSEs minimum stock price
criteria for continued listing because the average closing price
per share over a consecutive 30
trading-day
period was less than $1.00 per share.
In addition, the NYSE has other listing standards that may apply
to us, including a requirement to have a minimum market
capitalization of at least $15 million over a
30-trading-day period. Failure to comply with this particular
listing standard allows the NYSE to delist promptly a company
from the exchange. As of April 5, 2010, our average market
capitalization calculated over the prior consecutive
30-trading-day period was $104.9 million.
Although we are currently in compliance with all of the
NYSEs continued listing criteria, we can give no
assurances that we will be able to remain in compliance in
future periods. If either class of our common stock cannot meet
the applicable NYSE listing standards, then the NYSE may delist
both classes of our common stock.
If our common stock or Class A common stock were delisted
from the NYSE, the liquidity of such stock may be significantly
reduced which could, in turn, materially adversely effect the
price of such stock. In such event, we may seek to have such
Stock listed for trading on another national exchange or
alternative
over-the-counter
trading forum to provide liquidity to investors, although we can
provide no assurances as to the liquidity, market pricing or
investor interest in either class of our common stock under such
circumstances.
We
have, in the past, incurred impairment charges on our goodwill
and/or broadcast licenses, and any such future charges may have
a material effect on the value of our total
assets.
For the year ended December 31, 2008, we recorded a
non-cash impairment charge to our broadcast licenses of
$240.1 million and a non-cash impairment charge to our
goodwill of $98.6 million. As of December 31, 2009,
the book value of our broadcast licenses was $819.0 million
and the book value of our goodwill was $170.5 million, in
comparison to total assets of $1.2 billion. Not less than
annually, and more frequently if necessary, we are required to
evaluate our goodwill and broadcast licenses to determine if the
estimated fair value of these intangible assets is less than
book value. If the estimated fair value of these intangible
assets is less than book value, we will be required to record a
non-cash expense to write-down the book value of the intangible
asset to the estimated fair value. We cannot make any assurances
that any required impairment charges will not have a material
effect on our total assets.
We
must purchase television programming in advance but cannot
predict whether a particular show will be popular enough to
cover its cost.
One of our most significant costs is television programming. If
a particular program is not sufficiently popular among audiences
in relation to its costs, we may not be able to sell enough
advertising time to cover the costs of the program. Since we
purchase programming content from others, we have little control
over programming costs. We usually must purchase programming
several years in advance, and may have to commit to purchase
more than one years worth of programming. We may also
replace programs that are performing poorly before we have
recaptured any significant portion of the costs we incurred or
fully expensed the costs for financial reporting purposes. Any
of these factors could reduce our revenues, result in the
incurrence of impairment charges or otherwise cause our costs to
escalate relative to revenues. For instance, during the year
ended December 31, 2009, we recorded a television program
impairment expense of $0.2 million.
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We are
highly dependent upon our network affiliations, and may lose a
large amount of television programming if a network
(i) terminates its affiliation with us,
(ii) significantly changes the economic terms and
conditions of any future affiliation agreements with us or
(iii) significantly changes the type, quality or quantity
of programming provided to us under an affiliation
agreement.
Our business depends in large part on the success of our network
affiliations. Each of our stations is affiliated with a major
network pursuant to an affiliation agreement. Each affiliation
agreement provides the affiliated station with the right to
broadcast all programs transmitted by the affiliated network.
Our affiliation agreements expire at various dates through
January 1, 2016.
If we can not enter into affiliation agreements to replace our
expiring agreements, we may no longer be able to carry the
affiliated networks programming. This loss of programming
would require us to obtain replacement programming. Such
replacement programming may involve higher costs and may not be
as attractive to our target audiences, thereby reducing our
ability to generate advertising revenue. Furthermore, our
concentration of CBS
and/or NBC
affiliates makes us particularly sensitive to adverse changes in
our business relationship with, and the general success of, CBS
and/or NBC.
In addition, if we are unable renew or replace our existing
affiliation agreements, we may be unable to satisfy certain
obligations under our existing or any future retransmission
consent agreements with cable, satellite and telecommunications
providers (MVPDs). Furthermore, if in the future a
network limited or removed our ability to retransmit network
programming to MVPDs, we may be unable to satisfy certain
obligations under our existing or any future retransmission
consent agreements. In either case such an event could have a
material adverse effect on our business and results of
operations.
We
operate in a highly competitive environment. Competition occurs
on multiple levels (for audiences, programming and advertisers)
and is based on a variety of factors. If we are not able to
successfully compete in all relevant aspects, our revenues will
be materially adversely affected.
As described elsewhere herein, television stations compete for
audiences, certain programming (including news) and advertisers.
Signal coverage and assigned frequency also materially affect a
television stations competitive position. With respect to
audiences, stations compete primarily based on broadcast program
popularity. Because we purchase or otherwise acquire, rather
than produce, programs, we cannot provide any assurances as to
the acceptability by audiences of any of the programs we
broadcast. Further, because we compete with other broadcast
stations for certain programming, we cannot provide any
assurances that we will be able to obtain any desired
programming at costs that we believe are reasonable.
Cable-originated programming and increased access to cable and
satellite TV has become a significant competitor for broadcast
television programming viewers. Cable networks advertising
share has increased due to the growth in cable/satellite
penetration (the percentage of television households that are
connected to a cable or satellite system), which reduces
viewers. Further increases in the advertising share of cable or
satellite networks could materially adversely affect the
advertising revenue of our television stations.
In addition, technological innovation and the resulting
proliferation of programming alternatives, such as home
entertainment systems, wireless cable services,
satellite master antenna television systems, LPTV stations,
television translator stations, DBS, video distribution
services,
pay-per-view
and the internet, have further fractionalized television viewing
audiences and resulted in additional challenges to revenue
generation.
Our inability or failure to broadcast popular programs, or
otherwise maintain viewership for any reason, including as a
result of significant increases in programming alternatives,
could result in a lack of advertisers, or a reduction in the
amount advertisers are willing to pay us to advertise, which
could have a material adverse effect on our business, financial
condition and results of operations.
Our
dependence upon a single advertising category could adversely
affect our business.
We derive a material portion of our advertising revenue from the
automotive and restaurant industries. In 2009, we earned
approximately 17% and 12% of our total revenue from the
automotive and restaurant categories, respectively. In 2008, we
earned approximately 19% and 10% of our total revenue from the
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automotive and restaurant categories, respectively. Our business
and operating results could be materially adversely affected if
automotive or restaurant-related advertising revenues decrease.
Our business and operating results could also be materially
adversely affected if revenue decreased from one or more other
significant advertising categories, such as the communications,
entertainment, financial services, professional services or
retail industries.
The
required phased-in introduction of digital television will
continue to require us to incur significant capital and
operating costs and may expose us to increased
competition.
The 2009 requirement to convert from analog to digital
television services in the United States may require us to incur
significant capital expenditures in replacing our stations
equipment to produce local programming, including news, in
digital format. We cannot be certain that increased revenues
will offset these additional capital expenditures.
In addition, we also may incur additional costs to obtain
programming for the additional channels made available by
digital technology. Increased revenues from the additional
channels may not offset the conversion costs and additional
programming expenses. Multiple channels programmed by other
stations may further increase competition in our markets.
Any
potential hostilities or terrorist attacks, or similar events
leading to broadcast interruptions, may affect our revenues and
results of operations.
If the United States engages in additional foreign hostilities,
experiences a terrorist attack or experiences any similar event
resulting in interruptions to regularly scheduled broadcasting,
we may lose advertising revenue and incur increased broadcasting
expenses. Lost revenue and increased expenses may be due to
pre-emption, delay or cancellation of advertising campaigns, and
increased costs of covering such events. We cannot predict the
(i) extent or duration of any future disruption to our
programming schedule, (ii) amount of advertising revenue
that would be lost or delayed or (iii) amount by which our
broadcasting expenses would increase as a result. Any such loss
of revenue and increased expenses could negatively affect our
future results of operations.
Risks
Related to Regulatory Matters
Federal
broadcasting industry regulation limits our operating
flexibility.
The FCC regulates all television broadcasters, including us. We
must obtain FCC approval whenever we (i) apply for a new
license, (ii) seek to renew or assign a license,
(iii) purchase a new station or (iv) transfer the
control of one of our subsidiaries that holds a license. Our FCC
licenses are critical to our operations, and we cannot operate
without them. We cannot be certain that the FCC will renew these
licenses in the future or approve new acquisitions. Our failure
to renew any licenses upon the expiration of any license term
could have a material adverse effect on our business.
Federal legislation and FCC rules have changed significantly in
recent years and may continue to change. These changes may limit
our ability to conduct our business in ways that we believe
would be advantageous and may affect our operating results.
The
FCCs duopoly restrictions limit our ability to own and
operate multiple television stations in the same market and our
ability to own and operate a television station and newspaper in
the same market.
The FCCs ownership rules generally prohibit us from owning
or having attributable interests in television
stations located in the same markets in which our stations are
licensed. Accordingly, those rules constrain our ability to
expand in our present markets through additional station
acquisitions. Current FCC cross-ownership rules prevent us from
owning and operating a television station and newspaper in the
same market.
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The
FCCs National Television Station Ownership Rule limits the
maximum number of households we can reach.
A single television station owner can reach no more than
39 percent of U.S. households through commonly owned
television stations. Accordingly, these rules constrain our
ability to expand through additional station acquisitions.
Federal legislation and FCC rules have changed significantly in
recent years and may continue to change. These changes may limit
our ability to conduct our business in ways that we believe
would be advantageous and may affect our operating results.
The
FCCs National Broadband Plan could result in the
reallocation of broadcast spectrum for wireless broadband use,
which could materially impair our ability to provide competitive
services.
On March 16, 2010, the FCC delivered to Congress a
National Broadband Plan. The National Broadband
Plan, inter alia, makes recommendations regarding the use of
spectrum currently allocated to television broadcasters,
including seeking the voluntary surrender of certain portions of
the television broadcast spectrum and repacking the currently
allocated spectrum to make portions of that spectrum available
for other wireless communications services. If some or all of
our television stations are required to change frequencies or
reduce the amount of spectrum they use, our stations could incur
substantial conversion costs, reduction or loss of
over-the-air
signal coverage or an inability to provide high definition
programming and additional program streams, including mobile
video services. Prior to implementation of the proposals
contained in the National Broadband Plan, further action by the
FCC or Congress or both is necessary. We cannot predict the
likelihood, timing or outcome of any Congressional or FCC
regulatory action in this regard nor the impact of any such
changes upon our business.
Our
ability to successfully negotiate future retransmission consent
agreements may be hindered by the interests of networks with
whom we are affiliated.
Our affiliation agreements with some broadcast networks include
certain terms that may affect our future ability to permit MVPDs
to retransmit network programming, and in some cases, we may be
unable to satisfy certain obligations under our existing or any
future retransmission consent agreements with MVPDs. In
addition, we may not be able to successfully negotiate future
retransmission consent agreements with the MVPDs in our local
markets if the broadcast networks withhold their consent to the
retransmission of those portions of our stations signals
containing network programming, or the networks may require us
to pay compensation in exchange for permitting redistribution of
network programming by MVPDs. If we are required to make
payments to networks in connection with signal retransmission,
those payments may adversely affect our operating results. If we
are unable to satisfy certain obligations under our existing or
future retransmission consent agreements with MVPDs then there
could be a material adverse effect on our results of operations.
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Item 1B.
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Unresolved
Staff Comments.
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None.
Our principal executive offices are located at 4370 Peachtree
Road, NE, Atlanta, Georgia, 30319. Our administrative offices
are located at 126 North Washington St., Third Floor, Albany,
Georgia, 31701. Our shared services offices are located at 1801
Halstead Blvd., Tallahassee, Florida, 32309. A complete listing
of our television stations and their locations is included on
pages three and four of this Annual Report.
The types of properties required to support television stations
include offices, studios, transmitter sites and antenna sites. A
stations studios are generally housed within its offices
in each respective market. The transmitter sites and antenna
sites are generally located in elevated areas, to provide
optimal signal strength and coverage. We own or lease land,
office, studio, transmitters and antennas in each of our markets
necessary to support our operations in that market area. In some
market areas, we also own or lease multiple properties,
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such as multiple towers and or translators, to optimize our
broadcast capabilities. To the extent that our properties are
leased and those leases contain expiration dates, we believe
that those leases can be renewed, or that alternative facilities
can be leased or acquired, on terms that are comparable, in all
material respects, to our existing properties.
We generally believe all of our owned and leased properties are
in good condition, and suitable for the conduct of our present
business.
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Item 3.
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Legal
Proceedings.
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We are, from time to time, subject to legal proceedings and
claims in the normal course of our business. Based on our
current knowledge, we do not believe that any known legal
proceedings or claims are likely to have a material adverse
effect on our financial position, results of operations or cash
flows.
Executive
Officers of the Registrant.
Set forth below is certain information with respect to our
executive officers as of March 30, 2010:
Hilton H. Howell, Jr., age 48, has been our
Chief Executive Officer since August 20, 2008 and has also
served as Vice-Chairman since September 2002. Before that, he
had been our Executive Vice President since September 2000. He
has served as one of our directors since 1993. He is a member of
the Executive Committee of our board of directors. He has served
as President and Chief Executive Officer of Atlantic American
Corporation, an insurance holding company, since 1995, and as
Chairman of that Company since February 24, 2009. He has
been Executive Vice President and General Counsel of Delta Life
Insurance Company and Delta Fire and Casualty Insurance Company
since 1991. He has served as Vice Chairman of Bankers Fidelity
Life Insurance Company since 1992 and Vice Chairman of Georgia
Casualty & Surety Company from 1992 through 2008. He
served as Chairman of the Board of Triple Crown Media, Inc.
(TCM) from December 2005 until December 2009.
Mr. Howell also serves as a director of Atlantic American
Corporation and its subsidiaries American Southern Insurance
Company, American Safety Insurance Company and Bankers Fidelity
Life Insurance Company, as well as Delta Life Insurance Company
and Delta Fire and Casualty Insurance Company. He is the
son-in-law
of Mr. J. Mack Robinson and Mrs. Harriett J. Robinson,
both members of our board of directors.
Robert S. Prather, Jr., age 65, has served as
our President and Chief Operating Officer since September 2002.
He has served as one of our directors since 1993. He is a member
of the Executive Committee of our board of directors. He has
been a director of TCM since 1994, and served as Chairman of TCM
from December 2005 until November 2007. He served as President
and Chief Executive Officer of TCM from May 2005 to
December 30, 2005, and has served in that position since
November 2007. TCM filed for protection under Chapter 11 of
the U.S. bankruptcy code on September 14, 2009. The
order confirming the Plan of Reorganization under
Chapter 11 of the bankruptcy code became effective
December 8, 2009. He serves as an advisory director of
Swiss Army Brands, Inc., and serves on the Board of Trustees of
the Georgia World Congress Center Authority. He also serves as a
member of the Board of Directors for GAMCO Investors, Inc.,
Gaylord Entertainment Company and Victory Ventures, Inc.
James C. Ryan, age 49, has served as our Chief
Financial Officer since October 1998 and Senior Vice President
since September 2002. Before that, he had been our Vice
President since October 1998.
Robert A. Beizer, age 70, has served as our Vice
President for Law and Development and Secretary since 1996. From
June 1994 to February 1996, he was of counsel to Venable, LLC, a
law firm, in its regulatory and legislative practice group. From
1990 to 1994, Mr. Beizer was a partner in the law firm of
Sidley & Austin and was head of their communications
practice group in Washington, D.C. He is a past president
of the Federal Communications Bar Association and has served as
a member of the American Bar Association House of Delegates. He
is a member of the ABA Forum Committee on Communications Law.
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PART II
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Item 5.
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Market
for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.
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Our common stock, no par value, and our Class A common
stock, no par value, have been listed and traded on the NYSE
since September 24, 1996 and June 30, 1995,
respectively. Prior to September 16, 2002, the common stock
was named Class B common stock.
The following table sets forth the high and low sale prices of
the common stock and the Class A common stock as well as
the cash dividend declared for the periods indicated. The high
and low sales prices of the common stock and the Class A
common stock are as reported by the NYSE.
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Common Stock
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Class A Common Stock
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Cash Dividends
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Cash Dividends
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Declared per
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Declared per
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High
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Low
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Share
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High
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Low
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Share
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2009:
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First Quarter
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$
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0.54
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|
$
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0.28
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$
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|
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$
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1.28
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$
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0.55
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$
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Second Quarter
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0.92
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0.32
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|
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1.36
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0.53
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Third Quarter
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3.57
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0.38
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|
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3.55
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0.50
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Fourth Quarter
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2.89
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1.06
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2.73
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1.12
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2008:
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First Quarter
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$
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8.25
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|
|
$
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4.69
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|
$
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0.03
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|
|
$
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8.79
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|
|
$
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5.82
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$
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0.03
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Second Quarter
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6.02
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2.67
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|
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0.03
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7.00
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4.00
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|
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0.03
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Third Quarter
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3.10
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1.61
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0.03
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4.75
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2.72
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0.03
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Fourth Quarter
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1.75
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0.18
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3.50
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0.50
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As of March 24, 2010, we had 42,879,557 outstanding shares
of common stock held by approximately 4,844 stockholders and
5,753,020 outstanding shares of Class A common stock held
by approximately 468 stockholders. The number of stockholders
includes stockholders of record and individual participants in
security position listings as furnished to us pursuant to
Rule 17Ad-8
under the Exchange Act.
Our Articles of Incorporation provide that each share of common
stock is entitled to one vote, and each share of Class A
common stock is entitled to 10 votes. The Articles of
Incorporation require that the common stock and the Class A
common stock receive dividends on a pari passu basis.
We have not paid dividends on either class of our common stock
since October 15, 2008. Our senior credit facility contains
covenants that restrict the amount of funds available to pay
cash dividends on our capital stock. Further, the terms of our
Series D Perpetual Preferred Stock contain requirements
that, in certain circumstances, will restrict our ability to pay
dividends on our Class A common stock and our common stock.
We have deferred the cash payment of dividends on our
Series D Perpetual Preferred Stock earned thereon since
October 1, 2008.
While any Series D Perpetual Preferred Stock dividend
payments are in arrears, we are prohibited from repurchasing,
declaring
and/or
paying any cash dividend with respect to any equity securities
having liquidation preferences equivalent to or junior in
ranking to the liquidation preferences of the Series D
Perpetual Preferred Stock, including our common stock and
Class A common stock. We can provide no assurances as to
when any future cash payments will be made on any accumulated
and unpaid Series D Perpetual Preferred Stock cash
dividends presently in arrears or that become in arrears in the
future. The Series D Perpetual Preferred Stock has no
mandatory redemption date but may be redeemed at the
stockholders option on or after June 30, 2015.
In addition, the declaration and payment of common stock and
Class A common stock dividends are subject to the
discretion of our Board of Directors. Any future payments of
dividends will depend on our earnings and financial position and
such other factors as our Board of Directors deems relevant. See
Note 3. Long-term Debt and Accrued Facility Fee
of our audited consolidated financial statements included
elsewhere herein for a further discussion of restrictions on our
ability to pay dividends.
20
Stock
Performance Graph
The following stock performance graphs do not constitute
soliciting material and should not be deemed filed or
incorporated by reference into any other filing by us under the
Securities Act of 1933, or the Securities Exchange Act of 1934,
except to the extent we specifically incorporate these graphs by
reference therein.
The following graphs compare the cumulative total return of the
common stock and the Class A common stock from
January 1, 2005 to December 31, 2009, as compared to
the stock market total return indexes for (i) The New York
Stock Exchange Market Index and (ii) The New York Stock
Exchange Industry Index based upon the Television Broadcasting
Stations Index.
The graphs assume the investment of $100 in the common stock and
the Class A common stock, the New York Stock Exchange
Market Index and the NYSE Television Broadcasting Stations Index
on January 1, 2005. Dividends are assumed to have been
reinvested as paid.
Common
Stock
Comparison of Cumulative Total Return
of One or More Companies, Peer Groups, Industry Indexes
and/or
Broad Markets
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Fiscal Year Ended
|
Gray Television Com.
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$
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64.13
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|
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$
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55.61
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|
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|
$
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61.75
|
|
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$
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3.77
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|
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|
$
|
14.15
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|
TV Broadcasting Stations
|
|
|
$
|
96.70
|
|
|
|
$
|
119.48
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|
|
|
$
|
117.15
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|
|
|
$
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61.11
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|
|
|
$
|
94.07
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|
NYSE Market Index
|
|
|
$
|
109.36
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|
|
|
$
|
131.75
|
|
|
|
$
|
143.43
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|
|
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$
|
87.12
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|
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$
|
111.76
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21
Class A
Common Stock
Comparison of Cumulative Total Return
of One or More Companies, Peer Groups, Industry Indexes
and/or
Broad Markets
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Fiscal Year Ended
|
Gray Television Cl A
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$
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64.69
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|
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|
$
|
59.62
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|
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$
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62.52
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|
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$
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4.93
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|
|
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$
|
12.74
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TV Broadcasting Stations
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|
|
$
|
96.70
|
|
|
|
$
|
119.48
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|
|
|
$
|
117.15
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|
|
|
$
|
61.11
|
|
|
|
$
|
94.07
|
|
NYSE Market Index
|
|
|
$
|
109.36
|
|
|
|
$
|
131.75
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|
|
|
$
|
143.43
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|
|
|
$
|
87.12
|
|
|
|
$
|
111.76
|
|
|
|
|
|
|
|
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22
|
|
Item 6.
|
Selected
Financial Data.
|
Certain selected historical consolidated financial data is set
forth below. This information with respect to the years ended
December 31, 2009, 2008 and 2007 should be read in
conjunction with Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
audited consolidated financial statements and related notes
thereto included elsewhere herein.
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Year Ended December 31,
|
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2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005(2)
|
|
|
|
(In thousands, except per share data)
|
|
|
Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues(3)
|
|
$
|
270,374
|
|
|
$
|
327,176
|
|
|
$
|
307,288
|
|
|
$
|
332,137
|
|
|
$
|
261,553
|
|
Impairment of goodwill and broadcast licenses(4)
|
|
|
|
|
|
|
338,681
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
43,079
|
|
|
|
(258,895
|
)
|
|
|
53,376
|
|
|
|
87,991
|
|
|
|
60,861
|
|
Loss on early extinguishment of debt(5)
|
|
|
(8,352
|
)
|
|
|
|
|
|
|
(22,853
|
)
|
|
|
(347
|
)
|
|
|
(6,543
|
)
|
(Loss) income from continuing operations
|
|
|
(23,047
|
)
|
|
|
(202,016
|
)
|
|
|
(23,151
|
)
|
|
|
11,711
|
|
|
|
4,604
|
|
Loss from discontinued publishing and wireless operations, net
of income tax of $0, $0, $0, $0 and $3,253 respectively(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,242
|
)
|
Net (loss) income
|
|
|
(23,047
|
)
|
|
|
(202,016
|
)
|
|
|
(23,151
|
)
|
|
|
11,711
|
|
|
|
3,362
|
|
Net (loss) income available to common stockholders
|
|
|
(40,166
|
)
|
|
|
(208,609
|
)
|
|
|
(24,777
|
)
|
|
|
8,464
|
|
|
|
(2,286
|
)
|
Net (loss) income from continuing operations available to common
stockholders per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.83
|
)
|
|
|
(4.32
|
)
|
|
|
(0.52
|
)
|
|
|
0.17
|
|
|
|
(0.02
|
)
|
Diluted
|
|
|
(0.83
|
)
|
|
|
(4.32
|
)
|
|
|
(0.52
|
)
|
|
|
0.17
|
|
|
|
(0.02
|
)
|
Net (loss) income available to common stockholders per common
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
(0.83
|
)
|
|
|
(4.32
|
)
|
|
|
(0.52
|
)
|
|
|
0.17
|
|
|
|
(0.05
|
)
|
Diluted
|
|
|
(0.83
|
)
|
|
|
(4.32
|
)
|
|
|
(0.52
|
)
|
|
|
0.17
|
|
|
|
(0.05
|
)
|
Cash dividends declared per common share(7)
|
|
|
|
|
|
|
0.09
|
|
|
|
0.12
|
|
|
|
0.12
|
|
|
|
0.12
|
|
Balance Sheet Data (at end of period):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,245,739
|
|
|
$
|
1,278,265
|
|
|
$
|
1,625,969
|
|
|
$
|
1,628,287
|
|
|
$
|
1,525,054
|
|
Long-term debt (including current portion)
|
|
|
791,809
|
|
|
|
800,380
|
|
|
|
925,000
|
|
|
|
851,654
|
|
|
|
792,509
|
|
Long-term accrued facility fee(8)
|
|
|
18,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable serial preferred stock(9)
|
|
|
93,386
|
|
|
|
92,183
|
|
|
|
|
|
|
|
37,451
|
|
|
|
39,090
|
|
Total stockholders equity
|
|
|
93,620
|
|
|
|
117,107
|
|
|
|
337,845
|
|
|
|
379,754
|
|
|
|
380,996
|
|
|
|
|
(1) |
|
Reflects the acquisition of
WNDU-TV on
March 3, 2006 as of the acquisition date. For further
information concerning this acquisition, see Part I,
Item 1. Business. |
|
(2) |
|
Reflects the acquisitions of
KKCO-TV on
January 31, 2005,
WSWG-TV on
November 10, 2005 and
WSAZ-TV on
November 30, 2005, as of their respective acquisition dates. |
|
(3) |
|
Our revenues fluctuate significantly between years, consistent
with, among other things, increased political advertising
expenditures in even-numbered years. |
|
(4) |
|
As of December 31, 2008, we recorded a non-cash impairment
expense of $338.7 million resulting from a write down of
$98.6 million in the carrying value of our goodwill and a
write down of $240.1 million in the carrying value of our
broadcast licenses. The write-down of our goodwill and broadcast
licenses related to seven stations and 23 stations,
respectively. As of this testing date, we believe events had
occurred and |
23
|
|
|
|
|
circumstances changed that more likely than not reduce the fair
value of our broadcast licenses and goodwill below their
carrying amounts. These events which accelerated in the fourth
quarter of 2008 included: (i) the continued decline of the
price of our common stock and Class A common stock;
(ii) the decline in the current selling prices of
television stations; (iii) the decline in local and
national advertising revenues excluding political advertising
revenue; and (iv) the decline in the operating profit
margins of some of our stations. |
|
(5) |
|
In 2009, we recorded a loss on early extinguishment of debt
related to an amendment of our senior credit facility. In 2007,
we recorded a loss on early extinguishment of debt related to
the refinancing of our senior credit facility and the redemption
of our 9.25% Senior Subordinated Notes
(9.25% Notes). In 2006, we recorded a loss on
early extinguishment of debt related to the repurchase of a
portion of our 9.25% Notes. In 2005, we recorded a loss on
early extinguishment of debt related to two amendments to our
then existing senior credit facility and the repurchase of a
portion of our 9.25% Notes. |
|
(6) |
|
On December 30, 2005, we completed (i) the
contribution of all of our membership interests in Gray
Publishing, LLC, which included our Gray Publishing and Graylink
Wireless businesses and certain other assets, to TCM and
(ii) the spinoff of all the common stock of TCM to our
shareholders. The selected financial information for 2005
reflects the reclassification of the results of operations of
those businesses as discontinued operations, net of income tax. |
|
(7) |
|
Cash dividends for 2007 and 2006 include a cash dividend of
$0.03 per share approved in the fourth quarters of 2007 and
2006, respectively, and paid in the first quarters of 2008 and
2007, respectively. |
|
(8) |
|
On March 31, 2009, we amended our senior credit facility.
Effective on that date, we began to incur an annual facility fee
equal to 3% multiplied by the outstanding balance under our
senior credit facility. See Note 3. Long-term Debt
and Accrued Facility Fee of our notes to our audited
consolidated financial statements included elsewhere herein for
further information regarding our accrued facility fee. |
|
(9) |
|
On June 26, 2008, we issued 750 shares of
Series D Perpetual Preferred Stock. The no par value
Series D Perpetual Preferred Stock has a liquidation value
of $100,000 per share, for a total liquidation value of
$75.0 million. The issuance of the Series D Perpetual
Preferred Stock generated net cash proceeds of approximately
$68.6 million, after a 5.0% original issue discount,
transaction fees and expenses. We used $65.0 million of the
net cash proceeds to voluntarily prepay a portion of the
outstanding balance under our term loan portion of our senior
credit facility and used the remaining $3.6 million for
general corporate purposes, which included the payment of
$635,000 of accrued interest. The $6.4 million of original
issue discount, transaction fees and expenses will be accreted
over a seven-year period ending June 30, 2015. |
On July 15, 2008, we issued an additional 250 shares
of our Series D Perpetual Preferred Stock and generated net
cash proceeds of approximately $23.0 million, after a 5.0%
original issue discount, transaction fees and expenses. We used
the net cash proceeds to make an additional $23.0 million
voluntary prepayment on the outstanding balance of our term loan
portion of our senior credit facility. The $2.0 million of
original issue discount, transaction fees and expenses will be
accreted over a seven-year period ending June 30, 2015. On
May 22, 2007, we redeemed all outstanding shares of our
Series C Preferred Stock.
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations.
|
Executive
Overview
Introduction
The following analysis of the financial condition and results of
operations of Gray Television, Inc. (we,
us, or our) should be read in
conjunction with our audited consolidated financial statements
and notes thereto included elsewhere herein.
Overview
We own 36 television stations serving 30 television markets.
Seventeen of the stations are affiliated with CBS Inc.
(CBS), ten are affiliated with the National
Broadcasting Company, Inc. (NBC), eight are
affiliated with the American Broadcasting Company
(ABC), and one is affiliated with FOX Entertainment
Group, Inc. (FOX). Our 17 CBS-affiliated stations
make us the largest independent owner of CBS affiliates
24
in the United States. Based on the results of the average of the
Nielsen March, May, July, and November 2009 ratings reports, our
combined station group has 23 markets with stations
ranked #1 in local news audience and 21 markets with
stations ranked #1 in overall audience within their
respective markets. Of the 30 markets that we serve, we operate
the #1 or #2 ranked station in 29 of those markets. In
addition to our primary channels that we broadcast from our
television stations, we currently broadcast 39 digital second
channels including one affiliated with ABC, four affiliated with
FOX, seven affiliated with The CW Network, LLC (CW),
18 affiliated with Twentieth Television, Inc.
(MyNetworkTV or MyNet.), two affiliated
with Universal Sports Network or (Univ.) and seven
local news/weather channels in certain of our existing markets.
We created our digital second channels to better utilize our
excess broadcast spectrum. The digital second channels are
similar to our primary broadcast channels; however, our digital
second channels are affiliated with networks different from
those affiliated with our primary broadcast channels. Our
combined TV station group reaches approximately 6.3% of total
United States households.
Our operating revenues are derived primarily from broadcast and
internet advertising, and from other sources such as production
of commercials and tower rentals, retransmission consent fees
and consulting fees.
Broadcast advertising is sold for placement either preceding or
following a television stations network programming and
within local and syndicated programming. Broadcast advertising
is sold in time increments and is priced primarily on the basis
of a programs popularity among the specific audience an
advertiser desires to reach, as measured by Nielsen. In
addition, broadcast advertising rates are affected by the number
of advertisers competing for the available time, the size and
demographic makeup of the market served by the station and the
availability of alternative advertising media in the market
area. Broadcast advertising rates are the highest during the
most desirable viewing hours, with corresponding reductions
during other hours. The ratings of a local station affiliated
with a major network can be affected by ratings of network
programming.
We sell internet advertising on our stations websites.
These advertisements are sold as banner advertisements on the
websites, pre-roll advertisements or video and other types of
advertisements.
Most advertising contracts are short-term, and generally run
only for a few weeks. Approximately 67% of the net revenues of
our television stations for the year ended December 31,
2009 were generated from local advertising (including political
advertising revenues), which is sold primarily by a
stations sales staff directly to local accounts, and the
remainder represented primarily by national advertising, which
is sold by a stations national advertising sales
representative. The stations generally pay commissions to
advertising agencies on local, regional and national advertising
and the stations also pay commissions to the national sales
representative on national advertising.
Broadcast advertising revenues are generally highest in the
second and fourth quarters each year. This seasonality results
partly from increases in advertising in the spring and in the
period leading up to and including the holiday season. Broadcast
advertising revenues are also generally higher in even-numbered
years, due to spending by political candidates, political
parties and special interest groups. This political spending
typically is heaviest during the fourth quarter of such years.
Our primary broadcasting operating expenses are employee
compensation, related benefits and programming costs. In
addition, the broadcasting operations incur overhead expenses,
such as maintenance, supplies, insurance, rent and utilities. A
large portion of the operating expenses of the broadcasting
operations is fixed.
During the economic recession that began in 2008 and continued
through 2009, many of our advertising customers reduced their
advertising spending which has reduced our revenue. Also,
automotive dealers and manufacturers have traditionally
accounted for a significant portion of our revenue. We believe
our automotive advertising customers have suffered
disproportionately during the recession and have therefore
significantly reduced their advertising expenditures, which in
turn has negatively impacted our revenues. Our revenues have
also come under pressure from the internet as a competitor for
advertising spending. We continue to enhance and market our
internet websites to generate additional revenue.
We have reduced our operating expenses as our revenues have
decreased. However, partly due to our significant fixed
expenses, the decrease in our revenues has exceeded the decrease
in our expenses. Please see
25
our Results of Operations and Liquidity and
Capital Resources sections below for further discussion of
our operating results.
Revenues
Set forth below are the principal types of revenues earned by
our broadcasting operations for the periods indicated and the
percentage contribution of each to total revenues (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year End December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
|
|
Percent of
|
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Amount
|
|
|
Total
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Local
|
|
$
|
170,813
|
|
|
|
63.2
|
%
|
|
$
|
186,492
|
|
|
|
57.0
|
%
|
|
$
|
200,686
|
|
|
|
65.3
|
%
|
National
|
|
|
53,892
|
|
|
|
19.9
|
%
|
|
|
68,417
|
|
|
|
20.9
|
%
|
|
|
77,365
|
|
|
|
25.2
|
%
|
Internet
|
|
|
11,413
|
|
|
|
4.2
|
%
|
|
|
11,859
|
|
|
|
3.6
|
%
|
|
|
9,506
|
|
|
|
3.1
|
%
|
Political
|
|
|
9,976
|
|
|
|
3.7
|
%
|
|
|
48,455
|
|
|
|
14.8
|
%
|
|
|
7,808
|
|
|
|
2.5
|
%
|
Retransmission consent
|
|
|
15,645
|
|
|
|
5.8
|
%
|
|
|
3,046
|
|
|
|
0.9
|
%
|
|
|
2,436
|
|
|
|
0.8
|
%
|
Production and other
|
|
|
7,119
|
|
|
|
2.6
|
%
|
|
|
8,155
|
|
|
|
2.5
|
%
|
|
|
8,719
|
|
|
|
2.8
|
%
|
Network compensation
|
|
|
653
|
|
|
|
0.2
|
%
|
|
|
752
|
|
|
|
0.3
|
%
|
|
|
768
|
|
|
|
0.3
|
%
|
Consulting revenue
|
|
|
863
|
|
|
|
0.4
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
270,374
|
|
|
|
100.0
|
%
|
|
$
|
327,176
|
|
|
|
100.0
|
%
|
|
$
|
307,288
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
Factors
The broadcast television industry is reliant primarily on
advertising revenues and faces increased competition. For a
discussion of certain other presently known, significant factors
that may affect our business, see Item 1A. Risk
Factors beginning on page 12 of this Annual Report.
Results
of Operations
Year
Ended December 31, 2009 (2009) Compared to Year
Ended December 31, 2008 (2008)
Revenue
Total revenues decreased $56.8 million, or 17%, to
$270.4 million due primarily to decreased local, national,
political and internet advertising revenue, decreased network
compensation revenue and decreased production and other revenue.
These decreases were partially offset by increased
retransmission consent revenue and consulting revenue in the
year ended December 31, 2009. Retransmission consent
revenue increased $12.6 million, or 414%, to
$15.6 million reflecting the more profitable terms of our
current contracts that we finalized earlier in 2009. Consulting
revenue increased to $0.9 million for the year ended
December 31, 2009 due to revenue from an agreement with
Young Broadcasting, Inc. that was effective August 10,
2009. Local advertising revenues, excluding political
advertising revenues, decreased $15.7 million, or 8%, to
$170.8 million. National advertising revenues, excluding
political advertising revenues, decreased $14.5 million, or
21%, to $53.9 million. The decrease in local and national
advertising revenue was due to reduced spending by advertisers
in the continued recessionary economic environment. Our
automotive advertising revenue decreased approximately 31%
compared to the prior year. In addition, during the year ended
December 31, 2008 we earned a total of $3.4 million of
net revenue from local and national advertisers during the
broadcast of the 2008 Summer Olympics on our ten NBC stations.
There were no Olympic Game broadcasts during 2009. The negative
effects of the recession were partially offset by increased
advertising during the 2009 Super Bowl. Net advertising revenue
associated with the broadcast of the 2009 Super Bowl on our ten
NBC affiliated stations approximated $750,000, which was an
increase from the approximate $130,000 of Super Bowl revenue
earned in 2008 on our then six Fox affiliated channels.
Political advertising revenues decreased $38.5 million, or
79%, to $10.0 million reflecting reduced advertising from
political candidates during the off year of the
two-year political advertising cycle. However, we did recognize
political advertising revenue in the three months ended
December 31, 2009 related to increased spending on the
national healthcare debate.
26
Broadcast
expenses
Broadcast expenses (before depreciation, amortization,
impairment expense and gain on disposal of assets) decreased
$12.0 million, or 6%, to $187.6 million due primarily
to a reduction in compensation expense of $3.4 million,
professional service expense of $2.2 million, facility fees
of $1.1 million, bad debt expense of $0.9 million and
syndicated programming expense of $1.1 million.
Compensation expenses included payroll and benefit expenses.
Payroll expense decreased primarily due to a reduction in the
number of employees and reduced commissions. As of
December 31, 2009 and 2008, we employed 2,184 and 2,253
total employees in our broadcast operations which included
full-time and part-time employees. This reduction in total
employees is a decrease of 3.1% or 69 total employees. Since
December 31, 2007, we have reduced our total number of
employees by 241, or 9.9%. Our reduction in payroll expense
resulting from the reduced number of employees was partially
offset by an increase in pension expense of $1.9 million.
Pension expense increased due to the use of a lower discount
rate in 2009 compared to the discount rate used to calculate the
2008 pension expense and due to the performance of our pension
plans assets in 2009 and 2008. Professional service
expense decreased primarily due to lower national representation
fees, which are paid based upon a percentage of our national and
political revenue, both of which decreased as discussed above.
Facility fees decreased primarily due to lower electricity
expense resulting from the discontinuance of our analog
broadcasts. Bad debt expense improved due to an improvement in
the average age of our accounts receivable balances. Syndicated
programming expense decreased primarily due to a lower
impairment expense in the current year compared to the prior
year. We recorded impairment expenses related to our syndicated
television programming during the years ended December 31,
2009 and 2008 of $0.2 million and $0.6 million,
respectively.
Corporate
and administrative expenses
Corporate and administrative expenses (before depreciation,
amortization, impairment and (gain) loss on disposal of assets)
increased $0.1 million, or 1%, to $14.2 million during
the year ended December 31, 2009. The increase was due
primarily to an increase in pension expense of
$0.2 million, an increase in relocation expense of
$0.2 million and an increase in legal expense of
$0.5 million. These increases were partially offset by a
decrease in market research expense of $0.6 million and
severance expense of $0.1 million. We currently believe the
relocation cost incurred in 2009 will not recur in future years
to the same extent as 2009. Also, approximately
$0.4 million of the increased legal costs were attributable
to the negotiation and documentation of our new retransmission
consent agreements, and such costs are currently not anticipated
to recur in future periods to the same extent. Corporate and
administrative expenses included non-cash stock-based
compensation expense during the years ended 2009 and 2008 of
$1.4 million and $1.5 million, respectively.
Depreciation
Depreciation of property and equipment totaled
$32.6 million and $34.6 million for 2009 and 2008,
respectively. The decrease in depreciation was the result of
reduced capital expenditures in recent years compared to that of
prior years. As a result, more assets acquired in prior years
have become fully depreciated than were purchased in recent
years.
Amortization
of intangible assets
Amortization of intangible assets was $0.6 million for 2009
as compared to $0.8 million for 2008. Amortization expense
decreased in the current year compared to that of the prior year
as a result of certain assets becoming fully amortized in the
current year.
Impairment
of goodwill and broadcast licenses
As of December 31, 2009, we evaluated the recorded value of
our goodwill and broadcast licenses for potential impairment and
concluded that they were reasonably stated. As a result, we did
not record an impairment expense for 2009. As of
December 31, 2008, we recorded a non-cash impairment
expense of $338.7 million resulting from a write-down of
$98.6 million in the carrying value of our goodwill and a
write
27
down of $240.1 million in the carrying value of our
broadcast licenses. The write-down of our goodwill and broadcast
licenses related to seven stations and 23 stations,
respectively. As of this testing date, we believed events had
occurred and circumstances changed that more likely than not
reduce the fair value of our broadcast licenses and goodwill
below their carrying amounts. These events, which accelerated in
the fourth quarter of 2008, included: (i) the continued
decline of the price of our common stock and Class A common
stock; (ii) the decline in the current selling prices of
television stations; (iii) the decline in local and
national advertising revenues excluding political advertising
revenue; and (iv) the decline in the operating profit
margins of some of our stations.
Gain or
loss on disposal of assets
Gain on disposal of assets increased $6.0 million, or 367%,
to $7.6 million during 2009 as compared to 2008. The FCC
has mandated that all broadcasters operating microwave
facilities on certain frequencies in the 2 GHz band
relocate to other frequencies and upgrade their equipment. The
spectrum being vacated by these broadcasters has been
reallocated to third parties who, as part of the overall
FCC-mandated spectrum reallocation project, must provide
affected broadcasters with new digital microwave replacement
equipment at no cost to the broadcaster and also reimburse those
broadcasters for certain associated
out-of-pocket
expenses. During 2009 and 2008, we recognized gains of
$9.2 million and $2.2 million, respectively, on the
disposal of equipment associated with the spectrum reallocation
project. The gains from the spectrum reallocation project were
partially offset by losses on disposals of equipment in the
ordinary course of business.
Interest
expense
Interest expense increased $15.0 million, or 28%, to
$69.1 million for 2009 compared to 2008. This increase is
due to the net effect of higher average interest rates and lower
principal balances in 2009 compared to 2008. The average
interest rates were 8.4% and 5.9% for 2009 and 2008,
respectively. The total average principal balance was
$796.4 million and $868.3 million for 2009 and 2008,
respectively. These average interest rates and average principal
balances are for the respective period and not the respective
ending balance sheet dates. The average interest rates include
the effects of our interest rate swap agreements.
Loss from
early extinguishment of debt
On March 31, 2009, we amended our senior credit facility.
To obtain this amendment, we incurred loan issuance costs of
approximately $7.4 million, including legal and
professional fees. These fees were funded from our existing cash
balances. In connection with this transaction, we reported a
loss on early extinguishment of debt of $8.4 million for
2009. There was no comparable loss in 2008.
Income
tax expense or benefit
The effective tax rate decreased to 32.8% for 2009 from 35.5%
for 2008. The effective tax rates differ from the statutory rate
due to the following items:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes
|
|
|
2.6
|
%
|
|
|
3.7
|
%
|
Change in valuation allowance
|
|
|
(4.5
|
)%
|
|
|
0.1
|
%
|
Reserve for uncertain tax positions
|
|
|
1.1
|
%
|
|
|
(0.2
|
)%
|
Goodwill impairment
|
|
|
0.0
|
%
|
|
|
(3.0
|
)%
|
Other
|
|
|
(1.4
|
)%
|
|
|
(0.1
|
)%
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
32.8
|
%
|
|
|
35.5
|
%
|
|
|
|
|
|
|
|
|
|
28
Year
Ended December 31, 2008 Compared to Year Ended
December 31, 2007 (2007)
Revenue
Total revenues increased $19.9 million, or 6%, to
$327.2 million reflecting increased cyclical political
advertising revenues. Political advertising revenues increased
$40.7 million, or 521%, to $48.5 million reflecting
the cyclical influence of the 2008 elections. Local advertising
revenues, excluding political advertising revenues, decreased
$14.2 million, or 7%, to $186.5 million. National
advertising revenues, excluding political advertising revenues,
decreased $9.0 million, or 12%, to $68.4 million.
Internet advertising revenues, excluding political advertising
revenues, increased $2.4 million, or 25%, to
$11.9 million reflecting increased website traffic and
internet sales initiatives in each of our markets. The increase
in political advertising revenue reflects increased advertising
from political candidates in the 2008 primary and general
elections. Spending on political advertising was the strongest
at our stations in Colorado, West Virginia, Wisconsin, Michigan
and North Carolina, accounting for a significant portion of the
total political net revenue for 2008. The decrease in local and
national revenue was largely due to the general weakness in the
economy and due to the change in networks broadcasting the Super
Bowl. During 2008, we earned approximately $130,000 of net
revenue relating to the 2008 Super Bowl broadcast on our six FOX
channels compared to approximately $750,000 of net revenue
relating to the 2007 Super Bowl broadcast on our 17 CBS channels
during 2007. The decrease in local and national revenue was
offset in part by $3.4 million of net revenue earned during
2008 attributable to the broadcast of the 2008 Summer Olympics
on our ten NBC stations.
Broadcast
expenses
Broadcast expenses (before depreciation, amortization,
impairment expense and (gain) loss on disposal of assets)
decreased $0.1 million, or approximately 0%, to
$199.6 million. This modest decrease primarily reflected
the impact of increased national sales representative
commissions on the incremental political advertising revenues
and increased syndicated programming expenses offset partially
by decreases in payroll and other operating expenses. We
recorded an impairment expense related to our syndicated
television programming of $0.6 million in 2008. Employee
payroll and related expenses decreased due to a reduction in our
number of employees in 2008 compared to 2007. As of
December 31, 2008 and 2007, we employed 2,253 and 2,425
total employees in our broadcast operations, which included
full-time and part-time employees. This reduction in total
employees was a decrease of 7.1% or 172 total employees.
Corporate
and administrative expenses
Corporate and administrative expenses (before depreciation,
amortization, impairment and (gain) loss on disposal of assets)
decreased $1.0 million, or 7%, to $14.1 million.
During 2008, corporate payroll expenses decreased by $950,000
compared to 2007, due primarily to a decrease in incentive-based
compensation. Corporate and administrative expenses included
non-cash stock-based compensation expense during the years ended
2008 and 2007 of $1.5 million and $1.2 million,
respectively.
Depreciation
Depreciation of property and equipment totaled
$34.6 million and $38.6 million for 2008 and 2007,
respectively. The decrease in depreciation was the result of a
large proportion of our stations equipment, which was
acquired in 2002, becoming fully depreciated.
Amortization
of intangible assets
Amortization of intangible assets was $0.8 million for each
of 2008 and 2007. Amortization expense remained consistent to
that of the prior year as a result of no acquisitions or
disposals of definite-lived intangible assets in 2008.
29
Impairment
of goodwill and broadcast licenses
During 2008, we recorded a non-cash impairment expense of
$338.7 million resulting from a write-down of
$98.6 million in the carrying value of our goodwill and a
write down of $240.1 million in the carrying value of our
broadcast licenses. The write-down of our goodwill and broadcast
licenses related to seven stations and 23 stations,
respectively. We tested our unamortized intangible assets for
impairment at December 31, 2008. As of the testing date, we
believe events had occurred and circumstances changed that more
likely than not reduce the fair value of our broadcast licenses
and goodwill below their carrying amounts. These events, which
accelerated in the fourth quarter of 2008, included:
(i) the continued decline of the price of our common stock
and Class A common stock; (ii) the decline in the
current selling prices of television stations; (iii) the
decline in local and national advertising revenues excluding
political advertising revenue; and (iv) the decline in the
operating profit margins of some of our stations.
Interest
expense
Interest expense decreased $13.1 million, or 20%, to
$54.1 million for 2008 compared to 2007. This decrease was
primarily attributable to lower average principal balances in
2008 compared to 2007 and lower average interest rates. The
total average principal balance was $868.3 million and
$913.0 million for 2008 and 2007, respectively. The average
interest rates were 5.9% and 7.1% for 2008 and 2007,
respectively. These average principal balances and interest
rates were for the respective period and not the respective
ending balance sheet dates. The average interest rates include
the effects of our interest rate swap agreements.
Loss on
Early Extinguishment of Debt
In 2007, we replaced our former senior credit facility with a
new senior credit facility and redeemed our 9.25% Notes. As
a result of these transactions, we recorded a loss on early
extinguishment of debt of $6.5 million related to the
senior credit facility and $16.4 million related to the
redemption of the 9.25% Notes. The loss related to the
redemption of the 9.25% Notes included $11.8 million
in premiums, the write-off of $4.0 million in deferred
financing costs and $614,000 in unamortized bond discount.
Income
tax expense or benefit
The effective tax rate increased to 35.5% for 2008 from 35.1%
for 2007. The effective tax rates differ from the statutory rate
due to the following items:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Statutory federal income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State income taxes
|
|
|
3.7
|
%
|
|
|
4.1
|
%
|
Change in valuation allowance
|
|
|
0.1
|
%
|
|
|
(1.2
|
)%
|
Reserve for uncertain tax positions
|
|
|
(0.2
|
)%
|
|
|
(2.8
|
)%
|
Goodwill impairment
|
|
|
(3.0
|
)%
|
|
|
0.0
|
%
|
Other
|
|
|
(0.1
|
)%
|
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
35.5
|
%
|
|
|
35.1
|
%
|
|
|
|
|
|
|
|
|
|
30
Liquidity
and Capital Resources
General
The following tables present data that we believe is helpful in
evaluating our liquidity and capital resources (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Net cash provided by operating activities
|
|
$
|
18,903
|
|
|
$
|
73,675
|
|
Net cash used in investing activities
|
|
|
(17,531
|
)
|
|
|
(16,340
|
)
|
Net cash used in financing activities
|
|
|
(16,021
|
)
|
|
|
(42,024
|
)
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash and cash equivalents
|
|
$
|
(14,649
|
)
|
|
$
|
15,311
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2009
|
|
2008
|
|
Cash and cash equivalents
|
|
$
|
16,000
|
|
|
$
|
30,649
|
|
Long-term debt including current portion
|
|
$
|
791,809
|
|
|
$
|
800,380
|
|
Long-term accrued facility fee
|
|
$
|
18,307
|
|
|
$
|
|
|
Preferred stock
|
|
$
|
93,386
|
|
|
$
|
92,183
|
|
Borrowing availability under our senior credit facility
|
|
$
|
31,681
|
|
|
$
|
12,262
|
|
Leverage ratio as defined under our senior credit facility:
|
|
|
|
|
|
|
|
|
Actual
|
|
|
8.42
|
|
|
|
7.14
|
|
Maximum allowed
|
|
|
8.75
|
|
|
|
7.25
|
|
Senior
Credit Facility
Our senior credit facility consists of a revolving loan and a
term loan. The amount outstanding under our senior credit
facility as of December 31, 2009 and December 31, 2008
was $791.8 million and $800.4 million, respectively,
comprised solely of the term loan. Under the revolving loan
portion of our senior credit facility, the maximum available
borrowing capacity was $50.0 million as of
December 31, 2009. Of the maximum borrowing capacity
available under our revolving loan, the amount that we can draw
is limited by certain restrictive covenants, including our total
net leverage ratio covenant. Based on such covenant, as of
December 31, 2009 and December 31, 2008, we could have
drawn $31.7 million and $12.3 million, respectively,
of the $50.0 million maximum borrowing capacity under the
revolving loan. Effective as of March 31, 2010, the maximum
borrowing capacity available under the revolving loan was
reduced to $40.0 million.
Under our revolving and term loans, we can choose to pay
interest at an annual rate equal to the London Interbank Offered
Rate (LIBOR) plus 3.5% or at the lenders base
rate, generally equal to the lenders prime rate, plus
2.5%. This interest is payable in cash throughout the year.
In addition, effective as of March 31, 2009, we incur a
facility fee at an annual rate of 3.0% on all principal balances
outstanding under the revolving and term loans. For the period
from March 31, 2009 until April 30, 2010, the annual
facility fee for the revolving and term loans accrues and is
payable on the respective revolving and term loan maturity
dates. The revolving loan and term loan maturity dates are
March 19, 2014 and December 31, 2014, respectively.
For the period from April 30, 2010 until maturity of the
senior credit facility, the annual facility fee will be payable
in cash on a quarterly basis and the amount accrued through
April 30, 2010 will bear interest at an annual rate of
6.5%, payable quarterly. As of December 31, 2009, our
accrued facility fee of $18.3 million was classified as a
long-term liability on our balance sheet. The accrued facility
fee is included in determining the amount of total debt in
calculating our total net leverage ratio covenant as defined in
our senior credit facility.
31
The average interest rates on our total debt balance outstanding
under the senior credit facility as of December 31, 2009
and 2008 were 6.8% and 4.8%, respectively. These rates are as of
the period end and do not include the effects of our interest
rate swap agreements. Including the effects of our interest rate
swap agreements, the average interest rates on our total debt
balances outstanding under the senior credit facility at
December 31, 2009 and 2008 were 9.8% and 5.6%, respectively.
Also under our revolving loan, we pay a commitment fee on the
average daily unused portion of the $50.0 million revolving
loan. As of December 31, 2009 and 2008, the annual
commitment fees were 0.5% and 0.4%, respectively.
Collateral
and Restrictions
The collateral for our senior credit facility consists of
substantially all of our and our subsidiaries assets. In
addition, our subsidiaries are joint and several guarantors of
the obligations and our ownership interests in our subsidiaries
are pledged to collateralize the obligations. The senior credit
facility contains affirmative and restrictive covenants. These
covenants include but are not limited to (i) limitations on
additional indebtedness, (ii) limitations on liens,
(iii) limitations on amendments to our by-laws and articles
of incorporation, (iv) limitations on mergers and the sale
of assets, (v) limitations on guarantees,
(vi) limitations on investments and acquisitions,
(vii) limitations on the payment of dividends and the
redemption of our capital stock, (vii) maintenance of a
specified total net leverage ratio not to exceed certain maximum
limits, (viii) limitations on related party transactions,
(ix) limitations on the purchase of real estate, and
(x) limitations on entering into multiemployer retirement
plans, as well as other customary covenants for credit
facilities of this type. As of December 31, 2009 and 2008,
we were in compliance with all restrictive covenants as required
by our senior credit facility.
We are a holding company with no material independent assets or
operations, other than our investments in our subsidiaries. The
aggregate assets, liabilities, earnings and equity of the
subsidiary guarantors as defined in our senior credit facility
are substantially equivalent to our assets, liabilities,
earnings and equity on a consolidated basis. The subsidiary
guarantors are, directly or indirectly, our wholly owned
subsidiaries and the guarantees of the subsidiary guarantors are
full, unconditional and joint and several. All of our current
and future direct and indirect subsidiaries are and will be
guarantors under the senior credit facility. Accordingly,
separate financial statements and other disclosures of each of
the subsidiary guarantors are not presented because we have no
independent assets or operations, the guarantees are full and
unconditional and joint and several and any of our subsidiaries
other than the subsidiary guarantors are immaterial.
Amendments
to Our Senior Credit Facility
Effective as of March 31, 2009, we amended our senior
credit facility (the 2009 amendment). The 2009
amendment included (i) an increase in the maximum total net
leverage ratio covenant for the year ended December 31,
2009, (ii) a general increase in the restrictiveness of our
remaining covenants and (iii) increased interest rates, as
described below. In connection therewith, we incurred loan
issuance costs of approximately $7.4 million, including
legal and professional fees. These fees were funded from our
existing cash balances. The 2009 amendment of our senior credit
facility was determined to be significant and, as a result, we
recorded a loss from early extinguishment of debt of
$8.4 million.
Without the 2009 amendment, we would not have been in compliance
with the total net leverage ratio covenant under the senior
credit facility and such noncompliance would have caused a
default under the agreement as of March 31, 2009. Such a
default would have given the lenders thereunder certain rights,
including the right to declare all amounts outstanding under our
senior credit facility immediately due and payable or to
foreclose on the assets securing such indebtedness. The 2009
amendment increased our annual cash interest rate by 2.0% and,
beginning April 1, 2009, required the payment of a 3.0%
annual facility fee.
32
As stated above, our senior credit facility requires us to
maintain our total net leverage ratio below certain maximum
amounts. Our actual total net leverage ratio and our maximum
total net leverage ratio allowed under our senior credit
facility for recent reporting periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
|
|
|
Maximum Allowed
|
|
|
|
|
Agreement
|
|
|
|
|
|
|
Giving Effect
|
|
Agreement
|
|
|
|
|
to 2009
|
|
Pre-2009
|
|
|
Actual
|
|
Amendment
|
|
Amendment
|
|
Leverage ratios under our senior credit facility as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
7.14
|
|
|
|
NA
|
|
|
|
7.25
|
|
March 31, 2009
|
|
|
7.48
|
|
|
|
8.00
|
|
|
|
7.25
|
|
June 30, 2009
|
|
|
7.98
|
|
|
|
8.25
|
|
|
|
7.25
|
|
September 30, 2009
|
|
|
8.22
|
|
|
|
8.50
|
|
|
|
7.25
|
|
December 31, 2009
|
|
|
8.42
|
|
|
|
8.75
|
|
|
|
7.00
|
|
Assuming we maintain compliance with the financial and other
covenants in our senior credit facility, including the total net
leverage ratio covenant, we believe that our current cash
balance, cash flows from operations and any available funds
under the revolving credit line of our senior credit facility
will be adequate to provide for our capital expenditures, debt
service and working capital requirements through
December 31, 2010.
Compliance with our total net leverage ratio covenant depends on
a number of factors, including the interrelationship of our
ability to reduce our outstanding debt
and/or the
results of our operations. The continuing general economic
recession, including the significant decline in advertising by
the automotive industry, adversely impacted our ability to
generate cash from operations during 2009. Based upon certain
internal financial projections, we did not believe that we would
be in compliance with our total net leverage ratio as of
March 31, 2010 unless we further amended the terms of our
senior credit facility. As a result, we requested and obtained
such an amendment of our senior credit facility on
March 31, 2010.
Effective March 31, 2010, we amended our senior credit
facility which, among other things, increased the maximum amount
of the total net leverage ratio covenant thereunder through
March 31, 2011, and reduced the maximum availability under
the revolving loan to $40.0 million.
Based upon our internal financial projections as of the date of
filing this Annual Report and the amended terms of our senior
credit facility, we believe that we will be in compliance with
all covenants required by our amended senior credit facility as
of March 31, 2010. The March 2010 amendment also imposed an
additional fee, equal to 2.0% per annum, payable quarterly, in
arrears, until such time as we complete an offering of capital
stock or certain debt securities that results in the repayment
of not less than $200.0 million of the term loan
outstanding under our senior credit facility. That fee would be
eliminated upon such a repayment of amounts under the term loan.
In addition, upon completion of a financing that results in the
repayment of at least $200.0 million of our term loan, we
would achieve additional flexibility under various covenants in
our senior credit facility. The use of proceeds from any
issuance of additional securities will generally be limited to
the repayment of amounts outstanding under our term loan and, in
certain circumstances, to the repurchase of outstanding shares
of our Series D Perpetual Preferred Stock. There can be no
assurance that we will be able to complete such a capital
raising transaction, or to repurchase any of our preferred
stock, at times and on terms acceptable to us, or at all. If we
are unable to complete such a financing and repayment of amounts
under our term loan, we would continue to incur increased fees
under our senior credit facility and to be subject to the
stricter limits contained in our existing financial covenants.
For additional details regarding the March 2010 amendment to our
senior credit facility, see Note 14. Subsequent
Event Long-term Debt Amendment to our audited
financial statements included elsewhere herein.
For further information concerning our senior credit facility,
see Note 3. Long-term Debt and Accrued Facility
Fee to our audited financial statements included elsewhere
herein. For estimates of future principal and interest payments
under our senior credit facility, see Tabular Disclosure
of Contractual Obligations as of
33
December 31, 2009 included elsewhere in this
Managements Discussion and Analysis of Financial Condition
and Results of Operations.
Series D
Perpetual Preferred Stock
On June 26, 2008 and July 15, 2008, we issued
750 shares and 250 shares, respectively, of our
Series D Perpetual Preferred Stock, no par value. We used
the majority of the net proceeds of these issuances to reduce
our outstanding debt balance by $88.0 million during 2008.
As of December 31, 2009 and 2008, we had 1,000 shares
of Series D Perpetual Preferred Stock outstanding. The
Series D Perpetual Preferred Stock has a liquidation value
of $100,000 per share for a total liquidation value of
$100.0 million as of December 31, 2009 and 2008. Our
accrued Series D Perpetual Preferred Stock dividend
balances as of December 31, 2009 and 2008 were
$18.9 million and $3.0 million, respectively.
We made our most recent Series D Perpetual Preferred Stock
cash dividend payment on October 15, 2008, for dividends
earned through September 30, 2008. We have deferred the
cash payment of our preferred stock dividends earned thereon
since October 1, 2008. When three consecutive cash dividend
payments with respect to the Series D Perpetual Preferred
Stock remain unfunded, the dividend rate increases from 15.0%
per annum to 17.0% per annum. Thus, our Series D Perpetual
Preferred Stock dividend began accruing at 17.0% per annum on
July 16, 2009 and will accrue at that rate as long as at
least three consecutive cash dividend payments remain unfunded.
Our Series D Perpetual Preferred Stock dividend rate was
15.0% per annum from December 31, 2008 through
July 16, 2009. Prior to December 31, 2008, our
Series D Perpetual Preferred Stock dividend rate was 12%
per annum.
While any Series D Perpetual Preferred Stock dividend
payments are in arrears, we are prohibited from repurchasing,
declaring
and/or
paying any cash dividend with respect to any equity securities
having liquidation preferences equivalent to or junior in
ranking to the liquidation preferences of the Series D
Perpetual Preferred Stock, including our common stock and
Class A common stock. We can provide no assurances as to
when any future cash payments will be made on any accumulated
and unpaid Series D Perpetual Preferred Stock cash
dividends presently in arrears or that become in arrears in the
future. The Series D Perpetual Preferred Stock has no
mandatory redemption date but may be redeemed at the
stockholders option on or after June 30, 2015. We
deferred cash dividends on our Series D Perpetual Preferred
Stock and correspondingly suspended cash dividends on our common
and Class A common stock to reallocate cash resources and
support our ability to pay increased interest costs and fees
associated with our senior credit facility.
See Note 7. Preferred Stock of our audited
consolidated financial statements included elsewhere herein for
further information concerning the Series D Perpetual
Preferred Stock.
Income
Taxes
We file a consolidated federal income tax return and such state
or local tax returns as are required. Although we may earn
taxable operating income in future years, as of
December 31, 2009, we anticipate that through the use of
our available loss carryforwards we will not pay significant
amounts of federal income taxes in the next several years.
However, we estimate that we will pay state income taxes in
certain states over the next several years.
Net
Cash Provided By (Used In) Operating, Investing and Financing
Activities
Net cash provided by operating activities decreased
$54.8 million to $18.9 million for 2009 compared to
net cash provided of $73.7 million for 2008. The decrease
in cash provided by operations was due primarily to several
factors, including: (i) a decrease in revenues of
$56.8 million and (ii) a decrease from a net change in
current operating assets and liabilities of $10.9 million
partially offset by a decrease in broadcast expenses of
$12.0 million.
34
Net cash used in investing activities increased
$1.2 million to $17.5 million for 2009 compared to
$16.3 million for 2008. The increase in cash used in
investing activities was largely due to increases in capital
expenditures for 2009 of $2.8 million.
Net cash used in financing activities decreased
$26.0 million to $16.0 million for 2009 compared to
$42.0 million for 2008. In 2008, we issued our
Series D Perpetual Preferred Stock and used the proceeds of
that issuance along with cash generated from operations to repay
a portion of our long-term debt balance. Also, we paid
$8.8 million of dividends in 2008. During 2009, we repaid
$8.6 million of our long-term debt balance, paid
$7.5 million in fees associated with our long-term debt
refinancing and suspended the payment of all dividends.
Retirement
Plan
We have three defined benefit pension plans. Two of these plans
were assumed by us as a result of our acquisitions and are
frozen plans. Our active defined benefit pension plan, which we
consider to be our primary pension plan, covers substantially
all our full-time employees. Retirement benefits under such plan
are based on years of service and the employees highest
average compensation for five consecutive years during the last
ten years of employment. Our funding policy is consistent with
the funding requirements of existing federal laws and
regulations under the Employee Retirement Income Security Act of
1974.
A discount rate is selected annually to measure the present
value of the benefit obligations. In determining the selection
of a discount rate, we estimated the timing and amounts of
expected future benefit payments and applied a yield curve
developed to reflect yields available on high-quality bonds. The
yield curve is based on an externally published index
specifically designed to meet the criteria of generally accepted
accounting principles in the United States of America
(U.S. GAAP). The discount rate selected for
determining benefit obligations as of December 31, 2009 was
6.27% which reflects the results of this yield curve analysis.
The discount rate used for determining benefit obligations as of
December 31, 2008 was 5.79%. Our assumption regarding
expected return on plan assets reflects asset allocations,
investment strategy and the views of investment managers, as
well as historical experience. We use an assumed return of 7.00%
for our assets invested in our active pension plan. Actual asset
returns for this plan increased in value 14.85% in 2009 and
decreased in value of 25.28% in 2008. Other significant
assumptions include inflation, salary growth, retirement rates
and mortality rates. Our inflation assumption is based on an
evaluation of external market indicators. The salary growth
assumptions reflect our long-term actual experience, the
near-term outlook and assumed inflation. Compensation increases
over the latest five-year period have been in line with
assumptions. Retirement and mortality rates are based on actual
plan experience.
During 2009 and 2008, we contributed $3.5 million and
$2.9 million, respectively, to all three of our pension
plans and we anticipate making an aggregate contribution of
$4.5 million to such plans in 2010.
See Note 10. Retirement Plans of our audited
consolidated financial statements included elsewhere herein for
further information concerning the retirement plans.
Capital
Expenditures
Capital expenditures for the years ended December 31, 2009
and 2008 were $17.8 million and $15.0 million,
respectively. The year ended December 31, 2009 included, in
part, capital expenditures relating to the conversion of analog
broadcasts to digital broadcasts upon the final cessation of
analog transmissions, while the year ended December 31,
2008 did not contain comparable projects. We expect that our
capital expenditures will be approximately $15.0 million in
the year ending December 31, 2010. Our senior credit
facility limits our capital expenditures to not more than
$15.0 million for the year ending December 31 2010. We
expect to fund future capital expenditures with cash from
operations and borrowings under our senior credit facility.
35
Off-Balance
Sheet Arrangements
Operating
Commitments
We have various operating lease commitments for equipment, land
and office space. We also have commitments for various
syndicated television programs.
We have two types of syndicated television program contracts:
first run programs and off network reruns. The first run
programs are programs such as Oprah and the off network
programs are programs such as Friends. A difference
between the two types of syndicated television programming is
that the first run programs have not been produced at the time
the contract is signed and the off network programs have been
produced. For all syndicated television contracts we record an
asset and corresponding liability for payments to be made for
the entire off network contract period and for only
the current year of the first run contract period.
Only the payments in the current year of the first
run contracts are recorded on the current balance sheet,
because the programs for the later years of the contract period
have not been produced and delivered.
Obligation
to UK
On October 12, 2004, the University of Kentucky
(UK) jointly awarded a sports marketing agreement to
a subsidiary of IMG Worldwide, Inc. (IMG) and us
(the UK Agreement). The UK Agreement commenced on
April 16, 2005 and has an initial term of seven years, with
the option to extend for three additional years.
On July 1, 2006, the terms between IMG and us concerning
the UK Agreement were amended. The amended agreement provides
that we will share in profits in excess of certain amounts
specified by the agreement, if any, but not losses. The
agreement also provides that we will separately retain all local
broadcast advertising revenue and pay all local broadcast
expenses for activities under the agreement. Under the amended
agreement, IMG agreed to make all license fee payments to UK.
However, if IMG is unable to pay the license fee to UK, we will
then pay the unpaid portion of the license fee to UK. As of
December 31, 2009, the aggregate license fees to be paid by
IMG to UK over the remaining portion of the full ten-year term
(including optional three additional years) for the agreement is
approximately $45.4 million. If we make advances on behalf
of IMG, IMG will then reimburse us for the amount paid within
60 days after the close of each contract year which ends on
June 30th. IMG has also agreed to pay interest on any
advance at a rate equal to the prime rate. During the years
ended December 31, 2009 and 2008, we have not advanced any
amounts to UK on behalf of IMG under this agreement.
36
Tabular
Disclosure of Contractual Obligations as of December 31,
2009
The following table aggregates our material expected contractual
obligations and commitments as of December 31, 2009 (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
Contractual Obligations
|
|
Total
|
|
|
2010
|
|
|
2011-2012
|
|
|
2013-2014
|
|
|
after 2014
|
|
|
Contractual obligations recorded in our balance sheet as of
December 31 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt obligations(1)
|
|
$
|
791,809
|
|
|
$
|
8,080
|
|
|
$
|
16,160
|
|
|
$
|
767,569
|
|
|
$
|
|
|
Long-term accrued facility fee(2)
|
|
|
18,307
|
|
|
|
|
|
|
|
|
|
|
|
18,307
|
|
|
|
|
|
Dividends currently accrued(3)
|
|
|
18,917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18,917
|
|
Programming obligations currently accrued(4)
|
|
|
16,802
|
|
|
|
15,271
|
|
|
|
1,241
|
|
|
|
290
|
|
|
|
|
|
Interest rate swap agreements(5)
|
|
|
6,344
|
|
|
|
6,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition-related liabilities(6)
|
|
|
1,790
|
|
|
|
863
|
|
|
|
834
|
|
|
|
93
|
|
|
|
|
|
Off-balance sheet arrangements as of December 31 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash interest on long-term debt obligations(7)
|
|
|
261,169
|
|
|
|
53,568
|
|
|
|
104,939
|
|
|
|
102,662
|
|
|
|
|
|
Cash interest on long-term accrued facility fee(8)
|
|
|
8,189
|
|
|
|
1,136
|
|
|
|
3,487
|
|
|
|
3,566
|
|
|
|
|
|
Operating lease obligations(9)
|
|
|
8,119
|
|
|
|
1,321
|
|
|
|
1,780
|
|
|
|
1,231
|
|
|
|
3,787
|
|
Dividends not currently accrued(10)
|
|
|
85,000
|
|
|
|
17,000
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
|
unknown
|
|
Purchase obligations not currently accrued(11)
|
|
|
832
|
|
|
|
832
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Programming obligations not currently accrued(12)
|
|
|
22,304
|
|
|
|
4,502
|
|
|
|
16,526
|
|
|
|
1,257
|
|
|
|
19
|
|
Obligation to UK(13)
|
|
|
45,426
|
|
|
|
7,763
|
|
|
|
15,963
|
|
|
|
17,200
|
|
|
|
4,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,285,008
|
|
|
$
|
116,680
|
|
|
$
|
194,930
|
|
|
$
|
946,175
|
|
|
$
|
27,223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Long-term debt obligations represent current
and all future payment principal obligations under our senior
credit facility. These amounts are recorded as liabilities as of
the current balance sheet date. As of December 31, 2009,
the interest rate on the balance outstanding under the senior
credit facility, excluding effects of interest rate swap
agreements, was 6.8%. |
|
(2) |
|
Long-term accrued facility fee represents a
facility fee accrued as of December 31, 2009 under our
senior credit facility at a rate of 3% per annum and payable in
subsequent periods. |
|
(3) |
|
Dividends currently accrued represent
Series D Perpetual Preferred Stock dividends accrued as of
December 31, 2009 and payable in subsequent periods. |
|
(4) |
|
Programming obligations currently accrued
represent obligations for syndicated television programming
whose license period has begun and the product is available.
These amounts are recorded as liabilities as of the current
balance sheet date. |
|
(5) |
|
Interest rate swap agreements represent
certain contracts that allow us to fix the interest rate on a
portion of our long-term debt balance. We have estimated
obligations associated with these contracts. Although the fair
value of these contracts can fluctuate significantly based on
market interest rates, the amounts in the table are estimated
settlement amounts. These amounts are recorded as liabilities as
of the current balance sheet date. |
37
|
|
|
(6) |
|
Acquisition related liabilities represent
certain obligations associated with acquisitions of television
stations that were completed in prior years. These amounts are
recorded as liabilities as of the current balance sheet date. |
|
(7) |
|
Cash interest on long-term debt obligations
includes estimated interest expense on long-term debt
obligations based upon the average debt balances expected in the
future and computed using an interest rate of 6.8%. This was the
interest rate on the balance outstanding under the senior credit
facility, excluding the effects of our interest rate swap
agreements, as of December 31, 2009. Our senior credit
facility will mature on December 31, 2014. |
|
(8) |
|
Cash interest on long-term accrued facility
fee represents estimated interest expense on the
accrued facility fee obligation under our senior credit
facility. Effective as of March 31, 2009, we incur a
facility fee equal to 3.0% per annum on the outstanding
revolving and term loans thereunder. From March 31, 2009
through April 30, 2010, this fee accrues and becomes
payable on the respective maturity dates of those loans
(March 19, 2014 and December 31, 2014, respectively).
From April 30, 2010 until the maturity dates under the
senior credit facility, such accrued amounts bear interest at
6.5% per year. These interest payments are included in this item
as cash interest on long-term accrued facility fee.
From April 30, 2010 until the maturity dates under our
senior credit facility, the fee will be payable in cash on a
quarterly basis. This portion of the fee is included in the
estimate of Cash interest on long-term debt
obligations above. |
|
(9) |
|
Operating lease obligations represent payment
obligations under non-cancelable lease agreements classified as
operating leases. These amounts are not recorded as liabilities
as of the current balance sheet date. |
|
(10) |
|
Dividends not currently accrued represent
Series D Perpetual Preferred Stock dividends for future
periods and assumes that the $100 million of Series D
Perpetual Preferred Stock remains outstanding in future periods
with a dividend rate of 17%. For the column headed More
than 5 years, after 2014, we cannot estimate a
dividend amount; due to the perpetual nature of our
Series D Perpetual Preferred Stock and its holders
having the right to request that we repurchase such Stock on or
after June 30, 2015. |
|
(11) |
|
Purchase obligations not currently accrued
generally represent payment obligations for equipment. It is our
policy to accrue for these obligations when the equipment is
received and the vendor has completed the work required by the
purchase agreement. These amounts are not recorded as
liabilities as of the current balance sheet date because we had
not yet received the equipment. |
|
(12) |
|
Programming obligations not currently accrued
represent obligations for syndicated television programming
whose license period has not yet begun or the product is not yet
available. These amounts are not recorded as liabilities as of
the current balance sheet date. |
|
(13) |
|
Obligation to UK represents total
obligations, excluding any potential revenues, under the UK
Agreement. These amounts are not recorded as liabilities as of
the current balance sheet date. See Off-Balance Sheet
Arrangements immediately preceding this table for
additional information concerning this obligation. |
Estimates of the amount, timing and future funding obligations
under our pension plans include assumptions concerning, among
other things, actual and projected market performance of plan
assets, investment yields, statutory requirements and
demographic data for pension plan participants. Pension plan
funding estimates are therefore not included in the table above
because the timing and amounts of funding obligations for all
future periods cannot be reasonably determined. We expect to
contribute approximately $4.5 million in total to our
active pension plan and the acquired pension plans during 2010.
Inflation
The impact of inflation on operations has not been significant
to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on
operating results, particularly since a significant portion of
our senior bank debt is comprised of variable-rate debt.
38
Other
We are a holding company with no material independent assets or
operations, other than our investment in our subsidiaries. The
aggregate assets, liabilities, earnings and equity of the
Subsidiary Guarantors are substantially equivalent to our
assets, liabilities, earnings and equity on a consolidated
basis. The Subsidiary Guarantors (as defined in our senior
credit facility) are, directly or indirectly, our wholly owned
subsidiaries and the guarantees of the Subsidiary Guarantors are
full, unconditional and joint and several. All of our current
and future direct and indirect subsidiaries are Subsidiary
Guarantors. Accordingly, separate financial statements and other
disclosures of each of the Subsidiary Guarantors are not
presented because we have no independent assets or operations,
the guarantees are full and unconditional and joint and several.
Critical
Accounting Policies
The preparation of financial statements in conformity with
U.S. GAAP requires us to make judgments and estimations
that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ materially from
those reported amounts. We consider our accounting policies
relating to intangible assets and income taxes to be critical
policies that require judgments or estimations in their
application where variances in those judgments or estimations
could make a significant difference to future reported results.
Our policies concerning intangible assets are disclosed below.
Annual
Impairment Testing of Broadcast Licenses and
Goodwill
Our annual impairment testing of broadcast licenses and goodwill
for each individual television station requires an estimation of
the fair value of each broadcast license and the fair value of
the entire television station which we consider a reporting
unit. Such estimations generally rely on analyses of public and
private comparative sales data as well as discounted cash flow
analyses that inherently require multiple assumptions relating
to the future prospects of each individual television station
including, but not limited to: (i) expected long-term
market growth characteristics, (ii) estimations regarding a
stations future expected viewing audience,
(iii) station revenue shares within a market,
(iv) future expected operating expenses, (v) costs of
capital and (vi) appropriate discount rates. We believe
that the assumptions we utilize in analyzing potential
impairment of broadcast licenses
and/or
goodwill for each of our television stations are reasonable
individually and in the aggregate. However, these assumptions
are highly subjective and changes in any one assumption, or a
combination of assumptions, could produce significant
differences in the calculated outcomes.
To estimate the fair value of our reporting units, we utilize a
discounted cash flow model supported by a market multiple
approach. We believe that a discounted cash flow analysis is the
most appropriate methodology to test the recorded value of
long-term assets with a demonstrated long-lived/enduring
franchise value. We believe the results of the discounted cash
flow and market multiple approaches provide reasonable estimates
of the fair value of our reporting units because these
approaches are based on our actual results and reasonable
estimates of future performance, and also take into
consideration a number of other factors deemed relevant by us,
including but not limited to, expected future market revenue
growth, market revenue shares and operating profit margins. We
have consistently used these approaches in determining the fair
value of our goodwill. We also consider a market multiple
valuation method to corroborate our discounted cash flow
analysis. We believe that this methodology is consistent with
the approach that any strategic market participant would utilize
if they were to value one of our television stations.
As of December 31, 2009, the recorded value of our
broadcast licenses and goodwill was approximately
$819.0 million and $170.5 million, respectively. As of
December 31, 2008, the recorded value of our broadcast
licenses and goodwill was approximately $819.0 million and
$170.5 million, respectively.
As of December 31, 2008, we recorded a non-cash impairment
expense of $338.7 million resulting from a write-down of
$98.6 million in the recorded value of our goodwill at
seven of our stations and a write-down of $240.1 million in
the recorded value of our broadcast licenses at 23 of our
stations. We did not record an impairment expense related to our
broadcast licenses or goodwill during 2009 or 2007. Neither of
these asset types are amortized; however, they are both subject
to impairment testing.
39
Prior to January 1, 2002, acquired broadcast licenses were
valued at the date of acquisition using a residual method. The
recorded value of these broadcast licenses as of
December 31, 2009 and 2008 was approximately
$341.0 million. The impairment charge recorded as of
December 31, 2008 for these broadcast licenses approximated
$129.6 million. After December 31, 2001, acquired
broadcast licenses were valued at the date of acquisition using
an income method that assumes an initial hypothetical
start-up
operation. This change in methodology was due to a change in
accounting requirements. The book value of these broadcast
licenses as of December 31, 2009 and 2008 was approximately
$478.0 million. The impairment expense recorded as of
December 31, 2008 for these broadcast licenses approximated
$110.5 million. Regardless of whether we initially recorded
the value of our broadcast licenses using the residual or the
income method, for purposes of testing for potential impairment
we use the income method to estimate the fair value of our
broadcast licenses.
We test for impairment of broadcast licenses and goodwill on an
annual basis on the last day of each fiscal year. However, we
will test for impairment during any reporting period if certain
triggering events occur. The two most recent impairment testing
dates were as of December 31, 2009 and 2008. A summary of
the significant assumptions used in our impairment analyses of
broadcast licenses and goodwill as of December 31, 2009 and
2008 is presented below. Following the summary of assumptions is
a sensitivity analysis of those assumptions as of
December 31, 2009. Our reporting units, allocations of our
broadcast licenses and goodwill and our methodologies were
consistent as of both testing dates.
Summary
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Pre-tax impairment charge:
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
$
|
|
|
|
$
|
240.1
|
|
Goodwill
|
|
$
|
|
|
|
$
|
98.6
|
|
Significant assumptions:
|
|
|
|
|
|
|
|
|
Forecast period
|
|
|
10 years
|
|
|
|
10 years
|
|
Increase or (decrease) in market advertising revenue for
projection year 1 compared to latest historical period(1)
|
|
|
(4.4)% to 8.9%
|
|
|
|
(15.8)% to (2.3)%
|
|
Positive or (negative) advertising revenue compound growth rate
for forecast period
|
|
|
(0.3)% to 3.7%
|
|
|
|
1.1% to 3.4%
|
|
Operating cash flow margin:
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
|
8.3% to 50.0%
|
|
|
|
11.0% to 50.0%
|
|
Goodwill
|
|
|
11.1% to 50.0%
|
|
|
|
11.5% to 50.0%
|
|
Discount rate:
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
|
9.50%
|
|
|
|
10.50%
|
|
Goodwill
|
|
|
10.50%
|
|
|
|
11.50%
|
|
|
|
|
(1) |
|
Depending on whether the first year of the respective projection
period is an even- or odd-numbered year, assumptions relating to
market advertising growth rates can vary significantly from year
to year reflecting the significant cyclical impact of political
advertising in even-numbered years. The fiscal 2009 analysis
generally anticipated an increase in revenues for fiscal 2010.
As a result, overall future projected revenue growth rates
thereafter were low given the high starting point of these
projections. Conversely, since the fiscal 2008 analysis assumed
cyclically low revenues for fiscal 2009, the subsequent
projected growth rates were higher. |
When estimating the fair value of our broadcast licenses and
goodwill, we make assumptions regarding revenue growth rates,
operating cash flow margins and discount rates. These
assumptions require substantial judgment. Although we did not
record an impairment charge for the year ended December 31,
2009, we may have recorded such an adjustment if we had changed
certain assumptions. The following table contains a
40
sensitivity analysis of these assumptions and a hypothetical
impairment charge that would have resulted if our advertising
revenue growth rate and our operating cash flow margin had been
revised lower or if our discount rate had been revised higher.
We also provide a hypothetical impairment charge assuming a 5%
and 10% decrease in the fair value of our broadcast licenses and
enterprise values.
|
|
|
|
|
|
|
|
|
|
|
Hypothetical
|
|
|
|
Impairment Charge
|
|
|
|
As of December 31, 2009
|
|
|
|
Broadcast
|
|
|
|
|
|
|
License
|
|
|
Goodwill
|
|
|
|
(In millions)
|
|
|
Hypothetical change:
|
|
|
|
|
|
|
|
|
A 100 basis point decrease in advertising revenue growth
rate throughout the forecast period
|
|
$
|
29.4
|
|
|
$
|
3.9
|
|
A 100 basis point decrease in operating cash flow margin
throughout the forecast period
|
|
$
|
0.5
|
|
|
$
|
|
|
A 100 basis point increase in the applicable discount rate
|
|
$
|
29.9
|
|
|
$
|
4.2
|
|
A 5% reduction in the fair value of broadcast licenses and
enterprise values
|
|
$
|
1.1
|
|
|
$
|
|
|
A 10% reduction in the fair value of broadcast licenses and
enterprise values
|
|
$
|
6.8
|
|
|
$
|
2.8
|
|
These hypothetical non-cash impairment charges would not have
any direct impact on our liquidity, senior credit facility
covenant compliance or future results of operations. Our
historical operating results may not be indicative of our future
operating results. Our future ten-year discounted cash flow
analysis, which fundamentally supports our estimated fair values
as of December 31, 2009, reflected certain assumptions
relating to the expected impact of the current general economic
recession and dislocation of the credit markets.
In addition, the change in macroeconomic factors impacting the
credit markets caused us to decrease our assumed discount rate
to 9.5% for valuing broadcast licenses and to 10.5% for valuing
goodwill in 2009 as compared to the 10.5% discount rate used to
value broadcast licenses and the 11.5% rate used to value
goodwill in 2008. The discount rates used in our impairment
analysis were based upon the after-tax rate determined using a
weighted-average cost of capital calculation for media
companies. In calculating the discount rates, we considered
estimates of the long-term mean market return, industry beta,
corporate borrowing rate, average industry debt to capital
ratio, average industry equity capital ratio, risk free rate and
the tax rate. We believe using a discount rate based on a
weighted-average cost of capital calculation for media companies
is appropriate because it would be reflective of rates active
participants in the media industry would utilize in valuing
broadcast licenses
and/or
broadcast enterprises.
Valuation
of Network Affiliation Agreements
We believe that the value of a television station is derived
primarily from the attributes of its broadcast license. These
attributes have a significant impact on the audience for network
programming in a local television market compared to the
national viewing patterns of the same network programming.
Certain other broadcasting companies have valued network
affiliations on the basis that it is the affiliation and not the
other attributes of the station, including its broadcast
license, that contributes to the operational performance of that
station. As a result, we believe that these broadcasting
companies allocate a significant portion of the purchase price
for any station that they may acquire to the network affiliation
relationship and include in their network affiliation valuation
amounts related to attributes which we believe are more
appropriately reflected in the value of the broadcast license or
goodwill.
The methodology we used to value these stations was based on our
evaluation of the broadcast licenses acquired and the
characteristics of the markets in which they operated. Given our
assumptions and the specific attributes of the stations we
acquired from 2002 through December 31, 2009, we ascribed
no incremental value to the incumbent network affiliation
relationship in each market beyond the cost of negotiating a new
41
agreement with another network and the value of any terms of the
affiliation agreement that were more favorable or unfavorable
than those generally prevailing in the market.
Some broadcast companies may use methods to value acquired
network affiliations different than those that we use. These
different methods may result in significant variances in the
amount of purchase price allocated to these assets among
broadcast companies.
If we were to assign higher values to all of our network
affiliations and less value to our broadcast licenses or
goodwill and if it is further assumed that such higher values of
the network affiliations are definite-lived intangible assets,
this reallocation of value might have a significant impact on
our operating results. It should be noted that there is
diversity of practice within the industry, and some broadcast
companies have considered such network affiliation intangible
assets to have a life ranging from 15 to 40 years depending
on the specific assumptions utilized by those broadcast
companies.
The following table reflects the hypothetical impact of the
reassignment of value from broadcast licenses to network
affiliations for all our prior acquisitions (the first
acquisition being in 1994) and the resulting increase in
amortization expense assuming a hypothetical
15-year
amortization period as of our most recent impairment testing
date of December 31, 2009 (in thousands, except per share
data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of Total
|
|
|
|
|
Value Reassigned to
|
|
|
|
|
Network
|
|
|
As
|
|
Affiliation Agreements
|
|
|
Reported
|
|
50%
|
|
25%
|
|
Balance Sheet (As of December 31, 2009):
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
$
|
818,981
|
|
|
$
|
262,598
|
|
|
$
|
540,789
|
|
Other intangible assets, net (including network affiliation
agreements)
|
|
|
1,316
|
|
|
|
185,347
|
|
|
|
93,332
|
|
Statement of Operations
(For the year ended December 31, 2009):
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets
|
|
|
577
|
|
|
|
36,626
|
|
|
|
18,602
|
|
Operating income
|
|
|
43,079
|
|
|
|
7,030
|
|
|
|
25,054
|
|
Net loss
|
|
|
(23,047
|
)
|
|
|
(45,037
|
)
|
|
|
(34,042
|
)
|
Net loss available to common stockholders
|
|
|
(40,166
|
)
|
|
|
(62,156
|
)
|
|
|
(51,161
|
)
|
Net loss available to common stockholders, per share
basic and diluted
|
|
$
|
(0.83
|
)
|
|
$
|
(1.28
|
)
|
|
$
|
(1.05
|
)
|
In future acquisitions, the valuation of the network
affiliations may differ from the values of previous acquisitions
due to the different characteristics of each station and the
market in which it operates.
Market
Capitalization
When we test our broadcast licenses and goodwill for impairment,
we also consider our market capitalization. During 2009, our
market capitalization has increased from its 2008 lows. As of
December 31, 2009, our market capitalization was less than
our book value and it remains less than book value as of the
date of this filing. We believe the decline in our stock price
has been influenced, in part, by the current state of the
national credit market and the national economic recession. We
believe that it is appropriate to view the current state of
credit markets and recession as relatively temporary in relation
to reporting units that have demonstrated long-lived/enduring
franchise value. Accordingly, we believe that a variance between
market capitalization and fair value can exist and that
difference could be significant at points in time due to
intervening macroeconomic influences.
Income
Taxes
We have approximately $285.3 million in federal operating
loss carryforwards, which expire during the years 2020 through
2029. Additionally, we have an aggregate of approximately
$328.6 million of various state operating loss
carryforwards. We project to have taxable income in the
carryforward periods. Therefore, we believe that it is more
likely than not that the federal net operating loss
carryforwards will be fully utilized.
42
A valuation allowance has been provided for a portion of the
state net operating loss carryforwards. We believe that it will
not meet the more likely than not threshold in certain states
due to the uncertainty of generating sufficient income.
Therefore, the state valuation allowance at December 31,
2009 and 2008 was $6.2 million and $4.6 million,
respectively. As of December 31, 2009 and 2008, a full
valuation allowance of $264,000 and $261,000, respectively, has
been provided for the capital loss carryforwards, as we believe
that we will not meet the more likely than not threshold due to
the uncertainty of generating sufficient capital gains in the
carryforward period.
Recent
Accounting Pronouncements
Various authoritative accounting organizations have issued
accounting pronouncements that we will be required to adopt at a
future date. Either (i) we have reviewed these
pronouncements and concluded that their adoption will not have a
material affect upon our liquidity or results of operations or
(ii) we are continuing to evaluate the pronouncements. See
Note 1. Description of Business and Summary of
Significant Accounting Policies of our audited
consolidated financial statements included elsewhere herein for
further discussion of recent accounting principles.
Cautionary
Statements for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform
Act
This Annual Report on
Form 10-K
contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933 and
Section 21 E of the Securities Exchange Act of 1934.
Forward-looking statements are all statements other than those
of historical fact. When used in this Annual Report, the words
believes, expects,
anticipates, estimates,
will, may, should and
similar words and expressions are generally intended to identify
forward-looking statements. Forward-looking statements also
include, among other things, statements that describe our
expectations regarding compliance with the covenants contained
in our senior credit facility. Readers of this Annual Report are
cautioned that any forward-looking statements, including those
regarding the intent, belief or current expectations of our
management, are not guarantees of future performance, results or
events and involve risks and uncertainties, and that actual
results and events may differ materially from those contained in
the forward-looking statements as a result of various factors
including, but not limited to, those listed in Item 1A. of
this Annual Report and the other factors described from time to
time in our SEC filings. The forward-looking statements included
in this Annual Report are made only as of the date hereof. We
undertake no obligation to update such forward-looking
statements to reflect subsequent events or circumstances.
|
|
Item 7A.
|
Quantitative
and Qualitative Disclosures About Market Risk.
|
Based on our floating rate debt outstanding at December 31,
2009, a 100 basis point increase in market interest rates
would have increased our interest expense and decreased our
income before income taxes for the year 2009 by approximately
$3.3 million. Similarly, based on our floating rate debt
outstanding at December 31, 2009, a 100 basis point
decrease in market interest rates would have decreased our
interest expense and increased our income before income taxes
for the year 2009 by approximately $3.3 million.
The carrying amount of our long-term debt, including the current
portion and long-term accrued facility fee, was
$810.1 million and $800.4 million, respectively, and
the fair value was $704.8 million and $312.1 million,
respectively as of December 31, 2009 and 2008. Fair value
of our long-term debt, including the current portion and
long-term accrued facility fee, is based on estimates provided
by third party financial professionals as of December 31,
2009 and 2008. Management believes that these estimated fair
values as of December 31, 2009 and 2008 were not an
accurate indicator of fair value, given that (i) our debt
has a relatively limited number of market participants,
relatively infrequent market trading and generally small dollar
volume of actual trades and (ii) management believes there
continues to exist a general disruption of the financial
markets. Based upon consideration of alternate valuation
methodologies, including our historic and projected future cash
flows, as well as historic private trading valuations of
television stations
and/or
television companies, we believe that the estimated fair value
of our long-term debt would more closely approximate the
recorded book value of the debt as of December 31, 2009 and
2008, respectively.
43
|
|
Item 8.
|
Financial
Statements and Supplementary Data.
|
|
|
|
|
|
|
|
Page
|
|
|
|
|
45
|
|
|
|
|
46
|
|
|
|
|
48
|
|
|
|
|
49
|
|
|
|
|
50
|
|
|
|
|
53
|
|
|
|
|
54
|
|
44
Managements
Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting and for the
assessment of the effectiveness of internal control over
financial reporting. As defined by the SEC, internal control
over financial reporting is a process designed by, or under the
supervision of our principal executive and principal financial
officers and effected by our Board of Directors, management and
other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
consolidated financial statements in accordance with
U.S. GAAP.
Our internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect our acquisitions and dispositions of our assets;
(ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of the consolidated
financial statements in accordance with generally accepted
accounting principles, and that our receipts and expenditures
are being made only in accordance with authorizations of our
management and directors; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of our assets that
could have a material effect on the consolidated financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect all misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In connection with the preparation of our annual consolidated
financial statements, management has undertaken an assessment of
the effectiveness of our internal control over financial
reporting as of December 31, 2009, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission, or the COSO Framework. Managements
assessment included an evaluation of the design of our internal
control over financial reporting and testing of the operational
effectiveness of those controls.
Based on this evaluation, management has concluded that our
internal control over financial reporting was effective as of
December 31, 2009.
The effectiveness of our internal control over financial
reporting as of December 31, 2009 has been audited by
McGladrey & Pullen, LLP, an independent registered
public accounting firm, as stated in their report which is
included herein.
45
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Gray Television, Inc.
We have audited the accompanying consolidated balance sheets of
Gray Television, Inc. as of December 31, 2009 and 2008, and
the related consolidated statements of operations,
stockholders equity and comprehensive income, and cash
flows for each of the three years in the period ended
December 31, 2009. Our audits also included the financial
statement schedule listed in Item 15(a). We also have
audited Gray Television, Inc.s internal control over
financial reporting as of December 31, 2009, based on
criteria established in Internal
Control Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. Gray Television, Inc.s management is
responsible for these financial statements, the financial
statement schedule, for maintaining effective internal control
over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on these financial statements, the
financial statement schedule and an opinion on the
companys internal control over financial reporting based
on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are
free of material misstatement and whether effective internal
control over financial reporting was maintained in all material
respects. Our audits of the financial statements included
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design
and operating effectiveness of internal control based on the
assessed risk. Our audits also included performing such other
procedures as we considered necessary in the circumstances. We
believe that our audits provide a reasonable basis for our
opinions.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (a) pertain to the
maintenance of records that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
assets of the company; (b) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance
with authorizations of management and directors of the company;
and (c) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use,
or disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Gray Television, Inc. as of December 31, 2009
and 2008, and the results of its operations and its cash flows
for each of the years in the three-year period ended
December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the related financial statement schedule when
considered in relation to the basic consolidated financial
statements taken as a whole; presents fairly in all material
respects the information set forth therein. Further in
46
our opinion Gray Television, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission .
As discussed in Note 9 to the consolidated financial
statements, in 2007 the company changed its method of accounting
for uncertainty in income taxes.
/s/ McGladrey &
Pullen, LLP
Ft. Lauderdale, Florida
April 6, 2010
47
GRAY
TELEVISION, INC.
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
16,000
|
|
|
$
|
30,649
|
|
Accounts receivable, less allowance for doubtful accounts of
$1,092 and $1,543, respectively
|
|
|
57,179
|
|
|
|
54,685
|
|
Current portion of program broadcast rights, net
|
|
|
10,220
|
|
|
|
10,092
|
|
Deferred tax asset
|
|
|
1,597
|
|
|
|
1,830
|
|
Marketable securities
|
|
|
|
|
|
|
1,384
|
|
Prepaid and other current assets
|
|
|
1,788
|
|
|
|
3,167
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
86,784
|
|
|
|
101,807
|
|
Property and equipment, net
|
|
|
148,092
|
|
|
|
162,903
|
|
Deferred loan costs, net
|
|
|
1,619
|
|
|
|
2,850
|
|
Broadcast licenses
|
|
|
818,981
|
|
|
|
818,981
|
|
Goodwill
|
|
|
170,522
|
|
|
|
170,522
|
|
Other intangible assets, net
|
|
|
1,316
|
|
|
|
1,893
|
|
Investment in broadcasting company
|
|
|
13,599
|
|
|
|
13,599
|
|
Other
|
|
|
4,826
|
|
|
|
5,710
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,245,739
|
|
|
$
|
1,278,265
|
|
|
|
|
|
|
|
|
|
|
Liabilities and stockholders equity:
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
6,047
|
|
|
$
|
11,515
|
|
Employee compensation and benefits
|
|
|
9,675
|
|
|
|
9,603
|
|
Accrued interest
|
|
|
13,531
|
|
|
|
9,877
|
|
Other accrued expenses
|
|
|
4,814
|
|
|
|
9,128
|
|
Interest rate hedge derivatives
|
|
|
6,344
|
|
|
|
|
|
Dividends payable
|
|
|
|
|
|
|
3,000
|
|
Federal and state income taxes
|
|
|
4,206
|
|
|
|
4,374
|
|
Current portion of program broadcast obligations
|
|
|
15,271
|
|
|
|
15,236
|
|
Acquisition related liabilities
|
|
|
863
|
|
|
|
980
|
|
Deferred revenue
|
|
|
6,241
|
|
|
|
10,364
|
|
Current portion of long-term debt
|
|
|
8,080
|
|
|
|
8,085
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
75,072
|
|
|
|
82,162
|
|
Long-term debt, less current portion
|
|
|
783,729
|
|
|
|
792,295
|
|
Long-term accrued facility fee
|
|
|
18,307
|
|
|
|
|
|
Program broadcast obligations, less current portion
|
|
|
1,531
|
|
|
|
1,534
|
|
Deferred income taxes
|
|
|
142,204
|
|
|
|
143,975
|
|
Long-term deferred revenue
|
|
|
2,638
|
|
|
|
3,310
|
|
Long-term accrued dividends
|
|
|
18,917
|
|
|
|
|
|
Accrued pension costs
|
|
|
13,969
|
|
|
|
18,782
|
|
Interest rate hedge derivatives
|
|
|
|
|
|
|
24,611
|
|
Other
|
|
|
2,366
|
|
|
|
2,306
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,058,733
|
|
|
|
1,068,975
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 11)
|
|
|
|
|
|
|
|
|
Preferred stock, no par value; cumulative; redeemable;
designated 1.00 shares, issued and outstanding
1.00 shares, ($100,000 aggregate liquidation value)
|
|
|
93,386
|
|
|
|
92,183
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock, no par value; authorized 100,000 shares,
issued 47,530 shares and 47,179 shares, respectively
|
|
|
453,824
|
|
|
|
452,289
|
|
Class A common stock, no par value; authorized
15,000 shares, issued 7,332 shares
|
|
|
15,321
|
|
|
|
15,321
|
|
Accumulated deficit
|
|
|
(303,698
|
)
|
|
|
(263,532
|
)
|
Accumulated other comprehensive loss, net of income tax benefit
|
|
|
(9,314
|
)
|
|
|
(24,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
156,133
|
|
|
|
179,620
|
|
Treasury stock at cost, common stock, 4,655 shares
|
|
|
(40,115
|
)
|
|
|
(40,115
|
)
|
Treasury stock at cost, Class A common stock,
1,579 shares
|
|
|
(22,398
|
)
|
|
|
(22,398
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
93,620
|
|
|
|
117,107
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,245,739
|
|
|
$
|
1,278,265
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
48
GRAY
TELEVISION, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands, except for per share data)
|
|
|
Revenues (less agency commissions)
|
|
$
|
270,374
|
|
|
$
|
327,176
|
|
|
$
|
307,288
|
|
Operating expenses before depreciation, amortization,
impairment, and gain on disposal of assets, net
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast
|
|
|
187,583
|
|
|
|
199,572
|
|
|
|
199,687
|
|
Corporate and administrative
|
|
|
14,168
|
|
|
|
14,097
|
|
|
|
15,090
|
|
Depreciation
|
|
|
32,595
|
|
|
|
34,561
|
|
|
|
38,558
|
|
Amortization of intangible assets
|
|
|
577
|
|
|
|
792
|
|
|
|
825
|
|
Impairment of goodwill and broadcast licenses
|
|
|
|
|
|
|
338,681
|
|
|
|
|
|
Gain on disposals of assets, net
|
|
|
(7,628
|
)
|
|
|
(1,632
|
)
|
|
|
(248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
227,295
|
|
|
|
586,071
|
|
|
|
253,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss)
|
|
|
43,079
|
|
|
|
(258,895
|
)
|
|
|
53,376
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Miscellaneous income (expense), net
|
|
|
54
|
|
|
|
(53
|
)
|
|
|
972
|
|
Interest expense
|
|
|
(69,088
|
)
|
|
|
(54,079
|
)
|
|
|
(67,189
|
)
|
Loss from early extinguishment of debt
|
|
|
(8,352
|
)
|
|
|
|
|
|
|
(22,853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(34,307
|
)
|
|
|
(313,027
|
)
|
|
|
(35,694
|
)
|
Income tax benefit
|
|
|
(11,260
|
)
|
|
|
(111,011
|
)
|
|
|
(12,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(23,047
|
)
|
|
|
(202,016
|
)
|
|
|
(23,151
|
)
|
Preferred dividends (includes accretion of issuance cost of
$1,202, $576 and $439, respectively)
|
|
|
17,119
|
|
|
|
6,593
|
|
|
|
1,626
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(40,166
|
)
|
|
$
|
(208,609
|
)
|
|
$
|
(24,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted per share information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss available to common stockholders
|
|
$
|
(0.83
|
)
|
|
$
|
(4.32
|
)
|
|
$
|
(0.52
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
48,510
|
|
|
|
48,302
|
|
|
|
47,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share
|
|
$
|
|
|
|
$
|
0.09
|
|
|
$
|
0.12
|
|
See accompanying notes.
49
GRAY
TELEVISION, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Common
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(In thousands, except for number of shares)
|
|
|
Balance at December 31, 2006
|
|
|
7,331,574
|
|
|
$
|
15,321
|
|
|
|
45,690,633
|
|
|
$
|
443,698
|
|
|
$
|
(20,026
|
)
|
|
|
(1,578,554
|
)
|
|
$
|
(22,398
|
)
|
|
|
(3,123,750
|
)
|
|
$
|
(34,412
|
)
|
|
$
|
(2,429
|
)
|
|
$
|
379,754
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,151
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on derivatives, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,754
|
)
|
|
|
|
|
Adjustment to pension liability, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33,769
|
)
|
Common stock cash dividends ($0.12) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,757
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,757
|
)
|
Preferred stock dividends (including accretion of original
issuance costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,626
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,626
|
)
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan
|
|
|
|
|
|
|
|
|
|
|
264,419
|
|
|
|
2,242
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,242
|
|
Non-qualified stock plan
|
|
|
|
|
|
|
|
|
|
|
163,295
|
|
|
|
1,271
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,271
|
|
Directors restricted stock plan
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(647,800
|
)
|
|
|
(5,518
|
)
|
|
|
|
|
|
|
(5,518
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
7,331,574
|
|
|
$
|
15,321
|
|
|
|
46,173,347
|
|
|
$
|
448,459
|
|
|
$
|
(50,560
|
)
|
|
|
(1,578,554
|
)
|
|
$
|
(22,398
|
)
|
|
|
(3,771,550
|
)
|
|
$
|
(39,930
|
)
|
|
$
|
(13,047
|
)
|
|
$
|
337,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
50
GRAY
TELEVISION, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
INCOME (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Common
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(In thousands, except for number of shares)
|
|
|
Balance at December 31, 2007
|
|
|
7,331,574
|
|
|
$
|
15,321
|
|
|
|
46,173,347
|
|
|
$
|
448,459
|
|
|
$
|
(50,560
|
)
|
|
|
(1,578,554
|
)
|
|
$
|
(22,398
|
)
|
|
|
(3,771,550
|
)
|
|
$
|
(39,930
|
)
|
|
$
|
(13,047
|
)
|
|
$
|
337,845
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(202,016
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on derivatives, net of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,262
|
)
|
|
|
|
|
Adjustment to pension liability, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,149
|
)
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(213,427
|
)
|
Common stock cash dividends ($0.09) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,363
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,363
|
)
|
Preferred stock dividends (including accretion of original
issuance costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,593
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,593
|
)
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan
|
|
|
|
|
|
|
|
|
|
|
950,601
|
|
|
|
2,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,380
|
|
Directors restricted stock plan
|
|
|
|
|
|
|
|
|
|
|
55,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(883,200
|
)
|
|
|
(185
|
)
|
|
|
|
|
|
|
(185
|
)
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
|
7,331,574
|
|
|
$
|
15,321
|
|
|
|
47,178,948
|
|
|
$
|
452,289
|
|
|
$
|
(263,532
|
)
|
|
|
(1,578,554
|
)
|
|
$
|
(22,398
|
)
|
|
|
(4,654,750
|
)
|
|
$
|
(40,115
|
)
|
|
$
|
(24,458
|
)
|
|
$
|
117,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
51
GRAY
TELEVISION, INC.
CONSOLIDATED
STATEMENT OF STOCKHOLDERS EQUITY AND COMPREHENSIVE
LOSS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Class A
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Common
|
|
|
Other
|
|
|
|
|
|
|
Common Stock
|
|
|
Common Stock
|
|
|
Accumulated
|
|
|
Treasury Stock
|
|
|
Treasury Stock
|
|
|
Comprehensive
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Deficit
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Income (Loss)
|
|
|
Total
|
|
|
|
(In thousands, except for number of shares)
|
|
|
Balance at December 31, 2008
|
|
|
7,331,574
|
|
|
$
|
15,321
|
|
|
|
47,178,948
|
|
|
$
|
452,289
|
|
|
$
|
(263,532
|
)
|
|
|
(1,578,554
|
)
|
|
$
|
(22,398
|
)
|
|
|
(4,654,750
|
)
|
|
$
|
(40,115
|
)
|
|
$
|
(24,458
|
)
|
|
$
|
117,107
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(23,047
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on derivatives, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,143
|
|
|
|
|
|
Adjustment to pension liability, net of income tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,001
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7,903
|
)
|
Preferred stock dividends (including accretion of original
issuance costs)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17,119
|
)
|
Issuance of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plan
|
|
|
|
|
|
|
|
|
|
|
350,554
|
|
|
|
147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147
|
|
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2009
|
|
|
7,331,574
|
|
|
$
|
15,321
|
|
|
|
47,529,502
|
|
|
$
|
453,824
|
|
|
$
|
(303,698
|
)
|
|
|
(1,578,554
|
)
|
|
$
|
(22,398
|
)
|
|
|
(4,654,750
|
)
|
|
$
|
(40,115
|
)
|
|
$
|
(9,314
|
)
|
|
$
|
93,620
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
52
GRAY
TELEVISION, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(In thousands)
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(23,047
|
)
|
|
$
|
(202,016
|
)
|
|
$
|
(23,151
|
)
|
Adjustments to reconcile net loss to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
32,595
|
|
|
|
34,561
|
|
|
|
38,558
|
|
Amortization of intangible assets
|
|
|
577
|
|
|
|
792
|
|
|
|
825
|
|
Amortization of deferred loan costs
|
|
|
329
|
|
|
|
475
|
|
|
|
967
|
|
Amortization of restricted stock awards
|
|
|
1,388
|
|
|
|
1,450
|
|
|
|
1,248
|
|
Loss from early extinguishment of debt
|
|
|
8,352
|
|
|
|
|
|
|
|
22,853
|
|
Accrual of long-term accrued facility fee
|
|
|
18,307
|
|
|
|
|
|
|
|
|
|
Impairment of goodwill and broadcast licenses
|
|
|
|
|
|
|
338,681
|
|
|
|
|
|
Amortization of program broadcast rights
|
|
|
15,130
|
|
|
|
16,070
|
|
|
|
15,194
|
|
Payments on program broadcast obligations
|
|
|
(15,287
|
)
|
|
|
(13,968
|
)
|
|
|
(14,101
|
)
|
Common stock contributed to 401(K) Plan
|
|
|
147
|
|
|
|
2,380
|
|
|
|
2,242
|
|
Deferred revenue, network compensation
|
|
|
(617
|
)
|
|
|
(604
|
)
|
|
|
(300
|
)
|
Deferred income taxes
|
|
|
(11,219
|
)
|
|
|
(110,990
|
)
|
|
|
(13,823
|
)
|
Gain on disposals of assets, net
|
|
|
(7,628
|
)
|
|
|
(1,632
|
)
|
|
|
(248
|
)
|
Payment for sports marketing agreement
|
|
|
|
|
|
|
|
|
|
|
(4,950
|
)
|
Other
|
|
|
2,574
|
|
|
|
257
|
|
|
|
173
|
|
Changes in operating assets and liabilities, net of business
acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(2,483
|
)
|
|
|
8,385
|
|
|
|
(2,089
|
)
|
Other current assets
|
|
|
3,208
|
|
|
|
3,387
|
|
|
|
(3,169
|
)
|
Accounts payable
|
|
|
(4,238
|
)
|
|
|
2,162
|
|
|
|
2,082
|
|
Employee compensation, benefits and pension costs
|
|
|
72
|
|
|
|
(2,017
|
)
|
|
|
288
|
|
Accrued expenses
|
|
|
(2,288
|
)
|
|
|
870
|
|
|
|
(374
|
)
|
Accrued interest
|
|
|
3,654
|
|
|
|
(6,001
|
)
|
|
|
5,047
|
|
Income taxes payable
|
|
|
(168
|
)
|
|
|
(282
|
)
|
|
|
1,141
|
|
Deferred revenue other, including current portion
|
|
|
(455
|
)
|
|
|
1,715
|
|
|
|
(53
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
18,903
|
|
|
|
73,675
|
|
|
|
28,360
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of television businesses and licenses, net of cash
acquired
|
|
|
|
|
|
|
|
|
|
|
(92
|
)
|
Purchases of property and equipment
|
|
|
(17,756
|
)
|
|
|
(15,019
|
)
|
|
|
(24,605
|
)
|
Proceeds from asset sales
|
|
|
104
|
|
|
|
199
|
|
|
|
272
|
|
Equipment transactions related to spectrum reallocation, net
|
|
|
697
|
|
|
|
(766
|
)
|
|
|
(211
|
)
|
Payments on acquisition related liabilities
|
|
|
(805
|
)
|
|
|
(779
|
)
|
|
|
(1,012
|
)
|
Other
|
|
|
229
|
|
|
|
25
|
|
|
|
(14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(17,531
|
)
|
|
|
(16,340
|
)
|
|
|
(25,662
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on long-term debt
|
|
|
|
|
|
|
16,000
|
|
|
|
392,500
|
|
Repayments of borrowings on long-term debt
|
|
|
(8,571
|
)
|
|
|
(140,621
|
)
|
|
|
(318,500
|
)
|
Deferred and other loan costs
|
|
|
(7,450
|
)
|
|
|
|
|
|
|
(16,255
|
)
|
Dividends paid, net of accreted preferred stock dividend
|
|
|
|
|
|
|
(8,825
|
)
|
|
|
(7,709
|
)
|
Proceeds from issuance of common stock
|
|
|
|
|
|
|
|
|
|
|
1,271
|
|
Proceeds from issuance of preferred stock
|
|
|
|
|
|
|
91,607
|
|
|
|
|
|
Purchase of common stock
|
|
|
|
|
|
|
(185
|
)
|
|
|
(5,518
|
)
|
Redemption of preferred stock
|
|
|
|
|
|
|
|
|
|
|
(31,400
|
)
|
Redemption and purchase of preferred stock from related party
|
|
|
|
|
|
|
|
|
|
|
(6,490
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(16,021
|
)
|
|
|
(42,024
|
)
|
|
|
7,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents
|
|
|
(14,649
|
)
|
|
|
15,311
|
|
|
|
10,597
|
|
Cash and cash equivalents at beginning of period
|
|
|
30,649
|
|
|
|
15,338
|
|
|
|
4,741
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
16,000
|
|
|
$
|
30,649
|
|
|
$
|
15,338
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
53
GRAY
TELEVISION, INC.
|
|
1.
|
Description
of Business and Summary of Significant Accounting
Policies
|
Description
of Business
Gray Television, Inc. is a television broadcast company
headquartered in Atlanta, Georgia. We own 36 television
stations serving 30 television markets. Seventeen of the
stations are affiliated with CBS Inc. (CBS), ten are
affiliated with the National Broadcasting Company, Inc.
(NBC), eight are affiliated with the American
Broadcasting Company (ABC), and one is affiliated
with FOX Entertainment Group, Inc. (FOX). In
addition to our primary channels that we broadcast from our
television stations, we currently broadcast 39 digital second
channels including one affiliated with ABC, four affiliated with
FOX, seven affiliated with The CW Network, LLC (CW),
18 affiliated with Twentieth Television, Inc.
(MyNetworkTV or MyNet.), two affiliated
with Universal Sports Network or (Univ.) and seven
local news/weather channels in certain of our existing markets.
We created our digital second channels to better utilize our
excess broadcast spectrum. The digital second channels are
similar to our primary broadcast channels; however, our digital
second channels are affiliated with networks different from
those affiliated with our primary broadcast channels. Our
operations consist of one reportable segment.
Principles
of Consolidation
The consolidated financial statements include our accounts and
the accounts of our subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Revenue
Recognition
Broadcasting advertising revenue is generated primarily from the
sale of television advertising time to local, national and
political customers. Internet advertising revenue is generated
from the sale of advertisements on our stations websites.
Broadcast network compensation is generated by contractual
payments to us from the broadcast networks. Retransmission
consent revenue is generated by payments to us from cable and
satellite distribution systems for their retransmission of our
broadcasts. Advertising revenue is billed to the customer and
recognized when the advertisement is broadcast or appears on our
stations websites. Broadcast network compensation is
recognized on a straight-line basis over the life of the
contract. Retransmission consent revenue is recognized as earned
over the life of the contract. Cash received which has not yet
been recognized as revenue is presented as deferred revenue.
Barter
Transactions
We account for trade barter transactions involving the exchange
of tangible goods or services with our customers as revenue. The
revenue is recorded at the time the advertisement is broadcast
and the expense is recorded at the time the goods or services
are used. The revenue and expense associated with these
transactions are based on the fair value of the assets or
services involved in the transaction. Trade barter revenue and
expense recognized by us for each of the years ended
December 31, 2009, 2008 and 2007 are as follows (amounts in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Trade barter revenue
|
|
$
|
1,289
|
|
|
$
|
1,850
|
|
|
$
|
2,256
|
|
Trade barter expense
|
|
|
(1,324
|
)
|
|
|
(1,892
|
)
|
|
|
(2,116
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net trade barter (expense) income
|
|
$
|
(35
|
)
|
|
$
|
(42
|
)
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We do not account for barter revenue and related barter expense
generated from network or syndicated programming as such amounts
are not material. Furthermore, any such barter revenue
recognized would then
54
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
require the recognition of an equal amount of barter expense.
The recognition of these amounts would have no effect upon net
income (loss).
Advertising
Expense
We recorded advertising expense of $0.8 million,
$1.3 million and $1.8 million for the years ended
December 31, 2009, 2008 and 2007, respectively. In 2009 and
2008, advertising expense decreased as a result of general cost
reduction initiatives. In 2007, advertising expense increased as
a result of the acquisition of stations and the expansion of
operations at existing stations through digital second channels.
We expense all advertising expenditures.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America (GAAP) requires management to make estimates
and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Our actual results
could materially differ from these estimated amounts. Our most
significant estimates are used for our allowance for doubtful
accounts in receivables, valuation of goodwill and intangible
assets, amortization of program rights and intangible assets,
stock-based compensation, pension costs, income taxes, employee
medical insurance claims, useful lives of property and
equipment, contingencies and litigation.
Allowance
for Doubtful Accounts
We record a provision for doubtful accounts based on a
percentage of receivables. We recorded expenses for this
allowance of $0.9 million, $1.8 million and
$1.0 million for the years ended December 31, 2009,
2008 and 2007, respectively. We write-off accounts receivable
balances when we determine that they have become uncollectible.
Program
Broadcast Rights
Rights to programs available for broadcast under program license
agreements are initially recorded at the beginning of the
license period for the amounts of total license fees payable
under the license agreements and are charged to operating
expense over the period that the episodes are broadcast. The
portion of the unamortized balance expected to be charged to
operating expense in the succeeding year is classified as a
current asset, with the remainder classified as a non-current
asset. The liability for the license fees payable under program
license agreements is classified as current or long-term, in
accordance with the payment terms of the various license
agreements.
Property
and Equipment
Property and equipment are carried at cost. Depreciation is
computed principally by the straight-line method. Buildings,
towers, improvements and equipment are generally depreciated
over estimated useful lives of approximately 35 years,
20 years, 10 years and 5 years, respectively.
Maintenance, repairs and minor replacements are charged to
operations as incurred; major replacements and betterments are
capitalized. The cost of any assets sold or retired and related
accumulated depreciation are removed from the accounts at the
55
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
time of disposition, and any resulting profit or loss is
reflected in income or expense for the period. The following
table lists components of property and equipment by major
category (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Property and equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
23,046
|
|
|
$
|
22,452
|
|
Buildings and improvements
|
|
|
51,606
|
|
|
|
49,766
|
|
Equipment
|
|
|
291,682
|
|
|
|
296,013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
366,334
|
|
|
|
368,231
|
|
Accumulated depreciation
|
|
|
(218,242
|
)
|
|
|
(205,328
|
)
|
|
|
|
|
|
|
|
|
|
Total property and equipment, net
|
|
$
|
148,092
|
|
|
$
|
162,903
|
|
|
|
|
|
|
|
|
|
|
Deferred
Loan Costs
Loan acquisition costs are amortized over the life of the
applicable indebtedness using a straight-line method that
approximates the effective interest method.
Asset
Retirement Obligations
We own office equipment, broadcasting equipment, leasehold
improvements and transmission towers, some of which are located
on, or are housed in, leased property or facilities. At the
conclusion of several of these leases we are legally obligated
to dismantle, remove and otherwise properly dispose of and
remediate the facility or property. We estimate our asset
retirement obligation based upon the cash flows of the costs to
be incurred and the net present value of those estimated
amounts. The asset retirement obligation is recognized as a
non-current liability and as a component of the cost of the
related asset. Changes to our asset retirement obligation
resulting from revisions to the timing or the amount of the
original undiscounted cash flow estimates are recognized as an
increase or decrease to the carrying amount of the asset
retirement obligation and the related asset retirement cost
capitalized as part of the related property, plant, or
equipment. Changes in the asset retirement obligation resulting
from accretion of the net present value of the estimated cash
flows are recognized as operating expenses. We recognize
depreciation expense of the capitalized cost over the estimated
life of the lease. Our estimated obligations become due at
varying times during the years 2010 through 2059. The liability
recognized for our asset retirement obligations was
approximately $465,000 and $507,000 as of December 31, 2009
and 2008, respectively. Related to our asset retirement
obligations, we recorded a gain of $3,000 for the year ended
December 31, 2009 and expenses of $28,000 and $0 for the
years ended December 31, 2008 and 2007, respectively.
Concentration
of Credit Risk
We provide advertising air-time to national and local
advertisers within the geographic areas in which we operate.
Credit is extended based on an evaluation of the customers
financial condition, and generally advance payment is not
required except for political advertising. Credit losses are
provided for in the financial statements and consistently have
been within our expectations that are based upon our prior
experience.
For the year ended December 31, 2009, approximately 17% and
12% of our broadcast revenue was obtained from advertising sales
to automotive and restaurant customers, respectively. We
experienced similar industry-based concentrations of revenue in
the years ended December 31, 2008 and 2007. Although our
revenues can be affected by changes within these industries, we
believe this risk is in part mitigated due to the fact that no
one customer accounted for in excess of 5% of our revenue in any
of these periods. Furthermore, our large geographic operating
area partially mitigates the potential effect of regional
economic changes.
56
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
However, during the years ended December 31, 2009 and 2008,
our overall revenues have been negatively impacted by the
economic recession, including the recessions effect upon
the automotive industry.
The majority of our cash is held by a major financial
institution and we believe risk of loss is mitigated by the size
and the financial health of the institution. Risk of loss has
been further mitigated by the U.S. Governments
intervention in the banking system during the years ended
December 31, 2009 and 2008.
Earnings
Per Share
We compute basic earnings per share by dividing net income by
the weighted-average number of common shares outstanding during
the relevant period. The weighted-average number of common
shares outstanding does not include unvested restricted shares.
These shares, although classified as issued and outstanding, are
considered contingently returnable until the restrictions lapse
and are not to be included in the basic earnings per share
calculation until the shares are vested. Diluted earnings per
share is computed by giving effect to all dilutive potential
common shares issuable, including restricted stock and stock
options. The following table reconciles basic weighted-average
shares outstanding to diluted weighted-average shares
outstanding for the years ended December 31, 2009, 2008 and
2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Weighted-average shares outstanding basic
|
|
|
48,510
|
|
|
|
48,302
|
|
|
|
47,788
|
|
Stock options and restricted stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average shares outstanding diluted
|
|
|
48,510
|
|
|
|
48,302
|
|
|
|
47,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For periods in which we reported losses, all common stock
equivalents are excluded from the computation of diluted
earnings per share, since their inclusion would be antidilutive.
Securities that could potentially dilute earnings per share in
the future, but which were not included in the calculation of
diluted earnings per share because their inclusion would have
been antidilutive for the periods presented are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Potentially dilutive securities outstanding at end of period:
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options
|
|
|
1,476
|
|
|
|
1,949
|
|
|
|
864
|
|
Unvested restricted stock
|
|
|
66
|
|
|
|
100
|
|
|
|
128
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,542
|
|
|
|
2,049
|
|
|
|
992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
in Broadcasting Company
We have an investment in Sarkes Tarzian, Inc.
(Tarzian) whose principal business is the ownership
and operation of two television stations. The investment
represents 33.5% of the total outstanding common stock of
Tarzian (both in terms of the number of shares of common stock
outstanding and in terms of voting rights), but such investment
represents 73% of the equity of Tarzian for purposes of
dividends, if paid, as well as distributions in the event of any
liquidation, dissolution or other sale of Tarzian. This
investment is accounted for under the cost method of accounting
and reflected as a non-current asset. We have no commitment to
fund operations of Tarzian and we have neither representation on
Tarzians board of directors or any other influence over
Tarzians management. We believe the cost method is
appropriate to account for this investment given the existence
of a single voting majority shareholder and our lack of
management influence.
57
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Valuation
of Broadcast Licenses, Goodwill and Other Intangible
Assets
From January 1, 1994 through December 31, 2009, we
acquired 33 television stations. We completed our most recent
acquisition on March 3, 2006. Among the assets acquired in
these transactions were broadcast licenses issued by the Federal
Communications Commission, goodwill and other intangible assets.
For broadcast licenses acquired prior to January 1, 2002,
we recorded their respective values using a residual method
(analogous to goodwill) where the excess of the
purchase price over the fair value of all identified tangible
and intangible assets is attributed to the broadcast license.
This residual basis approach will generally produce higher
valuations of broadcast licenses when compared to applying an
income method as discussed below.
For broadcast licenses acquired after December 31, 2001, we
recorded their respective values using an income approach. Under
this approach, a broadcast license is valued based on analyzing
the estimated after-tax discounted future cash flows of the
station, assuming an initial hypothetical
start-up
operation maturing into an average performing station in a
specific television market and giving consideration to other
relevant factors such as the technical qualities of the
broadcast license and the number of competing broadcast licenses
within that market. This income approach will generally produce
lower valuations of broadcast licenses when compared to applying
a residual method as discussed above. For television stations
acquired after December 31, 2001, we allocated the residual
value of the station to goodwill.
When renewing broadcast licenses, we incur regulatory filing
fees and legal fees. We expense these fees as they are incurred.
Other intangible assets that we have acquired include network
affiliation agreements, advertising contracts, client lists,
talent contracts and leases. Each of our stations is affiliated
with a broadcast network. We believe that the value of a
television station is derived primarily from the attributes of
its broadcast license rather than its network affiliation
agreement. As a result, we have allocated minimal values to our
network affiliation agreements. We have classified our other
intangible assets as definite-lived intangible assets. The
amortization period of our other intangible assets is equal to
the shorter of their estimated useful life or contract period.
When renewing other intangible asset contracts, we incur legal
fees which expensed as incurred.
Annual
Impairment Testing of Intangible Assets
We test for impairment of our intangible assets on an annual
basis on the last day of each fiscal year. However, if certain
triggering events occur, we will test for impairment during the
relevant reporting period.
For purposes of testing goodwill for impairment, each of our
individual television stations is considered a separate
reporting unit. We review each television station for possible
goodwill impairment by comparing the estimated fair value of
each respective reporting unit to the recorded value of that
reporting units net assets. If the estimated fair value
exceeds the net asset value, no goodwill impairment is deemed to
exist. If the fair value of the reporting unit does not exceed
the recorded value of that reporting units net assets, we
then perform, on a notional basis, a purchase price allocation
by allocating the reporting units fair value to the fair
value of all tangible and identifiable intangible assets with
residual fair value representing the implied fair value of
goodwill of that reporting unit. The recorded value of goodwill
for the reporting unit is written down to this implied value.
To estimate the fair value of our reporting units, we utilize a
discounted cash flow model supported by a market multiple
approach. We believe that a discounted cash flow analysis is the
most appropriate methodology to test the recorded value of
long-term assets with a demonstrated
long-lived / enduring franchise value. We believe the
results of the discounted cash flow and market multiple
approaches provide reasonable estimates of the fair value of our
reporting units because these approaches are based on our actual
results and
58
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
reasonable estimates of future performance, and also take into
consideration a number of other factors deemed relevant by us,
including but not limited to, expected future market revenue
growth, market revenue shares and operating profit margins. We
have historically used these approaches in determining the value
of our goodwill. We also consider a market multiple approach
utilizing market multiples to corroborate our discounted cash
flow analysis. We believe that this methodology is consistent
with the approach that a strategic market participant would
utilize if they were to value one of our television stations.
For testing of our broadcast licenses and other intangible
assets for potential impairment of their recorded asset values,
we compare their estimated fair value to the respective
assets recorded value. If the fair value is greater than
the assets recorded value, no impairment expense is
recorded. If the fair value does not exceed the assets
recorded value, we record an impairment expense equal to the
amount that the assets recorded value exceeded the
assets fair value. We use the income method to estimate
the fair value of all broadcast licenses irrespective of whether
they were initially recorded using the residual or income
methods.
For further discussion of our goodwill, broadcast licenses and
other intangible assets, see Note 12. Goodwill and
Intangible Assets.
Market
Capitalization
When we test our broadcast licenses and goodwill for impairment,
we also give consideration to our market capitalization. During
2008, we experienced a significant decline in our market
capitalization. As of December 31, 2008, our market
capitalization was less than our book value and it remains less
than book value as of the date of this filing. We believe the
decline in our stock price was influenced, in part, by the then
current state of the national credit market and the national
economic recession. We believe that it is appropriate to view
the current status of the credit markets and recession as
relatively temporary in relation to reporting units that have
demonstrated long-lived/enduring franchise value. Accordingly,
we believe that a variance between market capitalization and
fair value can exist and that difference could be significant at
points in time due to intervening macroeconomic influences.
Related
Party Transactions
On December 23, 2008, Gray entered into a one-year
consulting contract with Mr. J. Mack Robinson whereby he
agreed to consult and advise Gray with respect to its television
stations and all related matters in connection with various
proposed or existing television stations. In return for his
services, Mr. Robinson received compensation under this
agreement of $400,000 for the year ended December 31, 2009.
Prior to Mr. Robinsons retirement on
December 14, 2008, he had served as Grays Chief
Executive Officer. At all times during which the consulting
agreement has been in effect, he has continued to serve as a
member of Grays Board of Directors and as Chairman
emeritus.
For the years ended December 31, 2008 and 2007, we made
related party payments to Georgia Casualty & Surety
Co. (Georgia Casualty) in the amounts of $183,000
and $317,000, respectively, for certain insurance services
provided. Through March 2008, Georgia Casualty was a
wholly-owned subsidiary of Atlanta American Corporation, a
publicly-traded company (Atlantic American). For all
periods through 2008, Mr. Robinson served as chairman of
the board of Atlantic American. Mr. Robinson and certain
entities controlled by him own a majority of the outstanding
capital stock of Atlantic American. In addition, Mr. Hilton
H. Howell, our Chairman and Chief Executive Officer is Chairman,
President and Chief Executive Officer of, and maintains an
ownership interest in, Atlantic American and Harriett J.
Robinson, one of our directors and the wife of J. Mack Robinson,
is a director of, and maintains an ownership interest in,
Atlantic American. During 2008, Atlantic American sold Georgia
Casualty to an unrelated party. The payments for 2008 are the
total payments made for all of 2008. After 2008, we no longer
consider Georgia Casualty a related party due to their sale in
2008.
59
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Accumulated
Other Comprehensive (Loss) Income
Our accumulated other comprehensive (loss) income balances as of
December 31, 2009 and 2008 consist of adjustments to our
derivative and pension liabilities as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Accumulated balances of items included in accumulated other
comprehensive loss:
|
|
|
|
|
|
|
|
|
Loss on derivatives, net of income tax
|
|
$
|
(3,870
|
)
|
|
$
|
(15,013
|
)
|
Pension liability adjustments, net of income tax
|
|
|
(5,444
|
)
|
|
|
(9,445
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(9,314
|
)
|
|
$
|
(24,458
|
)
|
|
|
|
|
|
|
|
|
|
Recent
Accounting Pronouncements
In June 2009 the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards No. 168 The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting
Principles a replacement of FASB Standard
No. 162 (SFAS 168). SFAS 168
replaces GAAP with two levels of GAAP: authoritative and
non-authoritative. On July 1, 2009, the FASB Accounting
Standards Codification (FASB ASC) became the single
source of authoritative nongovernmental GAAP, except for rules
and interpretive releases of the Securities and Exchange
Commission. All other non-grandfathered accounting literature
became non-authoritative. The adoption of SFAS 168 did not
have a material impact on our consolidated financial statements.
As a result of the adoption of SFAS 168, all references to
GAAP now refer to the codified FASB ASC topic.
In September 2006, FASB ASC Topic 820 was issued. FASB ASC Topic
820 defines fair value, establishes a framework for measuring
fair value in generally accepted accounting principles, and
expands disclosures about fair value measurements. FASB ASC
Topic 820 does not require any new fair value measurements, but
provides guidance on how to measure fair value by providing a
fair value hierarchy used to classify the source of the
information. We adopted the provisions of FASB ASC Topic 820 on
January 1, 2009. The adoption of FASB ASC Topic 820 did not
have a significant impact on our consolidated financial
statements.
In April 2009, FASB ASC Topic 855 was issued. FASB ASC Topic 855
establishes general standards of accounting for and disclosure
of events that occur after the balance sheet date but before
financial statements are issued or available to be issued. We
adopted FASB ASC Topic 855 for the quarter ending June 30,
2009. The adoption did not have a material impact on our
consolidated financial statements.
Subsequent
Events
We evaluate subsequent events through the date we issue our
financial statements.
Reclassifications
Certain reclassifications have been made within the liability
section of our prior years balance sheet and the investing
section of our prior years statement of cash flows to be
consistent with the current years presentation. The
reclassifications did not change total assets, total liabilities
or net loss as previously recorded.
60
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
We have historically invested excess cash balances in an
enhanced cash fund managed by Columbia Management Advisers, LLC,
a subsidiary of Bank of America, N.A. (Columbia
Management). We refer to this investment fund as the
Columbia Fund.
On December 6, 2007, Columbia Management initiated a series
of steps which included the temporary suspension of all
immediate cash distributions from the Columbia Fund and changed
its method of valuation from a fixed asset valuation to a
fluctuating asset valuation. Since that date, Columbia
Management has commenced the liquidation of the Columbia Fund.
During the quarter ended March 31, 2009, Columbia
Management completed the liquidation and distribution of our
investment.
For the years ended December 31, 2009, 2008 and 2007, we
recorded a
mark-to-market
expense of $2,100, $383,000 and $88,000, respectively,
reflecting a decrease in market value of our original investment
in the Columbia Fund. As of December 31, 2009, we no longer
had funds invested in the Columbia Fund. Our balance in the
Columbia Fund net of the
mark-to-market
adjustment as of December 31, 2008 was $1.4 million
and was recorded as a current marketable security.
For the years ended December 31, 2009, 2008 and 2007, we
received cash distributions of $1.4 million,
$4.5 million and $623,000, respectively, and we earned
interest income of $5,000, $116,000 and $78,000, respectively,
from the Columbia Fund.
Fair value is based on quoted prices of similar assets in active
markets. Valuation of these items entails a significant amount
of judgment and the inputs that are significant to the fair
value measurement are Level 2 in the fair value hierarchy.
See Note 5. Fair Value Measurement for further
discussion of fair value.
As of December 31, 2009, all excess cash is held in a bank
account and we do not have any cash equivalents.
|
|
3.
|
Long-term
Debt and Accrued Facility Fee
|
Long-term debt consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
Senior credit facility current portion
|
|
$
|
8,080
|
|
|
$
|
8,085
|
|
Senior credit facility long-term portion
|
|
|
783,729
|
|
|
|
792,295
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt including current portion
|
|
|
791,809
|
|
|
|
800,380
|
|
Long-term accrued facility fee
|
|
|
18,307
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and accrued facility fee
|
|
$
|
810,116
|
|
|
$
|
800,380
|
|
|
|
|
|
|
|
|
|
|
Borrowing availability under our senior credit facility
|
|
$
|
31,681
|
|
|
$
|
12,262
|
|
Leverage ratio as defined in our senior credit facility:
|
|
|
|
|
|
|
|
|
Actual
|
|
|
8.42
|
|
|
|
7.14
|
|
Maximum allowed
|
|
|
8.75
|
|
|
|
7.25
|
|
Our senior credit facility consists of a revolving loan and a
term loan. The amount outstanding under our senior credit
facility as of December 31, 2009 and December 31, 2008
was $791.8 million and $800.4 million, respectively,
comprised solely of the term loan. Under the revolving loan
portion of our senior credit facility, the maximum available
borrowing capacity was $50.0 million as of
December 31, 2009. Of the maximum borrowing capacity
available under our revolving loan, the amount that we can draw
is limited by certain
61
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
restrictive covenants, including our total net leverage ratio
covenant. Based on such covenant, as of December 31, 2009
and December 31, 2008, we could have drawn
$31.7 million and $12.3 million, respectively, of the
$50.0 million maximum borrowing capacity under the
revolving loan. Effective as of March 31, 2010, the maximum
borrowing capacity available under the revolving loan was
reduced to $40.0 million.
Under our revolving and term loans, we can choose to pay
interest at an annual rate equal to the London Interbank Offered
Rate (LIBOR) plus 3.5% or at the lenders base
rate, generally equal to the lenders prime rate, plus
2.5%. This interest is payable in cash throughout the year.
In addition, effective as of April 1, 2009, we incur a
facility fee at an annual rate of 3.0% on all principal balances
outstanding under the revolving and term loans. For the period
from April 4, 2009 until April 30, 2010, the annual
facility fee for the revolving and term loans accrues and is
payable on the respective revolving and term loan maturity
dates. The revolving loan and term loan maturity dates are
March 19, 2014 and December 31, 2014, respectively.
For the period from April 30, 2010 until maturity of the
senior credit facility, the annual facility fee will be payable
in cash on a quarterly basis and the amount accrued through
April 30, 2010 will bear interest at an annual rate of
6.5%, payable quarterly. As of December 31, 2009, our
accrued facility fee of $18.3 million was classified as a
long-term liability on our balance sheet. The accrued facility
fee is included in determining the amount of total debt in
calculating our total net leverage ratio covenant as defined in
our senior credit facility.
The average interest rates on our total debt balance outstanding
under the senior credit facility as of December 31, 2009
and 2008 were 6.8% and 4.8%, respectively. These rates are as of
the period end and do not include the effects of our interest
rate swap agreements. See Note 4. Derivatives.
Including the effects of our interest rate swap agreements, the
average interest rates on our total debt balance outstanding
under our senior credit facility at December 31, 2009 and
2008 were 9.8% and 5.6%, respectively.
Also under our revolving loan, we pay a commitment fee on the
average daily unused portion of the $50.0 million revolving
loan. As of December 31, 2009 and 2008, the annual
commitment fees were 0.5% and 0.4%, respectively.
Collateral
and Restrictions
The collateral for our senior credit facility consists of
substantially all of our and our subsidiaries assets. In
addition, our subsidiaries are joint and several guarantors of
the obligations and our ownership interests in our subsidiaries
are pledged to collateralize the obligations. The senior credit
facility contains affirmative and restrictive covenants. These
covenants include but are not limited to (i) limitations on
additional indebtedness, (ii) limitations on liens,
(iii) limitations on amendments to our by-laws and articles
of incorporation, (iv) limitations on mergers and the sale
of assets, (v) limitations on guarantees,
(vi) limitations on investments and acquisitions,
(vii) limitations on the payment of dividends and the
redemption of our capital stock, (vii) maintenance of a
specified total net leverage ratio not to exceed certain maximum
limits, (viii) limitations on related party transactions,
(ix) limitations on the purchase of real estate, and
(x) limitations on entering into multiemployer retirement
plans, as well as other customary covenants for credit
facilities of this type. As of December 31, 2009 and 2008,
we were in compliance with all restrictive covenants as required
by our senior credit facility.
We are a holding company with no material independent assets or
operations, other than our investments in our subsidiaries. The
aggregate assets, liabilities, earnings and equity of the
subsidiary guarantors as defined in our senior credit facility
are substantially equivalent to our assets, liabilities,
earnings and equity on a consolidated basis. The subsidiary
guarantors are, directly or indirectly, our wholly owned
subsidiaries and the guarantees of the subsidiary guarantors are
full, unconditional and joint and several. All of our current
and future direct and indirect subsidiaries are and will be
guarantors under the senior credit facility. Accordingly,
62
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
separate financial statements and other disclosures of each of
the subsidiary guarantors are not presented because we have no
independent assets or operations, the guarantees are full and
unconditional and joint and several and any of our subsidiaries
other than the subsidiary guarantors are immaterial.
Amendments
to Our Senior Credit Facility
Effective as of March 31, 2009, we amended our senior
credit facility (the 2009 amendment). The 2009
amendment included (i) an increase in the maximum total net
leverage ratio covenant for the year ended December 31,
2009, (ii) a general increase in the restrictiveness of our
remaining covenants and (iii) increased interest rates, as
described below. In connection therewith, we incurred loan
issuance costs of approximately $7.4 million, including
legal and professional fees. These fees were funded from our
existing cash balances. The 2009 amendment of our senior credit
facility was determined to be significant and, as a result, we
recorded a loss from early extinguishment of debt of
$8.4 million.
Without the 2009 amendment, we would not have been in compliance
with the total net leverage ratio covenant under the senior
credit facility and such noncompliance would have caused a
default under the agreement as of March 31, 2009. Such a
default would have given the lenders thereunder certain rights,
including the right to declare all amounts outstanding under our
senior credit facility immediately due and payable or to
foreclose on the assets securing such indebtedness. The 2009
amendment increased our annual cash interest rate by 2.0% and,
beginning March 31, 2009, required the payment of a 3.0%
annual facility fee.
As stated above, our senior credit facility requires us to
maintain our total net leverage ratio below certain maximum
amounts. Our actual total net leverage ratio and our maximum
total net leverage ratio allowed under our senior credit
facility for recent reporting periods was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Leverage Ratio
|
|
|
|
|
|
|
Maximum Allowed
|
|
|
|
|
|
|
Agreement
|
|
|
|
|
|
|
|
|
|
Giving Effect
|
|
|
Agreement
|
|
|
|
|
|
|
to 2009
|
|
|
Pre-2009
|
|
|
|
Actual
|
|
|
Amendment
|
|
|
Amendment
|
|
|
Leverage ratios under our senior credit facility as of:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008
|
|
|
7.14
|
|
|
|
NA
|
|
|
|
7.25
|
|
March 31, 2009
|
|
|
7.48
|
|
|
|
8.00
|
|
|
|
7.25
|
|
June 30, 2009
|
|
|
7.98
|
|
|
|
8.25
|
|
|
|
7.25
|
|
September 30, 2009
|
|
|
8.22
|
|
|
|
8.50
|
|
|
|
7.25
|
|
December 31, 2009
|
|
|
8.42
|
|
|
|
8.75
|
|
|
|
7.00
|
|
Assuming we maintain compliance with the financial and other
covenants in our senior credit facility, including the total net
leverage ratio covenant, we believe that our current cash
balance, cash flows from operations and any available funds
under the revolving credit line of our senior credit facility
will be adequate to provide for our capital expenditures, debt
service and working capital requirements through
December 31, 2010.
Compliance with our total net leverage ratio covenant depends on
a number of factors, including the interrelationship of our
ability to reduce our outstanding debt
and/or the
results of our operations. The continuing general economic
recession, including the significant decline in advertising by
the automotive industry, adversely impacted our ability to
generate cash from operations during 2009. Based upon certain
internal financial projections, we did not believe that we would
be in compliance with our total net leverage ratio as of
March 31, 2010 unless we further amended the terms of our
senior credit facility. As a result, we requested and obtained
such an amendment of our senior credit facility on
March 31, 2010.
63
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Effective March 31, 2010, we amended our senior credit
facility which, among other things, increased the maximum amount
of the total net leverage ratio covenant through March 31,
2011, and reduced the maximum availability under the revolving
loan to $40.0 million.
Based upon our internal financial projections as of the date of
filing this Annual Report and the amended terms of our senior
credit facility, we believe that we will be in compliance with
all covenants required by our amended senior credit facility as
of March 31, 2010. The March 2010 amendment also imposed an
additional fee, equal to 2.0% per annum, payable quarterly, in
arrears, until such time as we complete an offering of capital
stock or certain debt securities that results in the repayment
of not less than $200.0 million of the term loan
outstanding under our senior credit facility. That fee would be
eliminated upon such a repayment of amounts under the term loan.
In addition, upon completion of a financing that results in the
repayment of at least $200.0 million of our term loan, we
would achieve additional flexibility under various covenants in
our senior credit facility. The use of proceeds from any
issuance of additional securities will generally be limited to
the repayment of amounts outstanding under our term loan and, in
certain circumstances, to the repurchase of outstanding shares
of our Series D Perpetual Preferred Stock. There can be no
assurance that we will be able to complete such a capital
raising transaction, or to repurchase any of our preferred
stock, at times and on terms acceptable to us, or at all. If we
are unable to complete such a financing and repayment of amounts
under our term loan, we would continue to incur increased fees
under our senior credit facility and to be subject to the
stricter limits contained in our existing financial covenants.
For additional details regarding the March 2010 amendment to our
senior credit facility, see Note 14. Subsequent
Event Long-term Debt Amendment to our audited
financial statements included elsewhere herein.
Loss
on Early Extinguishment of Debt in 2007
On March 19, 2007, we entered into the senior credit
facility and repaid all then-outstanding obligations under our
previous credit facility. As a result of these transactions, in
the first quarter of 2007 we incurred lender and legal fees of
approximately $3.2 million and recognized a loss on early
extinguishment of debt of $6.5 million, including the
write-off of a portion of our previously capitalized loan fees.
On April 18, 2007, we redeemed all of our then-outstanding
9.25% Notes and, accordingly, recorded a loss on early
extinguishment of debt of $16.4 million during the second
quarter of 2007.
Maturities
Aggregate minimum principal maturities on long-term debt and
long-term accrued facility fee as of December 31, 2009,
were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum Principal Maturities
|
|
|
|
Long-Term Accrued
|
|
|
Long-Term
|
|
|
|
|
Year
|
|
Facility Fee
|
|
|
Debt
|
|
|
Total
|
|
|
2010
|
|
$
|
|
|
|
$
|
8,080
|
|
|
$
|
8,080
|
|
2011
|
|
|
|
|
|
|
8,080
|
|
|
|
8,080
|
|
2012
|
|
|
|
|
|
|
8,080
|
|
|
|
8,080
|
|
2013
|
|
|
|
|
|
|
8,080
|
|
|
|
8,080
|
|
2014
|
|
|
18,307
|
|
|
|
759,489
|
|
|
|
777,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
18,307
|
|
|
$
|
791,809
|
|
|
$
|
810,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Interest
Payments
For all of our interest bearing obligations, including
derivative contracts, we made interest payments of approximately
$46.8 million, $59.6 million and $61.2 million
during 2009, 2008 and 2007, respectively. We did not capitalize
any interest payments during the years ended December 31,
2009, 2008 and 2007.
Risk
Management Objective of Using Derivatives
We are exposed to certain risks arising from business operations
and economic conditions. We attempt to manage our exposure to a
wide variety of business and operational risks principally
through management of our core business activities. We attempt
to manage economic risk, including interest rate, liquidity, and
credit risk, primarily by managing the amount, sources and
duration of our debt funding and the use of interest rate swap
agreements. Specifically, we enter into interest rate swap
agreements to manage interest rate exposure with the following
objectives:
|
|
|
|
|
managing current and forecasted interest rate risk while
maintaining financial flexibility and solvency;
|
|
|
|
proactively managing our cost of capital to ensure that we can
effectively manage operations and execute our business strategy,
thereby maintaining a competitive advantage and enhancing
shareholder value; and
|
|
|
|
complying with covenant requirements in our senior credit
facility.
|
Cash
Flow Hedges of Interest Rate Risk
In using interest rate derivatives, our objectives are to add
stability to interest expense and to manage our exposure to
interest rate movements. To accomplish these objectives, we
primarily use interest rate swap agreements as part of our
interest rate risk management strategy. Interest rate swaps
designated as cash flow hedges involve the receipt of variable
rate amounts from a counterparty in exchange for our making
fixed-rate payments over the life of the agreements, without
exchange of the underlying notional amount. Under the terms of
our senior credit facility, we are required to fix the interest
rate on at least 50.0% of the outstanding balance thereunder
through March 19, 2010.
During 2007, we entered into three swap agreements to convert
$465.0 million of our variable rate debt under our senior
credit facility to fixed rate debt. These interest rate swap
agreements expire on April 3, 2010, and they were our only
derivatives as of December 31, 2009 and 2008. Upon entering
into the swap agreements, we designated them as hedges of
variability of our variable rate interest payments attributable
to changes in three-month LIBOR, the designated interest rate.
Therefore, these interest rate swap agreements are considered
cash flow hedges.
Upon entering into a swap agreement, we document our hedging
relationships and our risk management objectives. Our swap
agreements do not include written options. Our swap agreements
are intended solely to modify the payments for a recognized
liability from a variable rate to a fixed rate. Our swap
agreements do not qualify for the short-cut method of accounting
because the variable rate debt being hedged is pre-payable.
Hedge effectiveness is evaluated at the end of each quarter. We
compare the notional amount, the variable interest rate and the
settlement dates of the interest rate swap agreements to the
hedged portion of the debt. Historically, our swap agreements
have been highly effective at hedging our interest rate
exposure, although no assurances can be provided that they will
continue to be effective for future periods.
During the period of each interest rate swap agreement, we
recognize the swap agreements at their fair value as an asset or
liability on our balance sheet. The effective portion of the
change in the fair value of our interest rate swap agreements is
recorded in accumulated other comprehensive income (loss). The
ineffective
65
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
portion of the change in fair value of the derivatives is
recognized directly in earnings. Amounts reported in accumulated
other comprehensive income (loss) related to derivatives will be
reclassified to interest expense as the related interest
payments are made on our variable rate debt. We estimate that an
additional $6.3 million will be reclassified as an increase
in interest expense and a decrease in other comprehensive income
(loss) between January 1, 2010 and April 3, 2010.
Under these swap agreements, we receive variable rate interest
at the LIBOR and pay fixed interest at an annual rate of 5.48%.
The variable LIBOR is reset in three-month periods for the swap
agreements. At our option, the variable LIBOR is reset in
one-month or three-month periods for the hedged portion of our
variable rate debt.
Beginning in April 2009 and ending in early October 2009, we
chose to hedge our long-term debt against a one-month LIBOR
contract that is renewed monthly rather than a three-month LIBOR
contract. By doing so, we took advantage of the lower one-month
LIBOR during this period. As a result, our hedge was not 100%
effective during this period and the ineffective portion was
recognized in earnings.
The table below presents the fair value of our interest rate
swap agreements as well as their classification on our balance
sheet as of December 31, 2009 and 2008. These interest rate
swap agreements are our only derivative financial instruments.
We did not have any derivatives classified as assets as of
December 31, 2009 or 2008. The fair values of the
derivative instruments are estimated by obtaining quotations
from the financial institutions that are counterparties to the
instruments. The fair values are estimates of the net amount
that we would have been required to pay on December 31,
2009 and 2008 if the agreements were transferred to other
parties or cancelled on such dates. Amounts in the following
table are in thousands.
Fair
Values of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
As of December 31, 2008
|
|
|
|
Balance Sheet
|
|
|
Fair
|
|
|
Balance Sheet
|
|
|
Fair
|
|
|
|
Location
|
|
|
Value
|
|
|
Location
|
|
|
Value
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
|
Current liabilities
|
|
|
$
|
6,344
|
|
|
|
Noncurrent liabilities
|
|
|
$
|
24,611
|
|
The following table presents the effect of our derivative
financial instruments on our consolidated statement of
operations for the years ended December 31, 2009 and 2008
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flow Hedging Relationships
|
|
|
|
for the Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Interest rate swap agreements:
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (liability) at beginning of period
|
|
$
|
(24,611
|
)
|
|
$
|
(17,625
|
)
|
|
$
|
4
|
|
Effective portion of gains (losses) recognized in other
comprehensive income (loss)
|
|
|
35,497
|
|
|
|
719
|
|
|
|
(17,693
|
)
|
Effective portion of gains (losses) recorded in accumulated
other comprehensive income (loss) and reclassified into interest
expense
|
|
|
(17,230
|
)
|
|
|
(7,705
|
)
|
|
|
64
|
|
Portion of gains (losses) representing the amount of hedge
ineffectiveness and the amount excluded from the assessment of
hedge effectiveness and recorded as an increase (decrease) in
interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset (liability) at end of period
|
|
$
|
(6,344
|
)
|
|
$
|
(24,611
|
)
|
|
$
|
(17,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
For the year ended December 31, 2009, we recorded a loss on
derivatives as other comprehensive income of $11.2 million,
net of a $7.1 million income tax expense. For the year
ended December 31, 2008, we recorded a loss on derivatives
as other comprehensive expense of $4.3 million, net of a
$2.7 million income tax benefit. For the year ended
December 31, 2007, we recorded a loss on derivatives as
other comprehensive expense of $10.8 million, net of a
$6.9 million income tax benefit.
Credit-risk
Related Contingent Features
We manage our counterparty risk by entering into derivative
instruments with global financial institutions that we believe
present a low risk of credit loss resulting from nonperformance.
As of December 31, 2009 and 2008, we had not recorded a
credit value adjustment related to our interest rate swap
agreements.
Our interest rate swap agreements incorporate the covenant
provisions of our senior credit facility. Failure to comply with
the covenant provisions of the senior credit facility could
result in our being in default of our obligations under our
interest rate swap agreements.
|
|
5.
|
Fair
Value Measurement
|
Fair value is the price that market participants would pay or
receive to sell an asset or paid to transfer a liability in an
orderly transaction. Fair value is also considered the exit
price. We utilize market data or assumptions that market
participants would use in pricing an asset or liability,
including assumptions about risk and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated or generally unobservable. We
utilize valuation techniques that maximize the use of observable
inputs and minimize the use of unobservable inputs. These inputs
are prioritized into a hierarchy that gives the highest priority
to unadjusted quoted prices in active markets for identical
assets or liabilities (Level 1) and the lowest
priority to unobservable inputs that require assumptions to
measure fair value (Level 3).
Recurring
Fair Value Measurements
Financial assets and liabilities are classified in their
entirety based on the lowest level of input that is significant
to the fair value measurement. Our assessment of the
significance of a particular input to the fair value measurement
requires judgment and may affect the fair value of assets and
liabilities and their placement within the fair value hierarchy
levels. The following table sets forth our financial assets and
liabilities, which were accounted for at fair value, by level
within the fair value hierarchy as of December 31, 2009 and
2008 (in thousands):
Recurring
Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securites
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
|
|
|
$
|
6,344
|
|
|
$
|
|
|
|
$
|
6,344
|
|
67
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securites
|
|
$
|
|
|
|
$
|
1,384
|
|
|
$
|
|
|
|
$
|
1,384
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements
|
|
$
|
|
|
|
$
|
24,611
|
|
|
$
|
|
|
|
$
|
24,611
|
|
Fair value of our interest rate swap agreements is based on
estimates provided by the counterparties. Fair value of our
marketable securities was based on estimates provided by
Columbia Management. Valuation of these items does entail a
significant amount of judgment.
Non-Recurring
Fair Value Measurements
We have certain assets that are measured at fair value on a
non-recurring basis and are adjusted to fair value only when the
carrying values exceed their fair values. Included in the
following table are the significant categories of assets
measured at fair value on a non-recurring basis as of
December 31, 2009 (amounts in thousands).
Non-Recurring
Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Loss
|
|
|
|
As of December 31, 2009
|
|
|
For The Year Ended
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
December 31, 2009
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
148,092
|
|
|
$
|
148,092
|
|
|
$
|
|
|
Program broadcast rights
|
|
|
|
|
|
|
|
|
|
|
11,265
|
|
|
|
11,265
|
|
|
|
177
|
|
Investment in broadcasting company
|
|
|
|
|
|
|
|
|
|
|
13,599
|
|
|
|
13,599
|
|
|
|
|
|
Broadcast licenses
|
|
|
|
|
|
|
|
|
|
|
818,981
|
|
|
|
818,981
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
170,522
|
|
|
|
170,522
|
|
|
|
|
|
Other intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
1,316
|
|
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,163,775
|
|
|
$
|
1,163,775
|
|
|
$
|
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impairment Loss
|
|
|
|
As of December 31, 2008
|
|
|
For The Year Ended
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
December 31, 2008
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
$
|
|
|
|
$
|
|
|
|
$
|
162,903
|
|
|
$
|
162,903
|
|
|
$
|
|
|
Program broadcast rights
|
|
|
|
|
|
|
|
|
|
|
11,068
|
|
|
|
11,068
|
|
|
|
627
|
|
Investment in broadcasting company
|
|
|
|
|
|
|
|
|
|
|
13,599
|
|
|
|
13,599
|
|
|
|
|
|
Broadcast licenses
|
|
|
|
|
|
|
|
|
|
|
818,981
|
|
|
|
818,981
|
|
|
|
240,085
|
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
170,522
|
|
|
|
170,522
|
|
|
|
98,596
|
|
Other intangible assets, net
|
|
|
|
|
|
|
|
|
|
|
1,893
|
|
|
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,178,966
|
|
|
$
|
1,178,966
|
|
|
$
|
339,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of our property and equipment is estimated by our
engineers. Fair value of our program broadcast rights is based
upon estimated future advertising revenue generated by the
programming. Fair value of our investment in broadcasting
company is based upon estimated future cash flows. Fair value of
broadcast
68
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
licenses, goodwill and other intangible assets is described in
Note 1. Description of Business and Summary of
Significant Accounting Policies. Our program broadcast
rights impairment charge was recorded as a broadcast operating
expense in the respective periods.
Fair
Value of Other Financial Instruments
The estimated fair value of other financial instruments is
determined using the best available market information and
appropriate valuation methodologies. Interpreting market data to
develop fair value estimates involves considerable judgment.
Accordingly, the estimates presented are not necessarily
indicative of the amounts that we could realize in a current
market exchange, or the value that ultimately will be realized
upon maturity or disposition. The use of different market
assumptions may have a material effect on the estimated fair
value amounts.
The carrying amounts of the following instruments approximate
fair value, due to their short term to maturity:
(i) accounts receivable, (ii) prepaid and other
current assets, (iii) accounts payable, (iv) accrued
employee compensation and benefits, (v) accrued interest,
(vi) other accrued expenses, (vii) dividends payable,
(viii) acquisition-related liabilities and
(ix) deferred revenue.
The carrying amount of our long-term debt, including the current
portion and long-term accrued facility fee, was
$810.1 million and $800.4 million, respectively, and
the fair value was $704.8 million and $312.1 million,
respectively as of December 31, 2009 and 2008. Fair value
of our long-term debt, including the current portion and
long-term accrued facility fee, is based on estimates provided
by third party financial professionals as of December 31,
2009 and 2008. Management believes that these estimated fair
values as of December 31, 2009 and 2008 were not an
accurate indicator of fair value, given that (i) our debt
has a relatively limited number of market participants,
relatively infrequent market trading and generally small dollar
volume of actual trades and (ii) management believes there
continues to exist a general disruption of the financial
markets. Based upon consideration of alternate valuation
methodologies, including our historic and projected future cash
flows, as well as historic private trading valuations of
television stations
and/or
television companies, we believe that the estimated fair value
of our long-term debt would more closely approximate the
recorded book value of the debt as of December 31, 2009 and
2008, respectively.
We are authorized to issue 135 million shares of all
classes of stock, of which 15 million shares are designated
Class A common stock, 100 million shares are
designated common stock, and 20 million shares are
designated blank check preferred stock for which our
Board of Directors has the authority to determine the rights,
powers, limitations and restrictions. The rights of our common
stock and Class A common stock are identical, except that
our Class A common stock has 10 votes per share and our
common stock has one vote per share. If declared, our common
stock and Class A common stock receive cash dividends on an
equal per-share basis.
As of December 31, 2009, we are authorized by our Board of
Directors to repurchase an aggregate total of up to
5,000,000 shares of our common stock and Class A
common stock in the open market. When we have determined that
market and liquidity conditions are favorable, we have
repurchased shares. As of December 31, 2009,
279,200 shares of our common stock and Class A common
stock are available for repurchase under these authorizations.
There is no expiration date for these authorizations. Shares
repurchased are held as treasury shares and used for general
corporate purposes including, but not limited to, satisfying
obligations under our employee benefit plans and long term
incentive plan. Treasury stock is recorded at cost.
During the year ended December 31, 2009, we did not make
any repurchases under these authorizations. During the year
ended December 31, 2008, we repurchased 883,200 shares
of our common stock at an average price of $0.20 per share for a
total cost of $177,000. During the year ended December 31,
2007, we
69
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
repurchased 647,800 shares of our common stock at an
average price of $8.49 per share for a total cost of
$5.5 million.
For the year ended December 31, 2009, we did not declare or
pay any common stock or Class A common stock dividends. For
the year ended December 31, 2008, we declared common stock
and Class A common stock dividends in the first, second and
third quarters and did not declare a common stock or
Class A common stock dividend in the fourth quarter.
We deferred cash dividends on our Series D Perpetual
Preferred Stock and correspondingly suspended cash dividends on
our common and Class A common stock to reallocate cash
resources to support our ability to pay increased interest costs
and fees associated with our senior credit facility.
As of December 31, 2009, we had not funded our
Series D Perpetual Preferred Stock dividend for at least
three consecutive quarters. See Note 7 Preferred
Stock for further discussion of our Series D
Perpetual Preferred Stock dividend payments. As long as these
Series D Perpetual Preferred Stock dividends remain in
arrears, we are prohibited from paying additional common stock
or Class A common stock dividends.
In connection with our various employee benefit plans, we may,
at our discretion, issue authorized and unissued shares of our
Class A common stock and common stock or previously issued
shares of our Class A common stock or common stock
reacquired by Gray, including stock purchased in the open
market, held in the treasury. As of December 31, 2009, we
had reserved 8,868,940 shares and 1,000,000 shares of
our common stock and Class A common stock, respectively,
for future issuance under various employee benefit plans. As of
December 31, 2008, we had reserved 9,523,365 shares
and 1,000,000 shares of our common stock and Class A
common stock, respectively, for future issuance under various
employee benefit plans.
During 2008, we issued 1,000 shares of perpetual preferred
stock to a group of private investors. This preferred stock was
designated Series D Perpetual Preferred Stock, no par
value. The issuance of the Series D Perpetual Preferred
Stock generated net cash proceeds of approximately
$91.6 million, after a 5.0% original issue discount,
transaction fees and expenses. The $8.4 million of original
issue discount, transaction fees and expenses are being accreted
over a seven-year period ending June 30, 2015.
As of December 31, 2009 and 2008, we had 1,000 shares
of Series D Perpetual Preferred Stock outstanding. The
Series D Perpetual Preferred Stock has a liquidation value
of $100,000 per share for a total liquidation value of
$100.0 million as of December 31, 2009 and 2008 and a
recorded value of $93.4 million and $92.2 million as
of December 31, 2009 and 2008, respectively. The difference
between the liquidation values and the recorded values was the
un-accreted portion of the original issuance discount and
issuance cost. Our accrued Series D Perpetual Preferred
Stock dividend balances as of December 31, 2009 and 2008
were $18.9 million and $3.0 million, respectively.
The Series D Perpetual Preferred Stock has no mandatory
redemption date, but is redeemable, at our option, at any time.
The Series D Perpetual Preferred Stock may also be
redeemed, at the stockholders option, on or after
June 30, 2015. If the Series D Perpetual Preferred
Stock is redeemed, we are required to pay the liquidation price
per share in cash plus the pro-rata accrued dividends to the
date fixed for redemption.
70
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
If the Series D Perpetual Preferred Stock is redeemed
before January 1, 2012, the redemption price per share will
include a premium as described in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption
|
|
|
|
|
|
|
|
|
|
Price
|
|
|
|
|
|
|
|
Date of Redemption
|
|
per Share
|
|
|
|
|
|
|
|
|
January 1, 2009 through June 30, 2009
|
|
$
|
105,000
|
|
|
|
|
|
|
|
|
|
July 1, 2009 through December 31, 2009
|
|
$
|
106,500
|
|
|
|
|
|
|
|
|
|
January 1, 2010 through June 30, 2010
|
|
$
|
108,000
|
|
|
|
|
|
|
|
|
|
July 1, 2010 through December 31, 2010
|
|
$
|
106,000
|
|
|
|
|
|
|
|
|
|
January 1, 2011 through June 30, 2011
|
|
$
|
104,000
|
|
|
|
|
|
|
|
|
|
July 1, 2011 through December 31, 2011
|
|
$
|
102,000
|
|
|
|
|
|
|
|
|
|
January 1, 2012 and thereafter
|
|
$
|
100,000
|
|
|
|
|
|
|
|
|
|
We made our most recent Series D Perpetual Preferred Stock
cash dividend payment on October 15, 2008 for dividends
earned through September 30, 2008. We have deferred the
cash payment of our Series D Perpetual Preferred Stock
dividends earned thereon since October 1, 2008. When three
consecutive cash dividend payments with respect to the
Series D Perpetual Preferred Stock remain unfunded, the
dividend rate increases from 15.0% per annum to 17.0% per annum.
Thus, our Series D Perpetual Preferred Stock dividend began
accruing at 17.0% per annum on July 16, 2009 and will
accrue at that rate as long as at least three consecutive cash
dividend payments remain unfunded. Our Series D Perpetual
Preferred Stock dividend rate was 15.0% per annum from
December 31, 2008 through July 16, 2009. Prior to
December 31, 2008, our Series D Perpetual Preferred
Stock dividend rate was 12% per annum.
While any Series D Perpetual Preferred Stock dividend
payments are in arrears, we are prohibited from repurchasing,
declaring
and/or
paying any cash dividend with respect to any equity securities
having liquidation preferences equivalent to or junior in
ranking to the liquidation preferences of the Series D
Perpetual Preferred Stock, including our common stock and
Class A common stock. We can provide no assurances as to
when any future cash payments will be made on any accumulated
and unpaid Series D Perpetual Preferred Stock dividends
presently in arrears or that become in arrears in the future.
|
|
8.
|
Stock-Based
Compensation
|
Long
Tem Incentive Plan
The 2007 Long Term Incentive Plan (the 2007 Incentive
Plan) provides for the grant of incentive stock options,
nonqualified stock options, restricted stock awards, stock
appreciation rights, and performance awards to our officers and
employees to acquire shares of our Class A common stock,
common stock or to receive other awards based on our
performance. We recognize the fair value of the stock options on
the date of grant as compensation expense, and such expense is
amortized over the vesting period of the stock option. The 2007
Incentive Plan allows us to grant share-based awards for a total
of 6.0 million shares of stock, with not more than
1.0 million out of that 6.0 million to be Class A
common stock and the remaining shares to be common stock. As of
December 31, 2009, 5.0 million shares were available
for issuance under the 2007 Incentive Plan. Shares of common
stock underlying outstanding options or performance awards are
counted against the 2007 Incentive Plans maximum shares.
Under the 2007 Incentive Plan, the options granted typically
vest after a two-year period and expire three years after fully
vesting. However, options will vest immediately upon a
change in control as such term is defined in the
2007 Incentive Plan. All options have been granted with purchase
prices that equal the market value of the underlying stock at
the close of business on the date of the grant.
71
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Directors
Restricted Stock plan
On May 14, 2003, our shareholders approved a restricted
stock plan for our Board of Directors (the Directors
Restricted Stock Plan). We have reserved 1.0 million
shares of our common stock for issuance under this plan and as
of December 31, 2009 there were 770,000 shares
available for award. Under the Directors Restricted Stock
Plan, each director can be awarded up to 10,000 shares of
restricted stock each calendar year. Under this plan, we granted
a total of 55,000 shares of restricted common stock to our
directors during each of the years ended December 31, 2008
and 2007, respectively. We did not grant any shares of
restricted common stock to our directors during the year ended
December 31, 2009. Of the total shares granted to the
directors since the inception of the Directors Restricted
Stock Plan, 66,000 shares were not fully vested as of
December 31, 2009.
|
|
8.
|
Stock-Based
Compensation
|
Stock-Based
Compensation Valuation Assumptions for Stock
Options
Included in corporate and administrative expenses in the years
ended December 31, 2009, 2008 and 2007 were
$1.4 million, $1.5 million and $1.2 million,
respectively, of non-cash expense for stock-based compensation
which included amortization of restricted stock and stock option
expense.
We did not grant any stock options during 2009. The assumptions
used to value stock options granted during 2008 and 2007 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Expected term (in years)
|
|
|
2.63
|
|
|
|
2.76
|
|
Volatility
|
|
|
36.71
|
%
|
|
|
32.20
|
%
|
Risk-free interest rate
|
|
|
2.77
|
%
|
|
|
4.41
|
%
|
Dividend yield
|
|
|
1.65
|
%
|
|
|
1.41
|
%
|
Expected forfeitures
|
|
|
2.57
|
%
|
|
|
3.65
|
%
|
Expected volatilities are based on historical volatilities of
our common stock and Class A common stock. The expected
life represents the weighted average period of time that options
granted are expected to be outstanding giving consideration to
the vesting schedules and our historical exercise patterns. The
risk free rate is based on the U.S. Treasury yield curve in
effect at the time of grant for periods corresponding to the
expected life of the option. Expected forfeitures were estimated
based on historical forfeiture rates.
72
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Stock
Option and Restricted Share Activity
A summary of our stock option activity for Class A common
stock, for the years ended December 31, 2009, 2008 and 2007
is as follows (in thousands, except weighted average data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Stock options outstanding beginning of period
|
|
|
|
|
|
$
|
|
|
|
|
21
|
|
|
$
|
15.39
|
|
|
|
21
|
|
|
$
|
15.39
|
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
(21
|
)
|
|
|
15.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding end of period
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
21
|
|
|
$
|
15.39
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
21
|
|
|
$
|
15.39
|
|
A summary of our stock option activity for common stock for the
years ended December 31, 2009, 2008 and 2007 is as follows
(in thousands, except weighted average data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Weighted Average
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Exercise Price
|
|
|
Stock options outstanding beginning of period
|
|
|
1,949
|
|
|
$
|
8.31
|
|
|
|
842
|
|
|
$
|
9.96
|
|
|
|
1,797
|
|
|
$
|
9.82
|
|
Options granted
|
|
|
|
|
|
|
|
|
|
|
1,333
|
|
|
|
7.49
|
|
|
|
55
|
|
|
|
8.69
|
|
Options exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(163
|
)
|
|
|
7.78
|
|
Options forfeited
|
|
|
(460
|
)
|
|
|
8.31
|
|
|
|
(66
|
)
|
|
|
8.17
|
|
|
|
(42
|
)
|
|
|
9.55
|
|
Options expired
|
|
|
(13
|
)
|
|
|
12.37
|
|
|
|
(160
|
)
|
|
|
10.25
|
|
|
|
(805
|
)
|
|
|
10.02
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options outstanding end of period
|
|
|
1,476
|
|
|
$
|
8.28
|
|
|
|
1,949
|
|
|
$
|
8.31
|
|
|
|
842
|
|
|
$
|
9.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
|
|
498
|
|
|
$
|
9.93
|
|
|
|
614
|
|
|
$
|
10.01
|
|
|
|
789
|
|
|
$
|
10.05
|
|
The weighted average fair value of options granted during the
years ended December 31, 2008 and 2007 was $1.76 and $2.05
per share, respectively.
73
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Information concerning common stock options outstanding has been
segregated into five groups with similar exercise prices and is
as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Number of
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
Options
|
|
|
Exercise Price
|
|
Exercise Price
|
|
|
Number of
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Outstanding
|
|
|
per Share of
|
|
per Share
|
|
|
Options
|
|
|
Price
|
|
|
Contractual
|
|
|
That Are
|
|
|
Options That are
|
|
Low
|
|
|
High
|
|
|
Outstanding
|
|
|
per Share
|
|
|
Life
|
|
|
Exercisable
|
|
|
Exercisable
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In years)
|
|
|
(In thousands)
|
|
|
|
|
|
$
|
1.78
|
|
|
$
|
3.56
|
|
|
|
10
|
|
|
$
|
2.10
|
|
|
|
3.6
|
|
|
|
|
|
|
$
|
|
|
|
3.56
|
|
|
|
5.34
|
|
|
|
35
|
|
|
|
3.61
|
|
|
|
3.4
|
|
|
|
|
|
|
|
|
|
|
7.13
|
|
|
|
8.91
|
|
|
|
1,017
|
|
|
|
7.68
|
|
|
|
3.0
|
|
|
|
84
|
|
|
|
8.23
|
|
|
8.91
|
|
|
|
10.69
|
|
|
|
338
|
|
|
|
9.71
|
|
|
|
0.6
|
|
|
|
338
|
|
|
|
9.71
|
|
$
|
12.47
|
|
|
$
|
14.25
|
|
|
|
76
|
|
|
$
|
12.77
|
|
|
|
0.2
|
|
|
|
76
|
|
|
$
|
12.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,476
|
|
|
|
|
|
|
|
|
|
|
|
498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The aggregate intrinsic value of our stock options was $0 based
on the closing market price of our common stock at
December 31, 2009.
The following table summarizes the activity for our non-vested
restricted shares during the year ended December 31, 2009
under our Directors Restricted Stock Plan:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
Number of
|
|
|
Average
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
|
|
|
Restricted Stock:
|
|
|
|
|
|
|
|
|
Non-vested common restricted shares, December 31, 2008
|
|
|
100
|
|
|
$
|
6.64
|
|
Vested
|
|
|
(34
|
)
|
|
|
7.19
|
|
|
|
|
|
|
|
|
|
|
Non-vested common restricted shares, December 31, 2009
|
|
|
66
|
|
|
$
|
6.36
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, there was $525,000 of total
unrecognized compensation cost related to all non-vested share
based compensation arrangements. The cost is expected to be
recognized over a weighted average period of 0.9 years.
We recognize deferred tax assets and liabilities for future tax
consequences attributable to differences between our financial
statement carrying amounts of existing assets and liabilities
and their respective tax bases. We measure deferred tax assets
and liabilities using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences
are expected to reverse. We recognize the effect on deferred tax
assets and liabilities resulting from a change in tax rates in
income in the period that includes the enactment date.
Under certain circumstances, we recognize liabilities in our
financial statements for positions taken on uncertain tax
issues. When tax returns are filed, it is highly certain that
some positions taken would be sustained upon examination by the
taxing authorities, while others are subject to uncertainty
about the merits of the position taken or the amount of the
position that would be ultimately sustained. The benefit of a
tax position is recognized in the financial statements in the
period during which, based on all available evidence, we believe
it is more likely than not that the position will be sustained
upon examination, including the resolution of appeals or
litigation processes, if any. Tax positions taken are not offset
or aggregated with other
74
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
positions. Tax positions that meet the more-likely-than-not
recognition threshold are measured as the largest amount of tax
benefit that is more than 50 percent likely of being
realized upon settlement with the applicable taxing authority.
The portion of the benefits associated with tax positions taken
that exceeds the amount measured as described above is reflected
as a liability for unrecognized tax benefits in the balance
sheet along with any associated interest and penalties that
would be payable to the taxing authorities upon examination.
Interest and penalties associated with unrecognized tax benefits
are classified as income tax expense in the statement of
operations.
Federal and state income tax expense (benefit) is summarized as
follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
State and local
|
|
|
344
|
|
|
|
354
|
|
|
|
274
|
|
State and local reserve for uncertain tax positions
|
|
|
(385
|
)
|
|
|
525
|
|
|
|
1,006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current income tax expense
|
|
|
(41
|
)
|
|
|
879
|
|
|
|
1,280
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(11,640
|
)
|
|
|
(99,510
|
)
|
|
|
(12,504
|
)
|
State and local
|
|
|
421
|
|
|
|
(12,380
|
)
|
|
|
(1,319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income tax benefit
|
|
|
(11,219
|
)
|
|
|
(111,890
|
)
|
|
|
(13,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax benefit
|
|
$
|
(11,260
|
)
|
|
$
|
(111,011
|
)
|
|
$
|
(12,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Significant components of our deferred tax liabilities and
assets are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Net book value of property and equipment
|
|
$
|
16,800
|
|
|
$
|
17,469
|
|
Broadcast licenses, goodwill and other intangibles
|
|
|
245,520
|
|
|
|
231,351
|
|
Unearned income
|
|
|
|
|
|
|
62
|
|
Network compensation
|
|
|
|
|
|
|
273
|
|
Restricted stock
|
|
|
12
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
262,332
|
|
|
|
249,172
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Liability under supplemental retirement plan
|
|
|
14
|
|
|
|
18
|
|
Liability for accrued vacation
|
|
|
763
|
|
|
|
782
|
|
Allowance for doubtful accounts
|
|
|
426
|
|
|
|
602
|
|
Liability under severance and purchase liabilities
|
|
|
18
|
|
|
|
83
|
|
Liability under health and welfare plan
|
|
|
675
|
|
|
|
608
|
|
Capital loss carryforwards
|
|
|
264
|
|
|
|
261
|
|
Liability for pension plan
|
|
|
5,434
|
|
|
|
7,307
|
|
Federal operating loss carryforwards
|
|
|
99,853
|
|
|
|
77,172
|
|
State and local operating loss carryforwards
|
|
|
13,931
|
|
|
|
11,540
|
|
Alternative minimum tax carryforwards
|
|
|
890
|
|
|
|
890
|
|
Unearned income
|
|
|
1,150
|
|
|
|
955
|
|
Network compensation
|
|
|
1,162
|
|
|
|
1,366
|
|
Interest rate swap agreements
|
|
|
2,474
|
|
|
|
9,598
|
|
Stock options
|
|
|
693
|
|
|
|
507
|
|
Other
|
|
|
440
|
|
|
|
247
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
128,187
|
|
|
|
111,936
|
|
Valuation allowance for deferred tax assets
|
|
|
(6,462
|
)
|
|
|
(4,909
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
|
121,725
|
|
|
|
107,027
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities, net of deferred tax assets
|
|
$
|
140,607
|
|
|
$
|
142,145
|
|
|
|
|
|
|
|
|
|
|
We have approximately $285.3 million in federal net
operating loss carryforwards, and those carryforwards expire
during the years 2020 through 2029. Additionally, we have an
aggregate of approximately $328.6 million of various state
net operating loss carryforwards. We are projecting taxable
income in the carryforward periods. Therefore, we believe that
it is more likely than not that the Federal net operating loss
carryforwards will be fully utilized.
A valuation allowance has been provided for a portion of the
state net operating loss carryforwards. We believe that we will
not meet the more likely than not threshold in certain states
due to the uncertainty of generating sufficient income prior to
expiration. Therefore, the state valuation allowance net of
federal tax benefit at December 31, 2009 and 2008 was
$6.2 million and $4.6 million, respectively. As of
December 31, 2009 and 2008, a full valuation allowance of
$264,000 and $261,000, respectively, has been provided for the
capital loss carryforwards, as we believe that we will not meet
the more likely than not threshold due to the uncertainty of
generating sufficient capital gains in the carryforward period.
Our total valuation allowance
76
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
provided for deferred tax assets increased $1.6 million for
the year ended December 31, 2009 and decreased $306,000 for
the year ended December 31, 2008.
A reconciliation of income tax expense at the statutory federal
income tax rate and income taxes as reflected in the
consolidated financial statements is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Statutory federal rate applied to loss before income
|
|
|
|
|
|
|
|
|
|
|
|
|
taxes
|
|
$
|
(12,007
|
)
|
|
$
|
(109,560
|
)
|
|
$
|
(12,493
|
)
|
State and local taxes, net of federal tax benefit
|
|
|
(906
|
)
|
|
|
(11,584
|
)
|
|
|
(1,476
|
)
|
Change in valuation allowance
|
|
|
1,553
|
|
|
|
(306
|
)
|
|
|
431
|
|
Reserve for uncertain tax positions
|
|
|
(385
|
)
|
|
|
525
|
|
|
|
1,006
|
|
Goodwill impairment
|
|
|
|
|
|
|
9,301
|
|
|
|
|
|
Other items, net
|
|
|
485
|
|
|
|
613
|
|
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit as recorded
|
|
$
|
(11,260
|
)
|
|
$
|
(111,011
|
)
|
|
$
|
(12,543
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
32.8
|
%
|
|
|
35.5
|
%
|
|
|
35.1
|
%
|
As of each year end, we are required to adjust our pension
liability to an amount equal to the funded status of our pension
plans with a corresponding adjustment to other comprehensive
income on a net of tax basis. During 2009, we decreased our
recorded non-current pension liability by $6.6 million and
recognized other comprehensive income of $4.0 million, net
of a $2.6 million tax expense. During 2008, we increased
our recorded non-current pension liability by $11.7 million
and recognized other comprehensive loss of $7.2 million,
net of a $4.6 million tax benefit. During 2007, we
decreased our recorded non-current pension liability by $222,000
and recognized other comprehensive income of $136,000, net of an
$86,000 income tax expense.
During 2009, we recognized a long term asset for the positive
change in market value of our interest rate swap agreements of
$18.3 million, and recorded a gain on derivatives as other
comprehensive income of $11.2 million, net of a
$7.1 million income tax expense. During 2008, we recognized
a long term liability for the negative market value of our
interest rate swap agreements of $7.0 million, and recorded
a loss on derivatives as other comprehensive expense of
$4.3 million, net of a $2.7 million income tax
benefit. During 2007, we recognized a long-term liability for
the negative market value of our interest rate swap agreements
of $17.7 million, and recorded a loss on derivatives as
other comprehensive expense of $10.8 million, net of a
$6.9 million income tax benefit.
We made income tax payments (net of refunds) of $97,000 in 2009.
We made income tax payments (net of refunds) of $225,000 in
2008. We received a net income tax refund of $24,000 in 2007. At
December 31, 2009 and 2008, we had current income taxes
payable of approximately $4.2 million and
$4.4 million, respectively.
On January 1, 2007, we adopted accounting provisions which
require us to prescribe a recognition threshold and measurement
attribution for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a
tax return. For benefits to be recognized, a tax position must
be more likely than not to be sustained upon examination by
taxing authorities.
As a result of the implementation of these requirements in 2007,
we determined that no material adjustment was required to our
existing $2.9 million liability for unrecognized tax
benefits, including accrued interest and penalties. As of
December 31, 2009 and 2008, we had approximately
$4.0 million and $4.4 million, respectively, of
unrecognized tax benefits. All of these unrecognized tax
benefits would impact our effective tax rate if recognized. The
liability for unrecognized tax benefits is recorded net of any
federal tax benefit that would result from payment.
77
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Also on January 1, 2007 and in conjunction with the
adoption of this provision, we accrued interest and penalties
related to unrecognized tax benefits in income tax expense based
on our accounting policy election. As of December 31, 2009
and 2008, we had recorded a liability for potential penalties
and interest of approximately $1.2 million and
$1.2 million, respectively, related to uncertain tax
positions.
The following table summarizes the activity related to our
unrecognized tax benefits, net of federal benefit, excluding
interest and penalties for the years ended December 31,
2009, 2008 and 2007 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Balance at beginning of period
|
|
$
|
3,227
|
|
|
$
|
2,949
|
|
|
$
|
2,231
|
|
Change resulting from positions taken in prior periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase
|
|
|
48
|
|
|
|
23
|
|
|
|
10
|
|
Decrease
|
|
|
|
|
|
|
(153
|
)
|
|
|
(31
|
)
|
Increase resulting from positions taken in current
|
|
|
|
|
|
|
|
|
|
|
|
|
period
|
|
|
|
|
|
|
744
|
|
|
|
926
|
|
Decrease as a result of settlements with taxing
|
|
|
|
|
|
|
|
|
|
|
|
|
authorities
|
|
|
|
|
|
|
(51
|
)
|
|
|
|
|
Reduction in benefit from lapse in statute of limitations
|
|
|
(447
|
)
|
|
|
(285
|
)
|
|
|
(187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
2,828
|
|
|
$
|
3,227
|
|
|
$
|
2,949
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
While it is difficult to calculate with any certainty, we
estimate a decrease of $358,000, exclusive of interest and
penalties, will be recorded for uncertain tax positions over the
next twelve months resulting from expiring statutes of
limitations for state tax issues.
We file income tax returns in the U.S. federal and multiple
state jurisdictions. With few exceptions, we are no longer
subject to U.S. federal, or state and local tax
examinations by tax authorities for years prior to 2000. This
extended open adjustment period is due to material amounts of
net operating loss carryforwards, which exist at the federal and
multi-state jurisdictions originating from the 2000, 2001, 2002
and 2003 tax years.
We sponsor and contribute to several types of retirement plans
covering substantially all of our full time employees. Our
defined benefit pension plans include our active plan as well as
two frozen plans that we assumed when we acquired the related
businesses. The Gray Television, Inc. Capital Accumulation Plan
(the Capital Accumulation Plan) is a defined
contribution plan that is intended to meet the requirements of
section 401(k) of the Internal Revenue Code of 1986.
Gray
Pension Plan
Our active defined benefit plan covers substantially all of our
full-time employees. Retirement benefits are based on years of
service and the employees highest average compensation for
five consecutive years during the last ten years of employment.
The funding policy is consistent with the funding requirements
of existing federal laws and regulations under the Employee
Retirement Income Security Act of 1974.
The measurement dates used to determine the benefit information
for our active defined benefit pension plan were
December 31, 2009 and 2008, respectively. The following
summarizes the active plans funded
78
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
status and amounts recognized in our consolidated balance sheets
at December 31, 2009 and 2008, respectively (dollars in
thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
37,998
|
|
|
$
|
31,498
|
|
Service cost
|
|
|
3,248
|
|
|
|
2,917
|
|
Interest cost
|
|
|
2,189
|
|
|
|
1,925
|
|
Actuarial (gains) losses
|
|
|
(3,201
|
)
|
|
|
2,350
|
|
Benefits paid
|
|
|
(717
|
)
|
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
39,517
|
|
|
$
|
37,998
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
20,901
|
|
|
$
|
25,267
|
|
Actual return on plan assets
|
|
|
3,102
|
|
|
|
(6,387
|
)
|
Company contributions
|
|
|
3,430
|
|
|
|
2,713
|
|
Benefits paid
|
|
|
(717
|
)
|
|
|
(692
|
)
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
26,716
|
|
|
|
20,901
|
|
|
|
|
|
|
|
|
|
|
Funded status of plan
|
|
$
|
(12,801
|
)
|
|
$
|
(17,097
|
)
|
|
|
|
|
|
|
|
|
|
Amounts recognized in our balance sheets consist of:
|
|
|
|
|
|
|
|
|
Accrued benefit cost
|
|
$
|
(4,721
|
)
|
|
$
|
(3,094
|
)
|
Accumulated other comprehensive income
|
|
|
(8,080
|
)
|
|
|
(14,003
|
)
|
|
|
|
|
|
|
|
|
|
Net liability recognized
|
|
$
|
(12,801
|
)
|
|
$
|
(17,097
|
)
|
|
|
|
|
|
|
|
|
|
The accumulated benefit obligation amounts for our active
defined benefit pension were $33.5 million and
$32.0 million at December 31, 2009 and 2008,
respectively. The increase in the accumulated benefit obligation
is due primarily to increases in service costs and salaries and
decreases in the discount period till retirement for continuing
employees, as well as discount rate changes. The long-term rate
of return on assets assumption was chosen from a best estimate
range based upon the anticipated long-term returns for asset
categories in which the plan is invested. The long-term rate of
return may be viewed as the sum of (i) 3% inflation,
(ii) 1% risk-free rate of return and (iii) 3% risk
premium. The estimated rate of increase in compensation levels
is based on historical compensation increases for our employees.
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Weighted-average assumptions used to determine net periodic
|
|
|
|
|
|
|
|
|
benefit cost for our active plan:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.79
|
%
|
|
|
6.10
|
%
|
Expected long-term rate of return on plan assets
|
|
|
7.00
|
%
|
|
|
7.00
|
%
|
Estimated rate of increase in compensation levels
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
79
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Weighted-average assumptions used to determine benefit
obligations:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.27
|
%
|
|
|
5.79
|
%
|
Estimated rate of increase in compensation levels
|
|
|
5.00
|
%
|
|
|
5.00
|
%
|
Pension expense is computed using the projected unit credit
actuarial cost method. The net periodic pension cost for our
active plan includes the following components (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Components of net periodic pension cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
3,248
|
|
|
$
|
2,917
|
|
|
$
|
2,974
|
|
Interest cost
|
|
|
2,189
|
|
|
|
1,925
|
|
|
|
1,667
|
|
Expected return on plan assets
|
|
|
(1,558
|
)
|
|
|
(1,763
|
)
|
|
|
(1,590
|
)
|
Recognized net actuarial loss
|
|
|
1,176
|
|
|
|
98
|
|
|
|
155
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
5,055
|
|
|
$
|
3,177
|
|
|
$
|
3,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For our active plan, the estimated future benefit payments for
subsequent years are as follows (in thousands):
|
|
|
|
|
Years
|
|
Amount
|
|
|
2010
|
|
$
|
1,028
|
|
2011
|
|
|
1,131
|
|
2012
|
|
|
1,360
|
|
2013
|
|
|
1,508
|
|
2014
|
|
|
1,617
|
|
2015-2019
|
|
|
11,032
|
|
The active plans weighted-average asset allocations by
asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
Asset category:
|
|
|
|
|
|
|
|
|
Insurance general account
|
|
|
37
|
%
|
|
|
40
|
%
|
Cash management accounts
|
|
|
3
|
%
|
|
|
2
|
%
|
Equity accounts
|
|
|
54
|
%
|
|
|
53
|
%
|
Fixed income account
|
|
|
6
|
%
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
80
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The investment objective is to achieve a consistent total rate
of return (income, appreciation, and reinvested funds) that will
equal or exceed the actuarial assumption with aversion to
significant volatility. The following is the target asset
allocation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target Range
|
|
|
Asset class:
|
|
|
|
|
|
|
|
|
|
|
|
|
Large cap equities
|
|
|
23
|
%
|
|
|
to
|
|
|
|
91
|
%
|
Mid cap equities
|
|
|
0
|
%
|
|
|
to
|
|
|
|
15
|
%
|
Small cap equities
|
|
|
0
|
%
|
|
|
to
|
|
|
|
16
|
%
|
International equities
|
|
|
5
|
%
|
|
|
to
|
|
|
|
25
|
%
|
Fixed income
|
|
|
0
|
%
|
|
|
to
|
|
|
|
30
|
%
|
Cash
|
|
|
0
|
%
|
|
|
to
|
|
|
|
20
|
%
|
Our equity portfolio contains attractively priced securities of
financially sound companies necessary to build a diversified
portfolio. Our fixed income portfolio contains obligations
generally rated A or better with no maturity restrictions and an
actively managed duration. The cash equivalents strategy uses
securities of the highest credit quality.
Fair
Value of Active Pension Plan Assets
We calculate the fair value of our active pension plans
assets based upon the observable and unobservable net asset
value of its underlying investments. We utilize valuation
techniques that maximize the use of observable inputs and
minimize the use of unobservable inputs. These inputs are
prioritized into a hierarchy that gives the highest priority to
unadjusted quoted prices in active markets for identical assets
or liabilities (Level 1) and the lowest
priority to unobservable inputs that require assumptions to
measure fair value (Level 3). The following
table presents the fair value of our active pension plans
assets and classifies them by level within the fair value
hierarchy as of December 31, 2009 and 2008, respectively
(in thousands):
Active
Pension Plan Fair Value Measurements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediate participation guarantee contract
|
|
$
|
|
|
|
$
|
9,925
|
|
|
$
|
|
|
|
$
|
9,925
|
|
Common and collective trust fund
|
|
|
|
|
|
|
16,792
|
|
|
|
|
|
|
|
16,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
26,717
|
|
|
$
|
|
|
|
$
|
26,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008
|
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Immediate participation guarantee contract
|
|
$
|
|
|
|
$
|
8,399
|
|
|
$
|
|
|
|
$
|
8,399
|
|
Common and collective trust fund
|
|
|
|
|
|
|
12,502
|
|
|
|
|
|
|
|
12,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
|
|
|
$
|
20,901
|
|
|
$
|
|
|
|
$
|
20,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquired
Pension Plans
In 2002 and 1998, we acquired companies with two underfunded
pension plans (the Acquired Pension Plans). The
Acquired Pension Plans were frozen by their prior plan sponsors
and no new participants can be
81
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
added to the Acquired Pension Plans. Combined and as of
January 1, 2009, the acquired pension plans have 176
participants as compared to our active plan which has
approximately 2,352 participants and is described above. As of
December 31, 2009, the Acquired Pension Plans had combined
plan assets of $4.0 million and the combined projected
benefit obligations of $5.1 million. As of
December 31, 2008, the Acquired Pension Plans had combined
plan assets of $3.9 million and combined projected benefit
obligations of $5.6 million. The net liability for the two
Acquired Pension Plans is recorded as a liability in our
financial statements as of December 31, 2009 and 2008.
Contributions
We expect to contribute a combined total of approximately
$4.5 million to the active plan and the Acquired Pension
Plans during the year ending December 31, 2010.
Capital
Accumulation Plan
The Capital Accumulation Plan provides additional retirement
benefits for substantially all employees. The Capital
Accumulation Plan provides our employees with an investment
option in our common stock and Class A common stock. It
also allows for our matching contribution to be made in the form
of our common stock. On December 9, 2008 and May 2,
2007, our Board of Directors increased the number of shares
reserved for the Capital Accumulation Plan by 2,000,000 and
1,000,000 shares of our common stock, respectively. As of
December 31, 2009, 1,642,849 shares were available for
the plan.
We match employee contributions to the Capital Accumulation
Plan, and such contributions may not exceed 6% of the
employees gross pay. Our percentage match amount is
declared by our Board of Directors before the beginning of each
plan year and is made by a contribution of our common stock. Our
percentage match was 50% during each of the years ended
December 31, 2008 and 2007. As of December 31, 2008,
our Board of Directors temporarily suspended our matching
contributions for the majority of our employees. For the year
ended December 31, 2009, our percentage match was 50% for
certain employees included in a collective bargaining unit at
one of our stations and we did not match contributions for the
remainder of our employees. Our contributions vest, based upon
each employees number of years of service, over a period
not to exceed five years.
In addition to the matching contributions, we made voluntary
contributions in the years ended December 31, 2008 and 2007
for active participants in the Capital Accumulation Plan. This
voluntary contribution was equal to 1% of each active
participants earnings. Our matching and voluntary
contributions are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Contributions to the
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Accumulation Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Matching contributions
|
|
|
351
|
|
|
$
|
147
|
|
|
|
867
|
|
|
$
|
1,707
|
|
|
|
176
|
|
|
$
|
1,593
|
|
Voluntary contributions
|
|
|
|
|
|
$
|
|
|
|
|
84
|
|
|
$
|
673
|
|
|
|
88
|
|
|
$
|
648
|
|
Employee
Stock Purchase Plan
Effective June 30, 2009, we discontinued our Gray
Television, Inc. Employee Stock Purchase Plan (the Stock
Purchase Plan). The Stock Purchase Plan was intended to
qualify as an employee stock purchase plan under
Section 423 of the Internal Revenue Code and to provide
eligible employees with an opportunity to purchase our common
stock through payroll deductions. Originally, an aggregate of
500,000 shares of our common stock were reserved for
issuance under the Stock Purchase Plan and were available for
purchase,
82
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
subject to adjustment in the event of a stock split, stock
dividend or other similar change in our common stock or capital
structure. In order to ensure that our Stock Purchase Plan had
adequate shares available for issuance through June 30,
2009, we proposed and our shareholders approved at our annual
2009 shareholders meeting that an additional
600,000 shares of our common stock be reserved for issuance
under our Stock Purchase Plan. As of June 30, 2009 and
before discontinuance of our Stock Purchase Plan,
480,510 shares were available for issuance under this plan.
The price per share at which shares of common stock were
purchased under the Stock Purchase Plan during any purchase
period was 85% of the fair market value of the common stock on
the last day of the purchase period.
|
|
11.
|
Commitments
and Contingencies
|
We have various operating lease commitments for equipment, land
and office space. We also have commitments for various
syndicated television programs and commitments for the purchase
of equipment.
Future minimum payments for these commitments are as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated
|
|
|
|
|
|
|
|
|
|
Operating
|
|
|
Television
|
|
|
|
|
Year
|
|
Equipment
|
|
|
Lease
|
|
|
Programming
|
|
|
Total
|
|
|
2010
|
|
$
|
832
|
|
|
$
|
1,321
|
|
|
$
|
4,502
|
|
|
$
|
6,655
|
|
2011
|
|
|
|
|
|
|
1,102
|
|
|
|
11,431
|
|
|
|
12,533
|
|
2012
|
|
|
|
|
|
|
678
|
|
|
|
5,095
|
|
|
|
5,773
|
|
2013
|
|
|
|
|
|
|
653
|
|
|
|
962
|
|
|
|
1,615
|
|
2014
|
|
|
|
|
|
|
578
|
|
|
|
295
|
|
|
|
873
|
|
Thereafter
|
|
|
|
|
|
|
3,787
|
|
|
|
19
|
|
|
|
3,806
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
832
|
|
|
$
|
8,119
|
|
|
$
|
22,304
|
|
|
$
|
31,255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amounts in the table above are estimates of commitments that
are in addition to the liabilities accrued for on our balance
sheet as of December 31, 2009.
Leases
We have no material capital leases. Where leases include rent
holidays, rent escalations, rent concessions and leasehold
improvement incentives, the value of these incentives are
amortized over the lease term including anticipated renewal
periods. Leasehold improvements are depreciated over the
associated lease term including anticipated renewal periods.
Rent expense resulting from operating leases for the years ended
December 31, 2009, 2008 and 2007 were $1.6 million,
$1.6 million and $1.5 million, respectively.
Sports
Marketing Agreements
On October 12, 2004, the University of Kentucky
(UK) jointly awarded a sports marketing agreement to
a subsidiary of IMG Worldwide, Inc. (IMG) and us
(the UK Agreement). The UK Agreement commenced on
April 16, 2005 and has an initial term of seven years with
the option to extend for three additional years.
On July 1, 2006, the terms between IMG and us concerning
the UK Agreement were amended. The amended agreement provides
that we will share in profits in excess of certain amounts
specified by the agreement, if any, but not losses. The
agreement also provides that we will separately retain all local
broadcast advertising revenue and pay all local broadcast
expenses for activities under the agreement. Under the amended
agreement, IMG agreed to make all license fee payments to UK.
However, if IMG is unable to pay the license fee to UK, we will
then pay the unpaid portion of the license fee to UK. As of
December 31, 2009, the aggregate license fees to be paid by
IMG to UK over the remaining portion of the full ten-year term
83
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
(including optional three additional years) for the agreement is
approximately $45.4 million. If we make advances on behalf
of IMG, IMG is required to reimburse us for the amount paid
within 60 days after the close of each contract year which
ends on June 30th. IMG has also agreed to pay interest on
any advance at a rate equal to the prime rate. During the years
ended December 31, 2009 and 2008, we did not advance any
amounts to UK on behalf of IMG under this agreement. As of
December 31, 2009, we do not consider the risk of
non-performance by IMG to be high.
Legal
Proceedings and Claims
We are subject to legal proceedings and claims that arise in the
normal course of our business. In the opinion of management, the
amount of ultimate liability, if any, with respect to these
actions, will not materially affect our financial position.
|
|
12.
|
Goodwill
and Intangible Assets
|
A summary of changes in our goodwill and other intangible
assets, on a net basis, for the years ended December 31,
2009 and 2008 is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Net Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Adjustments
|
|
|
Impairment
|
|
|
Amortization
|
|
|
2009
|
|
|
Goodwill
|
|
$
|
170,522
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
170,522
|
|
Broadcast licenses
|
|
|
818,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
818,981
|
|
Definite lived intangible assets
|
|
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
(577
|
)
|
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets net of accumulated amortization
|
|
$
|
991,396
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(577
|
)
|
|
$
|
990,819
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Balance at
|
|
|
|
|
|
|
|
|
|
|
|
Net Balance at
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Adjustments
|
|
|
Impairment
|
|
|
Amortization
|
|
|
2008
|
|
|
Goodwill
|
|
|
269,118
|
|
|
$
|
|
|
|
$
|
(98,596
|
)
|
|
$
|
|
|
|
$
|
170,522
|
|
Broadcast licenses
|
|
|
1,059,066
|
|
|
|
|
|
|
|
(240,085
|
)
|
|
|
|
|
|
|
818,981
|
|
Definite lived intangible assets
|
|
|
2,685
|
|
|
|
|
|
|
|
|
|
|
|
(792
|
)
|
|
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets net of accumulated amortization
|
|
$
|
1,330,869
|
|
|
$
|
|
|
|
$
|
(338,681
|
)
|
|
$
|
(792
|
)
|
|
$
|
991,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of changes in our goodwill, on a gross basis, for the
years ended December 31, 2009 and 2008 is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
Impairment
|
|
|
2009
|
|
|
Goodwill, gross
|
|
$
|
269,118
|
|
|
$
|
|
|
|
$
|
269,118
|
|
Accumulated goodwill impairment
|
|
|
(98,596
|
)
|
|
|
|
|
|
|
(98,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
$
|
170,522
|
|
|
$
|
|
|
|
$
|
170,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
84
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
|
|
|
As of
|
|
|
|
December 31,
|
|
|
|
|
|
December 31,
|
|
|
|
2007
|
|
|
Impairment
|
|
|
2008
|
|
|
Goodwill, gross
|
|
$
|
269,118
|
|
|
$
|
|
|
|
$
|
269,118
|
|
Accumulated goodwill impairment
|
|
|
|
|
|
|
(98,596
|
)
|
|
|
(98,596
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill, net
|
|
$
|
269,118
|
|
|
$
|
(98,596
|
)
|
|
$
|
170,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, our intangible assets and
related accumulated amortization consisted of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009
|
|
|
As of December 31, 2008
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Amortization
|
|
|
Net
|
|
|
Intangible assets not currently subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcast licenses
|
|
$
|
872,680
|
|
|
$
|
(53,699
|
)
|
|
$
|
818,981
|
|
|
$
|
872,680
|
|
|
$
|
(53,699
|
)
|
|
$
|
818,981
|
|
Goodwill
|
|
|
170,522
|
|
|
|
|
|
|
|
170,522
|
|
|
|
170,522
|
|
|
|
|
|
|
|
170,522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,043,202
|
|
|
$
|
(53,699
|
)
|
|
$
|
989,503
|
|
|
$
|
1,043,202
|
|
|
$
|
(53,699
|
)
|
|
$
|
989,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Network affiliation agreements
|
|
$
|
1,264
|
|
|
$
|
(1,183
|
)
|
|
$
|
81
|
|
|
$
|
1,264
|
|
|
$
|
(1,119
|
)
|
|
$
|
145
|
|
Other definite lived intangible assets
|
|
|
13,484
|
|
|
|
(12,249
|
)
|
|
|
1,235
|
|
|
|
13,484
|
|
|
|
(11,736
|
)
|
|
|
1,748
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
14,748
|
|
|
$
|
(13,432
|
)
|
|
$
|
1,316
|
|
|
$
|
14,748
|
|
|
$
|
(12,855
|
)
|
|
$
|
1,893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangibles
|
|
$
|
1,057,950
|
|
|
$
|
(67,131
|
)
|
|
$
|
990,819
|
|
|
$
|
1,057,950
|
|
|
$
|
(66,554
|
)
|
|
$
|
991,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2009,
2008 and 2007 was $0.6 million, $0.8 million and
$0.8 million, respectively. Based on the current amount of
intangible assets subject to amortization, we expect that
amortization expense for the succeeding five years will be as
follows: 2010, $479,000; 2011, $125,000; 2012, $75,000; 2013,
$50,000 and 2014, $38,000. As acquisitions and dispositions
occur in the future, actual amounts may vary from these
estimates.
Impairment
of goodwill and broadcast license
As of December 31, 2009, we tested our goodwill, broadcast
licenses and other intangible asset recorded values for
potential impairment and concluded that the balances were
reasonably stated. As a result, we did not record an impairment
expense for our goodwill, broadcast licenses or other intangible
assets during fiscal 2009.
As of December 31, 2008, we recorded a non-cash impairment
expense of $338.7 million resulting from a write-down of
$98.6 million in the recorded value of our goodwill and a
write-down of $240.1 million in the recorded value of our
broadcast licenses. The write-down of our goodwill and broadcast
licenses related to seven stations and 23 stations,
respectively. We tested our unamortized intangible assets for
impairment at December 31, 2008. As of the testing date, we
believed events had occurred and circumstances changed that
85
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
more likely than not reduce the fair value of our broadcast
licenses and goodwill below their carrying amounts. These
events, which accelerated in the fourth quarter of 2008,
included: (i) the continued decline of the price of our
common stock and Class A common stock; (ii) the
decline in the current selling prices of television stations;
(iii) the decline in local and national advertising
revenues excluding political advertising revenue; and
(iv) the decline in the operating profit margins of some of
our stations. We did not record a similar impairment expense in
the prior year.
See Note 1. Description of Business and Summary of
Significant Accounting Policies for further discussion of
our accounting policies regarding goodwill, broadcast licenses
and other intangible assets.
|
|
13.
|
Selected
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Quarters
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
|
|
(In thousands, except for per share data)
|
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
61,354
|
|
|
$
|
65,057
|
|
|
$
|
66,446
|
|
|
$
|
77,517
|
|
Operating income
|
|
|
4,766
|
|
|
|
8,998
|
|
|
|
10,630
|
|
|
|
18,685
|
|
Loss on early extinguishment of debt
|
|
|
(8,352
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(8,920
|
)
|
|
|
(6,648
|
)
|
|
|
(5,520
|
)
|
|
|
(1,959
|
)
|
Net loss available to common stockholders
|
|
|
(12,970
|
)
|
|
|
(10,699
|
)
|
|
|
(9,988
|
)
|
|
|
(6,509
|
)
|
Basic net loss available to common stockholders per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.13
|
)
|
Diluted net loss available to common stockholders per share
|
|
$
|
(0.27
|
)
|
|
$
|
(0.22
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
(0.13
|
)
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating revenues
|
|
$
|
70,999
|
|
|
$
|
78,743
|
|
|
$
|
82,631
|
|
|
$
|
94,803
|
|
Impairment of goodwill and broadcast licenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
338,681
|
|
Operating income
|
|
|
9,281
|
|
|
|
18,738
|
|
|
|
20,511
|
|
|
|
(307,425
|
)
|
Net (loss) income
|
|
|
(3,850
|
)
|
|
|
3,215
|
|
|
|
4,644
|
|
|
|
(206,025
|
)
|
Net (loss) income available to common stockholders
|
|
|
(3,850
|
)
|
|
|
3,090
|
|
|
|
1,477
|
|
|
|
(209,326
|
)
|
Basic net (loss) income available to common stockholders per
share
|
|
$
|
(0.08
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
(4.32
|
)
|
Diluted net (loss) income available to common stockholders per
share
|
|
$
|
(0.08
|
)
|
|
$
|
0.06
|
|
|
$
|
0.03
|
|
|
$
|
(4.32
|
)
|
Because of the method used in calculating per share data, the
quarterly per share data will not necessarily add to the per
share data as computed for the year.
|
|
14.
|
Subsequent
Event Long-term Debt Amendment
|
Effective as of March 31, 2010, we amended our existing
senior credit facility to provide for, among other things:
(i) an increase in the maximum total net leverage ratio
covenant under the senior credit facility through March 30,
2011 and (ii) a potential issuance of capital stock
and/or
senior or subordinated debt securities, which could include
securities with a second lien security interest (the
Replacement Debt). This amendment to the senior
credit facility also provides for a reduction in the revolving
loan commitment under the senior credit facility from
$50.0 million to $40.0 million.
86
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
From March 31, 2010 until the date we complete an offering
of Replacement Debt resulting in the repayment of not less than
$200.0 million of our term loan outstanding under the
senior credit facility, (i) we are required to pay an
annual incentive fee equal to 2.0%, which fee will be eliminated
upon the consummation of such offering and repayment,
(ii) the annual facility fee will remain at 3.0%, which fee
will, following such repayment, be reduced to 1.25% per year,
with a potential for further reductions in future periods, and
(iii) we will remain subject to a maximum total net
leverage ratio, which will, following such repayment, be
replaced by a first lien leverage test, as described in the
following paragraph. In addition, from and after such repayment,
we will be required to comply with a minimum fixed charge
coverage ratio of 0.90x to 1.0x.
Upon the completion of an offering of Replacement Debt that
results in the repayment of not less than $200.0 million of
our term loan outstanding under the senior credit facility, we
will, from the date of such repayment, be subject to a maximum
first lien leverage ratio covenant, which will replace our
current maximum total leverage ratio covenant. The covenant will
range from 7.5x to 6.5x, depending upon the amount of any such
repayment.
The use of proceeds from any issuance of Replacement Debt will
generally be limited to the repayment of amounts outstanding
under the term loan under the senior credit facility and, in
certain circumstances, to the repurchase of outstanding shares
of our Series D Perpetual Preferred Stock. We cannot
provide any assurances that such a sale of Replacement Debt, or
any repurchase of such preferred stock, will be completed by us,
or of the terms or timing thereof.
Beginning April 30, 2010 and thereafter, all interest and
fees accrued under the senior credit facility will be payable in
cash upon their respective due dates, with no portion of such
accrued interest and fees being subject to deferral.
A summary of certain significant terms contained in our senior
credit facility (i) before the March 31, 2010
amendment, (ii) as so amended, and (iii) as amended
and after giving affect to a potential issuance of
87
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Replacement Debt and repayment of at least $200.0 million
of term loans under the senior credit facility, are summarized
in the table below:
|
|
|
|
|
|
|
|
|
|
|
|
|
As Amended and
|
|
|
|
|
As Amended and
|
|
After Giving Effect
|
|
|
|
|
Prior to Potential
|
|
to a Potential
|
|
|
|
|
Issuance of
|
|
Issuance of
|
|
|
|
|
Replacement Debt
|
|
Replacement Debt
|
|
|
Prior to Amendment
|
|
and Related
|
|
and Related
|
|
|
on March 31,
|
|
Repayment of Term
|
|
Repayment of Term
|
Description
|
|
2010
|
|
Loan
|
|
Loan
|
|
Annual interest rate on outstanding term loan balance
|
|
LIBOR plus 3.50% or BASE plus 2.50%
|
|
Same
|
|
Same
|
|
|
|
|
|
|
|
Annual interest rate on outstanding revolving loan balance
|
|
LIBOR plus 3.50% or BASE plus 2.50%
|
|
Same
|
|
Same
|
|
|
|
|
|
|
|
Annual facility fee rate
|
|
3.00% with a potential
for reduction in future periods.
|
|
3.00% with a potential
for reduction in future periods.
|
|
1.25% with a potential
for reduction in future periods.
|
|
|
|
|
|
|
|
Annual incentive fee rate
|
|
0.00%
|
|
2.00%
|
|
0.00%
|
|
|
|
|
|
|
|
Annual commitment fee on undrawn revolving loan balance
|
|
0.50%
|
|
Same
|
|
Same
|
|
|
|
|
|
|
|
Revolving loan commitment
|
|
$50 million
|
|
$40 million
|
|
$40 million
|
|
|
|
|
|
|
|
Maximum total net leverage ratio at:
|
|
|
|
|
|
|
March 31, 2010 through June 29, 2010
|
|
7.00x
|
|
9.00x
|
|
Replaced with
a first lien leverage test as described above.
|
June 30, 2010 through September 29, 2010
|
|
6.50x
|
|
9.50x
|
|
|
September 30, 2010 through March 30, 2011
|
|
6.50x
|
|
9.75x
|
|
|
March 31, 2011 and thereafter
|
|
6.50x
|
|
6.50x
|
|
|
|
|
|
|
|
|
|
Minimum fixed charge coverage ratio
|
|
None
|
|
Same
|
|
0.90x to 1.00x
|
|
|
|
|
|
|
|
Maximum cash balance that can be deducted from total debt to
calculate net debt in the total net leverage ratio (or first
lien leverage test, as applicable)
|
|
$10.0 million
|
|
Same
|
|
$15.0 million
|
88
GRAY
TELEVISION, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In order to obtain this amendment, we incurred loan issuance
costs of approximately $4.1 million, in addition to other
legal and professional fees. We are currently evaluating the
accounting treatment of the loan issuance costs incurred and the
related tax effects of the transaction. As of December 31,
2009, we had a deferred loan cost balance of $1.6 million.
If the amendment constitutes a significant modification to the
senior credit facility in the three-month period ended
March 31, 2010, we may be required to expense all or a
portion of our deferred loan cost balance. As of March 31,
2010, after giving effect to the amendment, we expect to be in
compliance with all covenants under the senior credit facility.
89
|
|
Item 9.
|
Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure.
|
None
|
|
Item 9A.
|
Controls
and Procedures.
|
Evaluation
of Disclosure Controls and Procedures
As of the end of the period covered by this Annual Report on
Form 10-K,
an evaluation was carried out under the supervision and with the
participation of management, including the Chief Executive
Officer (CEO) and the Chief Financial Officer
(CFO), of the effectiveness of our disclosure
controls and procedures (as defined in
Rule 13a-15(e)
of the Exchange Act). Based on that evaluation, the CEO and the
CFO have concluded that as of the end of such period our
disclosure controls and procedures were effective to ensure that
(i) information required to be disclosed in reports that we
file or furnish under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC
rules and forms, and to ensure that such information is
accumulated and communicated to our management, including the
CEO and CFO, as appropriate, to allow timely decisions regarding
required disclosures.
Changes
in Internal Control Over Financial Reporting
There were no changes in our internal control over financial
reporting (as such term is defined in
Rule 13a-15(f)
and
15d-15(f)
under the Exchange Act) during the quarter ended
December 31, 2009 identified in connection with this
evaluation that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
Report on
Internal Control Over Financial Reporting
Our report, Managements Report on Internal Control
over Financial Reporting and the report of our registered
public accounting firm, Report of Independent Registered
Public Accounting Firm, are set forth in Item 8 of
this Annual Report on
Form 10-K.
|
|
Item 9B.
|
Other
Information.
|
None
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance.
|
The information set forth under the headings Election of
Directors, Board Committees And Membership,
Section 16(a) Beneficial Ownership Reporting
Compliance and Corporate Governance in our
definitive Proxy Statement for the 2010 Annual Meeting of
Shareholders (to be filed within 120 days after
December 31, 2009) is incorporated herein by
reference. In addition, the information set forth under
Executive Officers of the Registrant in Part I
of this Report is incorporated herein by reference.
There have been no changes to the procedures by which
stockholders may recommend nominees to our Board of Directors
since our last disclosure of such procedures, which appeared in
our definitive Proxy Statement for our 2009 Annual Meeting of
Shareholders.
|
|
Item 11.
|
Executive
Compensation.
|
The information set forth under the headings Executive
Compensation, Report of Management Personnel
Committee, Compensation Committee Interlocks and
Insider Participation and Certain Relationships and
Related Party Transactions in our definitive Proxy
Statement for the 2010 Annual Meeting of Shareholders is
incorporated herein by reference.
90
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
|
The information set forth under the heading Beneficial
Share Ownership in our definitive Proxy Statement for the
2010 Annual Meeting of Shareholders is incorporated herein by
reference.
Equity
Compensation Plan Information
The following table gives information about the common stock and
Class A common stock that may be issued upon the exercise
of options, warrants and rights under all existing equity
compensation plans as of December 31, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Compensation Plan Information
|
|
|
|
|
|
|
|
|
|
Number of Securities Remaining
|
|
|
|
Number of Securities to
|
|
|
Weighted-Average
|
|
|
Available for Future Issuance
|
|
|
|
be Issued Upon Exercise
|
|
|
Exercise Price of
|
|
|
Under Equity Compensation
|
|
|
|
of Outstanding Options,
|
|
|
Outstanding Options
|
|
|
Plans (Excluding Securities
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
Warrants and Rights
|
|
|
Reflected in 1st Column)
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders(1)(2)
|
|
|
1,476
|
|
|
$
|
8.28
|
|
|
|
7,392
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,476
|
|
|
|
|
|
|
|
7,392
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation plans approved by security holders(1)
|
|
|
|
|
|
$
|
|
|
|
|
1,000
|
|
Equity compensation plans not approved by security holders
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Under our 2007 Long-Term Incentive Plan, we are authorized to
issue options to acquire an additional 4,979,300 shares of
either our common stock or our class A common stock;
however, of this amount, we can not grant options to acquire in
excess of 1,000,000 shares of our Class A common
stock. For purposes of this disclosure, we have assumed the
issuance of options to acquire 4,979,300 shares of our
common stock and 1,000,000 shares of our Class A
common stock. |
|
(2) |
|
Includes 1,642,849 shares of our common stock that are
issuable under our Capital Accumulation Plan, which is intended
to meet the requirements of Section 401(k) of the Internal
Revenue Code. Includes 770,000 shares of our common stock
that are issuable under our Directors Restricted Stock
Plan. |
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence.
|
The information set forth under the headings Certain
Relationships and Related Party Transactions and
Corporate Governance in our definitive Proxy
Statement for the 2010 Annual Meeting of Shareholders is
incorporated herein by reference.
|
|
Item 14.
|
Principal
Accountant Fees and Services.
|
The information set forth under the heading Independent
Registered Public Accounting Firm in our definitive Proxy
Statement for the 2010 Annual Meeting of Shareholders concerning
principal accountant fees and services is incorporated herein by
reference.
91
PART IV
|
|
Item 15.
|
Exhibits
and Financial Statement Schedules.
|
(a) List of Financial Statements and Financial Statement
Schedules.
(1) Financial Statements.
See Part II, Item 8 for the index of financial
statements.
(2) Financial statement schedules.
The following financial statement schedule of Gray Television,
Inc. and subsidiaries is included in Item 15(c):
Schedule II Valuation and qualifying accounts.
All other schedules for which provision is made in the
applicable accounting regulation of the SEC are not required
under the related instructions or are inapplicable and therefore
have been omitted.
(b) Exhibits.
|
|
|
|
|
|
3
|
.1
|
|
Restated Articles of Incorporation of Gray Television, Inc., as
amended to date
|
|
3
|
.2
|
|
Bylaws of Gray Television, Inc. as amended to date
|
|
4
|
.1
|
|
See Exhibits 3.1 and 3.2 for certain provisions of our
Articles of Incorporation and Bylaws defining the rights of
holders of our common stock, class A common stock and
preferred stock.
|
|
10
|
.1
|
|
2002 Long Term Incentive Plan (incorporated by reference to
Appendix C to our definitive Proxy Statement on
Schedule 14A filed August 15, 2002)*
|
|
10
|
.2
|
|
Director Restricted Stock Plan (incorporated by reference to
Exhibit 10.12 to our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2002)*
|
|
10
|
.3
|
|
Credit Agreement dated as of March 19, 2007 by and among
Gray Television, Inc., as Borrower; the Lenders Referred to
Therein, as Lenders; Wachovia Bank, National Association, as
Administrative Agent for the Lenders; Bank of America, N. A., as
Syndication Agent; and Goldman Sachs Credit Partners L.P.,
Deutsche Bank Trust Company Americas and Bank of Scotland,
each as a Documentation Agent; Wachovia Capital Markets, LLC, as
Sole Lead Arranger; Wachovia Capital Markets, LLC, Banc of
America Securities LLC and Goldman Sachs Credit Partners L.P. as
Joint Bookrunners (incorporated by reference to
Exhibit 10.1 to our Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2007)
|
|
10
|
.4
|
|
Collateral Agreement dated as of March 19, 2007 by and
among Gray Television, Inc. and certain of its Subsidiaries as
Grantors, in favor of Wachovia Bank, National Association, as
Administrative Agent (incorporate by reference to
Exhibit 10.2 to our Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2007)
|
|
10
|
.5
|
|
Guaranty Agreement dated as of March 19, 2007 by and among
certain Subsidiaries of Gray Television, Inc., as Guarantors, in
favor of Wachovia Bank, National Association, as Administrative
Agent (incorporated by reference to Exhibit 10.3 to our
Quarterly Report on
Form 10-Q
for the quarterly period ended March 31, 2007)
|
|
10
|
.6
|
|
2007 Long Term Incentive Plan (incorporated by reference to
Appendix A to our definitive Proxy Statement on
Schedule 14A filed April 3, 2007)*
|
|
10
|
.7
|
|
Consulting Agreement dated as of December 23, 2008, by and
between Gray Television, Inc. and J. Mack Robinson
(incorporated by reference to Exhibit 10.9 to our
Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008)*
|
|
10
|
.8
|
|
First Amendment to the Credit Agreement by and among Gray
Television, Inc.; certain subsidiaries thereof; the Lenders
party thereto pursuant to an authorization; and Wachovia Bank,
National Association, as administrative agent, dated as of
March 31, 2009 (incorporated by reference to
Exhibit 10.10 to our Annual Report on
Form 10-K
for the fiscal year ended December 31, 2008)
|
92
|
|
|
|
|
|
14
|
.1
|
|
Code of Ethics for Gray Television, Inc. as approved by the
Companys board of directors on March 3, 2004
(incorporated by reference to Exhibit 14.1 to our Annual
Report on
Form 10-K
for the fiscal year ended December 31, 2003)
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of McGladrey & Pullen, LLP
|
|
24
|
.1
|
|
Power of Attorney (contained in the signature page of this
Report)
|
|
31
|
.1
|
|
Rule 13a-14(a)
Certificate of Chief Executive Officer
|
|
31
|
.2
|
|
Rule 13a-14(a)
Certificate of Chief Financial Officer
|
|
32
|
.1
|
|
Section 1350 Certificate of Chief Executive Officer
|
|
32
|
.2
|
|
Section 1350 Certificate of Chief Financial Officer
|
|
|
|
* |
|
Management Contract or Compensatory Plan or Arrangement |
|
(c) |
|
Financial Statement Schedules The response to
this section is submitted as a part of (a), (1) and (2). |
93
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Gray Television, Inc.
|
|
|
|
By:
|
/s/ Hilton
H. Howell, Jr.
|
Hilton H. Howell, Jr.,
Vice-Chairman and Chief Executive Officer
Date: April 6, 2010
POWER OF
ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Hilton H.
Howell, Jr., Robert S. Prather, Jr. and James C. Ryan,
and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full powers of substitution
and resubstitution for him or her, in his name place and stead,
in any and all capacities, to sign any and all amendments to
this Annual Report on
Form 10-K,
and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every
act and thing requisite and necessary to be done in and about
the premises as fully and to all intents and purposes as he or
she might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated.
|
|
|
|
By:
|
/s/ William
E. Mayher, III
|
William E. Mayher, III,
Chairman of the Board
Date: April 6, 2010
J. Mack Robinson, Director
Date: April 6, 2010
Richard L. Boger, Director
Date: April 6, 2010
Ray M. Deaver, Director
Date: April 6, 2010
94
T. L. Elder, Director
Date: April 6, 2010
|
|
|
|
By:
|
/s/ Hilton
H. Howell, Jr.
|
Hilton H. Howell, Jr., Director
Date: April 6, 2010
Zell B. Miller, Director
Date: April 6, 2010
Howell W. Newton, Director
Date: April 6, 2010
Hugh Norton, Director
Date: April 6, 2010
|
|
|
|
By:
|
/s/ Robert
S. Prather, Jr.
|
Robert S. Prather, Jr., Director
Date: April 6, 2010
|
|
|
|
By:
|
/s/ Harriett
J. Robinson
|
Harriett J. Robinson, Director
Date: April 6, 2010
James C. Ryan,
Sr. Vice President & Chief Financial Officer
Date: April 6, 2010
|
|
|
|
By:
|
/s/ Jackson
S. Cowart, IV
|
Jackson S. Cowart, IV,
Chief Accounting Officer
Date: April 6, 2010
95
GRAY
TELEVISION, INC.
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Col. A
|
|
Col. B
|
|
Col. C
|
|
Col. D
|
|
Col. E
|
|
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
(2)
|
|
|
|
|
|
|
|
|
(1)
|
|
Charged to
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
Other
|
|
|
|
Balance at
|
|
|
Beginning
|
|
Costs and
|
|
Accounts
|
|
Deductions
|
|
End of
|
Description
|
|
of Period
|
|
Expenses
|
|
(a)
|
|
(b)
|
|
Period
|
|
|
(In thousands)
|
|
Year Ended December 31, 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,543
|
|
|
|
925
|
|
|
$
|
|
|
|
$
|
(1,376
|
)
|
|
$
|
1,092
|
|
Valuation allowance for deferred tax asset
|
|
$
|
4,909
|
|
|
$
|
1,565
|
|
|
$
|
|
|
|
$
|
(12
|
)
|
|
$
|
6,462
|
|
Year Ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,303
|
|
|
$
|
1,790
|
|
|
$
|
|
|
|
$
|
(1,550
|
)
|
|
$
|
1,543
|
|
Valuation allowance for deferred tax asset
|
|
$
|
5,215
|
|
|
$
|
1,247
|
|
|
$
|
|
|
|
$
|
(1,553
|
)
|
|
$
|
4,909
|
|
Year Ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,033
|
|
|
$
|
1,000
|
|
|
$
|
|
|
|
$
|
(730
|
)
|
|
$
|
1,303
|
|
Valuation allowance for deferred tax asset
|
|
$
|
4,784
|
|
|
$
|
431
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,215
|
|
|
|
|
(a) |
|
Represents amounts recorded in connection with acquisitions. |
|
(b) |
|
In 2009, 2008 and 2007, represents write-offs of amounts not
considered collectible in the allowance for doubtful accounts.
In 2009 and 2008, represents the expiration of certain net
operating loss carryforwards in the valuation allowance for
deferred tax asset. In 2008 the valuation allowance for deferred
tax assets also included a deduction for the reversal of a state
tax valuation allowance due to a change in our filing structure. |
.
96
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
3
|
.1
|
|
Articles of incorporation, as amended to date
|
|
3
|
.2
|
|
Amended and restated bylaws, as amended to date
|
|
21
|
.1
|
|
Subsidiaries of the Registrant
|
|
23
|
.1
|
|
Consent of McGladrey & Pullen, LLP
|
|
31
|
.1
|
|
Rule 13 a 14(a) Certificate of the Chief
Executive Officer
|
|
31
|
.2
|
|
Rule 13 a 14(a) Certificate of the Chief
Financial Officer
|
|
32
|
.1
|
|
Section 1350 Certificate of the Chief Executive Officer
|
|
32
|
.2
|
|
Section 1350 Certificate of the Chief Financial Officer
|
97
exv3w1
Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
GRAY TELEVISION, INC.
1.
The name of the Corporation is Gray Television, Inc.
2.
The object of said Corporation shall be pecuniary gain and profit.
3.
(a) The general nature of the business to be engaged in by the Corporation shall be to publish
a daily and weekly newspaper, to do a general publishing and printing business, to buy and sell
paper and all types of stationery, and to acquire, own, lease, rent and operate television and
radio broadcasting stations and community antenna cable television systems and other forms of
communication services, utilizing any and all types of transmission facilities. The Corporation
shall further have the right to apply for, receive and hold all licenses that may be necessary or
required from any licensing agency, federal, state, local or foreign; to do any and all things
incident to the operation of such facilities, including, but not limited to, contracting for
transmission of programs and entering into such other contracts as the Board of Directors of the
Corporation may from time to time deem proper and expedient. Further, the Corporation shall have
the right of buying, taking, exchanging, leasing and otherwise acquiring real and personal
property, and any interest or right therein, including the right to hold, own, operate, control,
maintain, manage, develop, construct, alter and promote both real property, personal property,
securities and evidences of indebtedness, including the right to sell, exchange, or hypothecate all
forms of real and personal property, chattels, rights, choses in action, mortgages, bonds, and
securities of all forms and kinds and wherever located.
-1-
(b) Without in any way limiting the foregoing, petitioner desires that said Corporation be
vested with all the rights, powers, and privileges now or hereafter given to do any and all things
which may be needful or proper in the operation of the above described business, and that said
Corporation have all the powers enumerated in Sections 9 and 10 of the Act of the General Assembly
of Georgia approved January 28, 1938 (Georgia Laws 1937-38, Ex. Sess., page 214), and codified as
Sections 22-1827 and 22-1828 of the Code of Georgia Annotated, and such powers as are now, or may
be hereafter, given by law.
(c) Without in any way limiting the above enumerating powers, the Corporation shall have the
power to guarantee, become surety upon, or endorse the contracts or obligations of other
corporations, firms, or individuals; including the right to become a purely accommodation guaranty,
endorser or surety upon the contracts or obligations of any other corporation, firm or individual,
and the further power to buy, sell, trade or purchase the contracts, negotiable instruments or
obligations of any other corporation, firm or individual, or any part thereof, all of the foregoing
powers to be granted this Corporation regardless of the fact that this Corporation may or may not
have a direct interest in the subject matter of such contracts, negotiable instruments or
obligations.
4.
The total number of shares of all classes which the Corporation shall have authority to issue
is 135,000,000 shares, consisting of 15,000,000 shares of Class A Common Stock, no par value
(Class A Common Stock); 100,000,000 shares of Common Stock, no par value per share (Common
Stock); and 20,000,000 shares of Preferred Stock Preferred Stock).
The designations and the preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualification, and terms and conditions of redemptions
of the shares of each class of stock are as follows:
-2-
PREFERRED STOCK
The Preferred Stock may be issued from time to time by the Board of Directors as shares of one
or more series. The description of shares of each series of Preferred Stock, including any
preferences, conversion and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and terms and conditions of redemption shall be as set forth in resolutions adopted
by the Board of Directors, and articles of amendment shall be filed with the Georgia Secretary of
State as required by law to be filed with respect to issuance of such Preferred Stock, prior to the
issuance of any shares of such series.
The Board of Directors is expressly authorized, at any time, by adopting resolutions providing
for the issuance of or providing for a change in the number of shares of any particular series of
Preferred Stock and, if and to the extent from time to time as required by law, by filing articles
of amendment which are effective without Shareholder action to increase or decrease the number of
shares included in each series of Preferred Stock, but not below the number of shares then issued,
and to set or change in any one or more respects the designations, preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications, or terms and
conditions of redemption relating to the shares of each such series. Notwithstanding the
foregoing, the Board of Directors shall not be authorized to change the right of holders of the
Class A Common Stock of the Corporation to vote one vote per share on all matters submitted for
shareholder action. The authority of the Board of Directors with respect to
each series of Preferred Stock shall include, but not be limited to, setting or changing the
following:
(a) the annual dividend rate, if any, on shares of such series, the times of payment and the
date from which dividends shall be accumulated, if dividends are to be cumulative;
-3-
(b) whether the shares of such series shall be redeemable and, if so, the redemption price and
the terms and conditions of such redemption;
(c) the obligation, if any, of the Corporation to redeem shares of such series pursuant to a
sinking fund;
(d) whether the shares of such series shall be convertible into, or exchangeable for, shares
of stock of any other class or classes and, if so, the terms and conditions of such conversion or
exchange, including the price or prices or the rate or rates of conversion or exchange and the
terms of adjustment, if any;
(e) whether the shares of such series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the extent of such voting rights;
(f) the rights of the shares of such series in the event of voluntary or involuntary
liquidation, dissolution or winding-up of the Corporation; and
(g) any other relative rights, powers, preferences, qualifications, limitations or
restrictions thereof relating to such series.
The shares of Preferred Stock of any one series shall be identical with each other in all
respects except as to the dates from and after which dividends thereon shall cumulate, if
cumulative.
SERIES A PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be designated as
Series A Preferred Stock (the Series A Preferred Stock), and the number of shares constituting
the Series A Preferred Stock shall be 1,000.
Section 2. Rank. All Series A Preferred Stock shall rank, as to payment of dividends
and as to distribution of assets upon liquidation, dissolution, or winding up of the Corporation,
-4-
whether voluntary or involuntary, (i) on a parity with the Series B Preferred Stock, no par value,
of the Corporation, now or hereafter issued and (ii) senior to the Class A Common Stock, no par
value (the Class A Common Stock), of the Corporation and the Class B Common Stock, no par value
(the Class B Common Stock and, together with the Class A Common Stock, the Common Stock), of
the Corporation now or hereafter issued.
Section 3. Dividends and Distributions. The holders of shares of Series A Preferred
Stock shall be entitled to receive, when, as, and if declared by the Board of Directors of the
Corporation (the Board of Directors or the Board) out of funds legally available for such
purpose, dividends at the rate of $800.00 per annum per share, and no more, which shall be fully
cumulative, shall accrue without interest from the date of original issuance and shall be payable
in cash quarterly on March 31, June 30, September 30 and December 31 of each year commencing
December 31, 1996 (except that if any such date is a Saturday, Sunday, or legal holiday, then such
dividend shall be payable on the next day that is not a Saturday, Sunday, or legal holiday) to
holders of record as they appear on the stock books of the Corporation on such record dates, not
more than 50 nor less than 10 days preceding the payment dates for such dividends, as shall be
fixed by the Board. The amount of dividends payable per share of Series A Preferred Stock for each
quarterly dividend period shall be computed by dividing the annual
dividend amount by four. The amount of dividends payable for the initial dividend period and
any period shorter than a full quarterly dividend period shall be computed on the basis of a
360-day year of twelve 30-day months. No dividends or other distributions, other than dividends
payable solely in shares of Common Stock or capital stock of the Corporation ranking junior as to
dividends to the Series A Preferred Stock (collectively, the Junior Dividend Stock), shall be
paid or set apart for payment on, and except for the use of Common Stock to pay for the exercise
-5-
of stock options pursuant to the stock option plans of the Corporation and its subsidiaries, no
purchase, redemption, or other acquisition shall be made by the Corporation of, any shares of
Junior Dividend Stock unless and until all accrued and unpaid dividends on the Series A Preferred
Stock shall have been paid or declared and set apart for payment.
If at any time any dividend on any capital stock of the Corporation ranking senior as to
dividends to the Series A Preferred Stock (the Senior Dividend Stock) shall be in default, in
whole or in part, no dividend shall be paid or declared and set apart for payment on the Series A
Preferred Stock unless and until all accrued and unpaid dividends with respect to the Senior
Dividend Stock, including the full dividends for the then current dividend period, shall have been
paid or declared and set apart for payment, without interest. No full dividends shall be paid or
declared and set apart for payment on any class or series of the Corporations capital stock
ranking, as to dividends, on a parity with the Series A Preferred Stock (the Parity Dividend
Stock) for any period unless all accrued but unpaid dividends have been, or contemporaneously are,
paid or declared and set apart for such payment on the Series A Preferred Stock. No full dividends
shall be paid or declared and set apart for payment on the Series A Preferred Stock for any period
unless all accrued but unpaid dividends have been, or contemporaneously are, paid or declared and
set apart for payment on the Parity Dividend Stock for all dividend periods
terminating on or prior to the date of payment of such full dividends. When dividends are not
paid in full upon the Series A Preferred Stock and the Parity Dividend Stock, all dividends paid or
declared and set apart for payment upon shares of Series A Preferred Stock and the Parity Dividend
Stock shall be paid or declared and set apart for payment pro rata, so that the amount of dividends
paid or declared and set apart for payment per share on the Series A Preferred Stock and the Parity
Dividend Stock shall in all cases bear to each other the same ratio that accrued and
-6-
unpaid dividends per share on the shares of Series A Preferred Stock and the Parity Dividend Stock bear to
each other.
Any reference to distribution contained in this Section 3 shall not be deemed to include any
stock dividend or distributions made in connection with any liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary.
Section 4. Liquidation Preference. In the event of a liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary, the holders of Series A Preferred
Stock shall be entitled to receive out of the assets of the Corporation, whether such assets
constitute stated capital or surplus of any nature, an amount equal to the dividends accrued and
unpaid thereon to the date of final distribution to such holders, without interest, and a sum equal
to $10,000.00 per share (the Liquidation Preference), and no more, before any payment shall be
made or any assets distributed to the holders of Common Stock or any other class or series of the
Corporations capital stock ranking junior as to liquidation rights to the Series A Preferred Stock
(collectively, the Junior Liquidation Stock); provided, however, that the holders of Series A
Preferred Stock shall be entitled to such payment only in the event that the Corporations payments
with respect to the liquidation preference of the holders of capital stock of the Corporation
ranking senior as to liquidation rights to the Series A Preferred Stock (the
Senior Liquidation Stock) are fully met. After the liquidation preferences of the Senior
Liquidation Stock are fully met, the entire assets of the Corporation available for distribution
shall be distributed ratably among the holders of the Series A Preferred Stock and any other class
or series of the Corporations capital stock having parity as to liquidation rights with the Series
A Preferred Stock in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of the Liquidation
-7-
Preference of the shares of the Series A Preferred Stock, the holders of such shares shall not be
entitled to any further participation in any distribution of assets by the Corporation. Neither a
consolidation or merger of the Corporation with another corporation nor a sale or transfer of all
or part of the Corporations assets for cash, securities, or other property will be considered a
liquidation, dissolution, or winding up of the Corporation.
Section 5. Redemption at Option of the Corporation. The Corporation at its option,
may redeem at any time all, or from time to time a portion, of the Series A Preferred Stock on any
date set by the Board of Directors, at the redemption price of $10,000.00 per share, plus an amount
per share equal to all dividends on the Series A Preferred Stock accrued and unpaid on such share,
pro rata to the date fixed for redemption (the Redemption Price). The Redemption Price shall be
payable in cash or, at the option of the Corporation as long as the Class A Common Stock is
registered pursuant to the Securities Exchange Act of 1934, in the number of shares (rounded up to
the nearest whole share) of Class A Common Stock equal to the amount determined by dividing the
Redemption Price by the Average Market Price. The Average Market Price shall mean the average of
the last reported sales prices regular way of the Class A Common Stock on each day of the 10-day
period preceding the date fixed for redemption or, in case no sale takes place on any such day, the
average of the closing bid and asked prices regular
way on such day, in either case as reported on the New York Stock Exchange Composite Tape, or,
if the Class A Common Stock is not listed or admitted to trading on such exchange, on the principal
national securities exchange on which the Class A Common Stock is listed or admitted to trading,
or, if not listed or admitted to trading on any national securities exchange, on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) National Market System, or,
if now admitted for quotation on the NASDAQ National Market System, the
-8-
average of the high bid and
low asked prices on such day as recorded by the National Association of Securities Dealers, Inc.
through NASDAQ or, if the National Association of Securities Dealers, Inc. through NASDAQ shall not
have reported any bid and asked prices for the Class A Common Stock on such day, the average of the
bid and asked prices for such day as furnished by any New York Stock Exchange member firm selected
from time to time by the Corporation for such purpose, or, if no such bid and asked prices can be
obtained from any such firm, the fair market value of one share of Class A Common Stock on such day
as determined in good faith by the Board of Directors. Such determination by the Board of
Directors shall be conclusive.
In case of the redemption of less than all of the then outstanding Series A Preferred Stock,
the Corporation shall designate by lot, or in such other manner as the Board of Directors may
determine, the shares to be redeemed, or shall effect such redemption pro rata. Notwithstanding
the foregoing, the Corporation shall not redeem less than all of the Series A Preferred Stock at
any time outstanding until all accrued but unpaid dividends upon all Series A Preferred Stock then
outstanding shall have been paid.
Not more then 60 nor less than 30 days prior to the redemption date, notice by first class
mail, postage prepaid, shall be given to the holders of record of the Series A Preferred Stock to
be redeemed, addressed to such shareholders at their last addresses as shown on the books of
the Corporation. Each such notice of redemption shall specify the date fixed for redemption, the
Redemption Price and the form of payment, the place or places of payment, that payment will be made
upon presentation and surrender of the shares of Series A Preferred Stock, that accrued but unpaid
dividends to the date fixed for redemption will be paid on the date fixed for redemption, and that
on and after the redemption date, dividends will cease to accrue on such shares.
-9-
Any notice which is mailed as herein provided shall be conclusively presumed to have been duly
given, whether or not the holder of the Series A Preferred Stock receives such notice, and failure
to give such notice by mail, or any defect in such notice, to the holders of any shares designated
for redemption shall not affect the validity of the proceedings for the redemption of any other
shares of Series A Preferred Stock. On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption shall surrender the certificate (or
certificates) evidencing such shares to the Corporation at the place designated in such notice and
shall thereupon be entitled to receive payment of the Redemption Price. If fewer than all the
shares represented by any such surrendered certificate (or certificates) are redeemed, a new
certificate shall be issued representing the unredeemed shares. If, on the date fixed for
redemption, funds or shares of Class A Common Stock necessary for the redemption shall be available
therefor and shall have been irrevocably deposited or set aside, then, notwithstanding that the
certificates evidencing any shares so called for redemption shall not have been surrendered, the
dividends with respect to the shares so called shall cease to accrue after the date fixed for
redemption, the shares shall no longer be deemed outstanding, the holders thereof shall cease to be
shareholders, and all rights whatsoever with respect to the shares so called for redemption (except
the right of the holders to receive the Redemption Price without interest upon
surrender of their certificates therefor) shall terminate. Any monies or shares of Class A
Common Stock deposited by the Corporation pursuant to the foregoing provision and unclaimed at the
end of one year from the date fixed for redemption shall, to the extent permitted by law, be
returned to the Corporation, after which the holders of shares of Series A Preferred Stock so
called for redemption shall look only to the Corporation for the payment thereof. Shares of Series
A Preferred Stock redeemed by the Corporation shall be restored to the status of
-10-
authorized but
unissued shares of Preferred Stock of the Corporation, without designation as to series, and may
thereafter be reissued, but not as shares of Series A Preferred Stock.
Section 6. No Sinking Fund. The shares of Series A Preferred Stock shall not be
subject to the operation of a purchase, retirement, or sinking fund.
Section 7. Voting Rights. The holders of Series A Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time required by law.
Whenever dividends on the Series A Preferred Stock or any other class or series of Parity Dividend
Stock shall be in arrears in an amount equal to at least six quarterly dividends, (whether or not
consecutive), the holders of the Series A Preferred Stock (voting separately as a class with all
other affected classes or series of the Parity Dividend Stock upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for and elect two additional
directors. Such right of the holders of Series A Preferred Stock to vote for the election of such
two directors may be exercised at an annual meeting or at any special meeting called for such
purposes as hereinafter provided or at any adjournment thereof, until dividends in default on such
outstanding shares of Series A Preferred Stock shall have been paid in full (or such dividends
shall have been declared and funds sufficient therefor set apart for payment), at which time the
term of office of the two directors so elected shall terminate automatically (subject to
revesting in the event of each and every subsequent default of the character specified in the
preceding sentence). So long as such right to vote continues, the Secretary of the Corporation may
call, and upon the written request of the holders of record of 10% of the outstanding shares of
Series A Preferred Stock addressed to him at the principal office, of the Corporation shall call, a
special meeting of the holders of such shares for the election of such two directors, as provided
herein. Such meeting shall be held not less than 45 nor more than 90 days after the accrual of
-11-
such right, at the place and upon the notice provided by law and in the By-laws of the Corporation
for the holding of meetings of shareholders. No such special meeting or adjournment thereof shall
be held on a date less than 30 days before an annual meeting of shareholders or any special meeting
in lieu thereof; provided that at such annual meeting appropriate provisions are made to allow the
holders of the Series A Preferred Stock to exercise such right at such meeting. If at any such
annual or special meeting or any adjournment thereof the holders of a majority of the then
outstanding shares of Series A Preferred Stock entitled to vote in such election shall be present
or represented by proxy, then the authorized number of directors of the Corporation shall be
increased by two, and the holders of Series A Preferred Stock shall be entitled to elect such two
additional directors. Directors so elected shall serve until the next annual meeting or until
their successors shall be elected and shall qualify, unless the term of office of the persons so
elected as directors shall have terminated by virtue of the payment in full of all dividends in
arrears (or such dividends shall have been declared and funds sufficient therefor set apart for
payment.) In case of any vacancy occurring among the directors so elected by the holders of Series
A Preferred Stock, the remaining director who shall have been so elected may appoint a successor to
hold office for the unexpired term of the director whose place shall be vacant, and such successor
shall be deemed to have been elected by the holders of
Series A Preferred Stock. If both directors so elected by the holders of Series A Preferred
Stock shall cease to serve as directors before their terms shall expire, the holders of Series A
Preferred Stock then outstanding and entitled to vote for such directors may, at a special meeting
of such holders called as provided above, elect successors to hold office for the unexpired terms
of the directors whose places shall be vacant.
-12-
Without the consent or affirmative vote of the holders of at least a majority of the
outstanding shares of Series A Preferred Stock, voting separately as a class, the Corporation shall
not authorize, create, or issue any shares of any other class or series of capital stock ranking
senior to or on a parity with the Series A Preferred Stock as to dividends or upon liquidation.
The affirmative vote or consent of the holders of at least a majority of the outstanding
shares of the Series A Preferred Stock, voting separately as a class, will be required for any
amendment, alteration, or repeal, whether by merger or consolidation or otherwise, of the
Corporations Articles of Incorporation if the amendment, alteration, or repeal materially and
adversely affects the powers, preferences, or special rights of the Series A Preferred Stock;
provided, however, that any increase in the authorized Preferred Stock of the Corporation or the
creation and issuance of any other capital Stock of the Corporation ranking senior to, on a parity
with, or junior to the Series A Preferred Stock shall not be deemed to affect materially and
adversely such powers, preferences, or special rights.
Section 8. Outstanding Shares. For purposes hereof all shares of Series A Preferred
Stock shall be deemed outstanding except that, from the date fixed for redemption pursuant to
Section 5 hereof, all shares of Series A Preferred Stock which have been so called for redemption
under Section 5, if funds or shares necessary for the redemption of such shares are available,
shall not be deemed to be outstanding.
SERIES B PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be designated as
Series B Preferred Stock (the Series B Preferred Stock), and the number of shares constituting
the Series B Preferred Stock shall be 2,500 and if and to the extent further shares are needed in
order to pay dividends in shares of Series B Preferred Stock as provided for in Section
-13-
3 hereof,
the Board of Directors of the Corporation will authorize additional shares of Series B Preferred
Stock so that at all times, so long as Series B Preferred Stock is outstanding, there will be a
sufficient number of Series B Preferred Stock authorized and reserved to pay dividends as provided
for in Section 3 hereof in shares of Series B Preferred Stock for the next succeeding four
quarters.
Section 2. Rank. All Series B Preferred Stock shall rank, as to payment of dividends
and as to distribution of assets upon liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary, (i) on a parity with the Series A Preferred Stock, no par value,
of the Corporation, now or hereafter issued and (ii) senior to the Class A Common Stock, no par
value (the Class A Common Stock), of the Corporation and the Class B Common Stock, no par value
(the Class B Common Stock and, together with the Class A Common Stock, the Common Stock), of
the Corporation now or hereafter issued.
Section 3. Dividends and Distributions. The holders of shares of Series B Preferred
Stock shall be entitled to receive, when, as, and if declared by the Board of Directors of the
Corporation (the Board of Directors or the Board) out of funds legally available for such
purpose, dividends at the rate of $600.00 per annum per share, which shall be fully cumulative,
shall accrue without interest from the date of original issuance and shall be payable at the
Corporations option in cash, or in additional shares (whether whole or fractional) of Series B
Preferred Stock valued, for the purpose of determining the number of shares (or fraction
thereof) of such Series B Preferred Stock to be issued at the value of $10,000 per whole share,
quarterly on March 31, June 30, September 30 and December 31 of each year commencing December 31,
1996 (except that if any such date is a Saturday, Sunday, or legal holiday, then such dividend
shall be payable on the next day that is not a Saturday, Sunday, or legal holiday) to holders of
-14-
record as they appear on the stock books of the Corporation on such record dates, not more than 50
nor less than 10 days preceding the payment dates for such dividends, as shall be fixed by the
Board. The amount of dividends payable per share of Series B Preferred Stock for each quarterly
dividend period shall be computed by dividing the annual dividend amount by four. The amount of
dividends payable for the initial dividend period and any period shorter than a full quarterly
dividend period shall be computed on the basis of a 360-day year of twelve 30-day months. No
dividends or other distributions, other than dividends payable solely in shares of Common Stock or
capital stock of the Corporation ranking junior as to dividends to the Series B Preferred Stock
(collectively, the Junior Dividend Stock), shall be paid or set apart for payment on, and except
for the use of Common Stock to pay for the exercise of stock options pursuant to the stock option
plans of the Corporation and its subsidiaries, no purchase, redemption, or other acquisition shall
be made by the Corporation of, any shares of Junior Dividend Stock unless and until all accrued and
unpaid dividends on the Series B Preferred Stock shall have been paid or declared and set apart for
payment.
If at any time any dividend on any capital stock of the Corporation ranking senior as to
dividends to the Series B Preferred Stock (the Senior Dividend Stock) shall be in default, in
whole or in part, no dividend shall be paid or declared and set apart for payment on the Series B
Preferred Stock unless and until all accrued and unpaid dividends with respect to the Senior
Dividend Stock, including the full dividends for the then current dividend period, shall have
been paid or declared and set apart for payment, without interest. No full dividends shall be paid
or declared and set apart for payment on any class or series of the Corporations capital stock
ranking, as to dividends, on a parity with the Series B Preferred Stock (the Parity Dividend
Stock) for any period unless all accrued but unpaid dividends have been, or contemporaneously
-15-
are,
paid or declared and set apart for such payment on the Series B Preferred Stock. No full dividends
shall be paid or declared and set apart for payment on the Series B Preferred Stock for any period
unless all accrued but unpaid dividends have been, or contemporaneously are, paid or declared and
set apart for payment on the Parity Dividend Stock for all dividend periods terminating on or prior
to the date of payment of such full dividends. When dividends are not paid in full upon the Series
B Preferred Stock and the Parity Dividend Stock, all dividends paid or declared and set apart for
payment upon shares of Series B Preferred Stock and the Parity Dividend Stock shall be paid or
declared and set apart for payment pro rata, so that the amount of dividends paid or declared and
set apart for payment per share on the Series B Preferred Stock and the Parity Dividend Stock shall
in all cases bear to each other the same ratio that accrued and unpaid dividends per share on the
shares of Series B Preferred Stock and the Parity Dividend Stock bear to each other.
Any reference to distribution contained in this Section 3 shall not be deemed to include any
stock dividend or distributions made in connection with any liquidation, dissolution, or winding up
of the Corporation, whether voluntary or involuntary.
Section 4. Liquidation Preference. In the event of a liquidation, dissolution, or
winding up of the Corporation, whether voluntary or involuntary, the holders of Series B Preferred
Stock shall be entitled to receive out of the assets of the Corporation, whether such
assets constitute stated capital or surplus of any nature, an amount equal to the dividends
accrued and unpaid thereon to the date of final distribution to such holders, without interest, and
a sum equal to $10,000.00 per share (the Liquidation Preference) and no more, before any payment
shall be made or any assets distributed to the holders of Common Stock or any other class or series
of the Corporations capital stock ranking junior as to liquidation rights to the Series B
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Preferred Stock (collectively, the Junior Liquidation Stock); provided, however, that the holders
of Series B Preferred Stock shall be entitled to such payment only in the event that the
Corporations payments with respect to the liquidation preference of the holders of capital stock
of the Corporation ranking senior as to liquidation rights to the Series B Preferred Stock (the
Senior Liquidation Stock) are fully met. After the liquidation preferences of the Senior
Liquidation Stock are fully met, the entire assets of the Corporation available for distribution
shall be distributed ratably among the holders of the Series B Preferred Stock and any other class
or series of the Corporations capital stock having parity as to liquidation rights with the Series
B Preferred Stock in proportion to the respective preferential amounts to which each is entitled
(but only to the extent of such preferential amounts). After payment in full of the Liquidation
Preference of the shares of the Series B Preferred Stock, the holders of such shares shall not be
entitled to any further participation in any distribution of assets by the Corporation. Neither a
consolidation or merger of the Corporation with another corporation nor a sale or transfer of all
or part of the Corporations assets for cash, securities, or other property will be considered a
liquidation, dissolution, or winding up of the Corporation.
Section 5. Redemption at Option of the Corporation. The Corporation at its option,
may redeem at any time all, or from time to time a portion, of the Series B Preferred Stock on any
date set by the Board of Directors, at a redemption price of $10,000 per share plus an amount
per share equal to all dividends on the Series B Preferred Stock accrued and unpaid on such
share, pro rata to the date fixed for redemption (the Redemption Price). The Redemption Price
shall be payable in cash or, at the option of the Corporation as long as the Class A Common Stock
is registered pursuant to the Securities Exchange Act of 1934, in the number of shares (rounded up
to the nearest whole share) of Class A Common Stock equal to the amount
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determined by dividing the Redemption Price by the Average Market Price. The Average
Market Price shall mean the average of the last reported sales prices regular way of the Class A
Common Stock on each day of the 10-day period preceding the date fixed for redemption or, in case
no sale takes place on any such day, the average of the closing bid and asked prices regular way on
such day, in either case as reported on the New York Stock Exchange Composite Tape, or, if the
Class A Common Stock is not listed or admitted to trading on such Exchange, on the principal
national securities exchange on which the Class A Common Stock is listed or admitted to trading,
or, if not listed or admitted to trading on any national securities exchange, on the National
Association of Securities Dealers Automated Quotation System (NASDAQ) National Market System, or,
if not admitted for quotation on the NASDAQ National Market System, the average of the high bid and
low asked prices on such day as recorded by the National Association of Securities Dealers, Inc.
through NASDAQ or, if the National Association of Securities Dealers, Inc. through NASDAQ shall not
have reported any bid and asked prices for the Class A Common Stock on such day, the average of the
bid and asked prices for such day as furnished by any New York Stock Exchange member firm selected
from time to time by the Corporation for such purpose, or, if no such bid and asked prices can be
obtained from any such firm, the fair market value of one share of Class A Common Stock on such day
as determined in good faith by the Board of Directors. Such determination by the Board of Directors
shall be conclusive.
In case of the redemption of less than all of the then outstanding Series B Preferred Stock,
the Corporation shall designate by lot, or in such other manner as the Board of Directors may
determine, the shares to be redeemed, or shall effect such redemption pro rata. Notwithstanding
the foregoing, the Corporation shall not redeem less than all of the Series B
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Preferred Stock at any time outstanding until all accrued but unpaid dividends upon all Series
B Preferred Stock then outstanding shall have been paid.
Not more than 60 nor less than 30 days prior to the redemption date, notice by first class
mail, postage prepaid, shall be given to the holders of record of the Series B Preferred Stock to
be redeemed, addressed to such shareholders at their last addresses as shown on the books of the
Corporation. Each such notice of redemption shall specify the date fixed for redemption, the
Redemption Price and the form of payment, the place or places of payment, that payment will be made
upon presentation and surrender of the shares of Series B Preferred Stock, that accrued but unpaid
dividends to the date fixed for redemption will be paid on the date fixed for redemption, and that
on and after the redemption date, dividends will cease to accrue on such shares.
Any notice which is mailed as herein provided shall be conclusively presumed to have been duly
given, whether or not the holder of the Series B Preferred Stock receives such notice; and failure
to give such notice by mail, or any defect in such notice, to the holders of any shares designated
for redemption shall not affect the validity of the proceedings for the redemption of any other
shares of Series B Preferred Stock. On or after the date fixed for redemption as stated in such
notice, each holder of the shares called for redemption shall surrender the certificate (or
certificates) evidencing such shares to the Corporation at the place designated in such notice and
shall thereupon be entitled to receive payment of the Redemption Price. If fewer than all the
shares represented by any such surrendered certificate (or certificates) are redeemed, a new
certificate shall be issued representing the unredeemed shares. If, on the date fixed for
redemption, funds or shares of Class A Common Stock necessary for the redemption shall be available
therefor and shall have been irrevocably deposited or set aside, then, notwithstanding that the
certificates evidencing any shares so called for redemption shall not have been
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surrendered, the dividends with respect to the shares so called shall cease to accrue after
the date fixed for redemption, the shares shall no longer be deemed outstanding, the holders
thereof shall cease to be shareholders, and all rights whatsoever with respect to the shares so
called for redemption (except the right of the holders to receive the Redemption Price without
interest upon surrender of their certificates therefor) shall terminate. Any monies or shares of
Class A Common Stock deposited by the Corporation pursuant to the foregoing provision and unclaimed
at the end of one year from the date fixed for redemption shall, to the extent permitted by law, be
returned to the Corporation, after which the holders of shares of Series B Preferred Stock so
called for redemption shall look only to the Corporation for the payment thereof. Shares of Series
B Preferred Stock redeemed by the Corporation shall be restored to the status of authorized but
unissued shares of Preferred Stock of the Corporation, without designation as to series, and may
thereafter be reissued, but not as shares of Series B Preferred Stock.
Section 6. No Sinking Fund. The shares of Series B Preferred Stock shall not be
subject to the operation of a purchase, retirement, or sinking fund.
Section 7. Voting Rights. The holders of Series B Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time required by law.
Whenever dividends on the Series B Preferred Stock or any other class or series of Parity Dividend
Stock shall be in arrears in an amount equal to at least six quarterly dividends, (whether or not
consecutive), the holders of the Series B Preferred Stock (voting separately as a class with all
other affected classes or series of the Parity Dividend Stock upon which like voting rights have
been conferred and are exercisable) will be entitled to vote for and elect two additional
directors. Such right of the holders of Series B Preferred Stock to vote for the election of such
two directors may be exercised at an annual meeting or at any special meeting called for
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such purpose as hereinafter provided or at any adjournment thereof, until dividends in default
on such outstanding shares of Series B Preferred Stock shall have been paid in full (or such
dividends shall have been declared and funds sufficient therefor set apart for payment), at which
time the term of office of the two directors so elected shall terminate automatically (subject to
revesting in the event of each and every subsequent default of the character specified in the
preceding sentence). So long as such right to vote continues, the Secretary of the Corporation may
call, and upon the written request of the holders of record of 10% of the outstanding shares of
Series B Preferred Stock addressed to him at the principal office of the Corporation shall call, a
special meeting of the holders of such shares for the election of such two directors, as provided
herein. Such meeting shall be held not less than 45 nor more than 90 days after the accrual of
such right, at the place and upon the notice provided by law and in the By-laws of the Corporation
for the holding of meetings of shareholders. No such special meeting or adjournment thereof shall
be held on a date less than 30 days before an annual meeting of shareholders or any special meeting
in lieu thereof, provided that at such annual meeting appropriate provisions are made to allow the
holders of the Series B Preferred Stock to exercise such right at such meeting. If at any such
annual or special meeting or any adjournment thereof the holders of a majority of the then
outstanding shares of Series B Preferred Stock entitled to vote in such election shall be present
or represented by proxy, then the authorized number of directors of the Corporation shall be
increased by two, and the holders of Series B Preferred Stock shall be entitled to elect such two
additional directors. Directors so elected shall serve until the next annual meeting or until
their successors shall be elected and shall qualify, unless the term of office of the persons so
elected as directors shall have terminated by virtue of the payment in full of all dividends in
arrears (or such dividends shall have been declared and funds
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sufficient therefor set apart for payment.) In case of any vacancy occurring among the
directors so elected by the holders of Series B Preferred Stock, the remaining director who shall
have been so elected may appoint a successor to hold office for the unexpired term of the director
whose place shall be vacant, and such successor shall be deemed to have been elected by the holders
of Series B Preferred Stock. If both directors so elected by the holders of Series B Preferred
Stock shall cease to serve as directors before their terms shall expire, the holders of Series B
Preferred Stock then outstanding and entitled to vote for such directors may, at a special meeting
of such holders called as provided above elect successors to hold office for the unexpired terms of
the directors whose places shall be vacant.
Without the consent or affirmative vote of the holders of at least a majority of the
outstanding shares of Series B Preferred Stock, voting separately as a class, the Corporation shall
not authorize, create, or issue any shares of any other class or series of capital stock ranking
senior to or on a parity with the Series B Preferred Stock as to dividends or upon liquidation.
The affirmative vote or consent of the holders of at least a majority of the outstanding
shares of the Series B Preferred Stock, voting separately as a class, will be required for any
amendment, alteration, or repeal, whether by merger or consolidation or otherwise, of the
Corporations Articles of Incorporation if the amendment, alteration, or repeal materially and
adversely affects the powers, preferences, or special rights of the Series B Preferred Stock;
provided, however, that any increase in the authorized Preferred Stock of the Corporation or the
creation and issuance of any other capital stock of the Corporation ranking senior to, on a parity
with, or junior to the Series B Preferred Stock shall not be deemed to affect materially and
adversely such powers, preferences, or special rights.
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Section 8. Outstanding Shares. For purposes hereof all shares of Series B Preferred
Stock shall be deemed outstanding except that, from the date fixed for redemption pursuant to
Section 5 hereof, all shares of Series B Preferred Stock which have been so called for redemption
under Section 5, if funds or shares necessary for the redemption of such shares are available,
shall not be deemed to be outstanding.
SERIES C CONVERTIBLE PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be designated as
Series C Convertible Preferred Stock (the Series C Preferred Stock), and the number of
shares constituting the Series C Preferred Stock shall be 5,000 and if and to the extent further
shares are needed in order to pay dividends in shares of Series C Preferred Stock as provided for
in Section 3 hereof, the Board of Directors of the Corporation (the Board of Directors or
the Board) will authorize additional shares of Series C Preferred Stock so that at all
times, so long as Series C Preferred Stock is outstanding, there will be a sufficient number of
Series C Preferred Stock authorized and reserved to pay dividends as provided for in Section 3
hereof in shares of Series C Preferred Stock for the next succeeding four quarters.
Section 2. Rank. All Series C Preferred Stock shall rank, as to payment of dividends
and as to distribution of assets upon liquidation, dissolution, or winding up of the Corporation,
whether voluntary or involuntary (any such event, a Liquidation Event):
(i) senior to (A) all classes or series of common stock of the Corporation, whether voting or
non-voting, including, without limitation, the Class A Common Stock, no par value (the Class A
Common Stock), and the Common Stock, no par value (the Common Stock), whether now or hereafter
issued (collectively the Gray Common Stock) and (B) all other shares, interests, participations
or other equivalents (however designated) of capital stock of the
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Corporation which does not constitute Parity Stock or Senior Stock (as each such term is
defined below) (all of the foregoing collectively referred to as Junior Stock);
(ii) on a parity with (A) the Series A Preferred Stock, no par value, now or hereafter
issued, (B) the Series B Preferred Stock, no par value, now or hereafter issued and
(C) each other series or class of Preferred Stock (as defined in Article 4 of the Restated
Articles of Incorporation of the Corporation) hereafter created, the terms of which expressly
provide that such series or class ranks on a parity with the Series C Preferred Stock as to
dividends and distribution of assets upon a Liquidation Event (collectively referred to as
Parity Stock; and
(iii) junior to each series or class of Preferred Stock hereafter created, the terms of which
expressly provide that such class or series ranks senior to the Series C Preferred Stock as to
dividends and distributions of assets upon a Liquidation Event (collectively referred to as
Senior Stock).
Section 3. Dividends and Distributions. The holders of shares of Series C Preferred
Stock shall be entitled to receive, when, as and if declared by the Board of Directors out of funds
legally available for such purposes, dividends at the rate of $800.00 per annum per share (which
amount shall increase to $850.00 per annum per share commencing on the seventh anniversary of the
date of the initial issuance of shares of Series C Preferred Stock) (as such dollar amounts and the
references to $10,000.00 in Section 4 hereof and in Section 5(a) hereof may be appropriately
adjusted to reflect any stock split, stock dividend, reclassification, recapitalization or similar
event involving the Series C Preferred Stock), which shall be fully cumulative and shall accrue
without interest from the date of original issuance of such share (whether or not declared by the
Board of Directors). Dividends shall be payable when, as, and if declared by the Board of
Directors. Dividends shall be payable, at the Corporations option in cash, or in
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additional shares (whether whole or fractional) of Series C Preferred Stock valued, for the
purpose of determining the number of shares (or fraction thereof) of such Series C Preferred Stock
to be issued, at the value of $10,000.00 per whole share, quarterly on March 31, June 30, September
30 and December 31 of each year commencing June 30, 2002 (except that if any such date is a
Saturday, Sunday, or legal holiday, then such dividend shall be payable on the next day that is not
a Saturday, Sunday, or legal holiday) to holders of record as they appear on the stock books of the
Corporation on the 15th day of the month in which the dividend is to be paid. The
amount of dividends payable per share of Series C Preferred Stock for each quarterly dividend
period shall be computed by dividing the annual dividend amount by four. The amount of dividends
payable for the initial dividend period and any period shorter than a full quarterly dividend
period shall be computed on the basis of a 360-day year of twelve 30-day months. No dividends or
other distributions, other than dividends payable solely in shares of Junior Stock, shall be paid,
declared or set apart for payment on, and except for the use of Gray Common Stock to enable option
holders to exercise stock options pursuant to the stock option plans of the Corporation and its
subsidiaries, no purchase, redemption, or other acquisition shall be made by the Corporation of any
shares of Junior Stock (and no moneys shall be paid to or made available to a sinking fund for the
redemption of any shares of such stock) unless and until all accrued and unpaid dividends on the
Series C Preferred Stock, including the full dividends for the then current dividend period, shall
have been, or contemporaneously are, declared and paid.
If at any time any dividend on any Senior Stock shall be in default, in whole or in part, no
dividend shall be paid, declared or set apart for payment on the Series C Preferred Stock unless
and until all accrued and unpaid dividends with respect to the Senior Stock, including the full
dividends for the then current dividend period, shall have been, or contemporaneously are,
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declared and paid. No full dividends shall be paid, declared or set apart for payment on any
Parity Stock for any period unless all accrued but unpaid dividends have been, or contemporaneously
are, respectively paid, declared or set apart for such payment on the Series C Preferred Stock. No
full dividends shall be paid, declared or set apart for payment on the Series C Preferred Stock for
any period unless all accrued but unpaid dividends have been, or contemporaneously are,
respectively paid, declared or set apart for payment on the Parity Stock for all dividend periods
terminating on or prior to the date of payment of such full dividends.
When dividends are not paid, declared or set aside in full upon the Series C Preferred Stock
and the Parity Stock, all dividends paid, declared or set apart for payment upon shares of Series C
Preferred Stock and the Parity Stock shall be respectively paid, declared or set apart for payment
pro rata, so that the amount of dividends paid, declared or set apart for payment, as the case may
be, per share on the Series C Preferred Stock and the Parity Stock shall in all cases bear to each
other the same ratio that accrued and unpaid dividends per share on the shares of Series C
Preferred Stock and the Parity Stock bear to each other.
Any reference to distribution contained in this Section 3 shall not be deemed to include any
stock dividend or distributions made in connection with any Liquidation Event.
Section 4. Liquidation Preference. In the event of a Liquidation Event, the holders
of Series C Preferred Stock shall be entitled to receive out of the assets of the Corporation,
whether such assets constitute stated capital or surplus of any nature, an amount equal to the sum
of (i) dividends accrued and unpaid thereon to the date of final distribution to such
holders, without interest, and (ii) $10,0000.00 per share (such sum, as of any given time,
the Liquidation Preference) and no more, before any payment shall be made or any assets
distributed to the holders of Junior Stock; provided, however, that the holders of Series C
Preferred Stock shall be
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entitled to such payment only in the event that the Corporations payments with respect to the
liquidation preference of the holders of Senior Stock are fully met. After the liquidation
preferences of the Senior Stock are fully met, the entire assets of the Corporation available for
distribution shall be distributed ratably among the holders of the Series C Preferred Stock and any
Parity Stock in proportion to the respective preferential amounts to which each is entitled (but
only to the extent of such preferential amounts). After payment in full of the Liquidation
Preference of the shares of the Series C Preferred Stock, the holders of such shares shall not be
entitled to any further participation in any distribution of assets by the Corporation. Neither a
consolidation or merger of the Corporation with another corporation nor a sale or transfer of all
or part of the Corporations assets for cash, securities, or other property will be considered a
Liquidation Event.
Section 5. Redemption of Series C Preferred Stock.
(a) Redemption at Option of the Corporation. At any time on or after fifth
anniversary of the date of the initial issuance of shares of Series C Preferred Stock, the
Corporation at its option, may redeem at any time all, or from time to time a portion, of the
Series C Preferred Stock on any date set by the Board of Directors (any such date, an Optional
Redemption Date), at a redemption price equal to the sum of (i) $10,000.00 per share
plus (ii) an amount per share equal to all dividends on the Series C Preferred Stock
accrued and unpaid on such share, pro rata to the date fixed for redemption (or through the date of
actual payment if the Corporation fails to satisfy its payment obligations upon a holders
compliance with the procedures set forth in Section 5(c) hereof) (such amount, as of any given
time, the Redemption Price). The Redemption Price shall be payable in cash.
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In case of the redemption of less than all of the then outstanding Series C Preferred Stock,
the Corporation shall effect such redemption pro rata. Notwithstanding the foregoing, the
Corporation shall not redeem less than all of the Series C Preferred Stock at any time outstanding
until all accrued but unpaid dividends upon all Series C Preferred Stock then outstanding shall
have been paid.
(b) Mandatory Redemption of Series C Preferred Stock. On the tenth anniversary of the
date of the initial issuance of shares of Series C Preferred Stock (the Mandatory Redemption
Date), the Corporation shall redeem all of the then outstanding shares of Series C Preferred
Stock at a price per share equal to the Redemption Price. The Redemption Price shall be payable in
cash. In the event the Corporation fails for any reason to satisfy such repurchase obligation on
the Mandatory Redemption Date (the Mandatory Redemption Obligation), the Mandatory
Redemption Obligation shall be discharged as soon as the Corporation is able to do so. If and for
so long as any Mandatory Redemption Obligation with respect to the Series C Preferred Stock shall
not be fully discharged, the Corporation shall not (i) redeem, purchase, or otherwise
acquire any Parity Stock or discharge any mandatory or optional redemption, sinking fund or other
similar obligation in respect of any Parity Stock (except in connection with a redemption, sinking
fund or other similar obligation to be satisfied pro rata with the Series C Preferred Stock) or
(ii) declare any dividend or make any distribution on Junior Stock, redeem, purchase or
otherwise acquire any Junior Stock or discharge any mandatory or optional redemption, sinking fund
or other similar obligation in respect of any Junior Stock.
(c) Mechanics of Redemption. Not more than 60 nor less than 30 days prior to an
Optional Redemption Date or the Mandatory Redemption Date, as applicable, the Corporation shall
give notice by a nationally recognized overnight courier and sent by facsimile transmission
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with receipt confirmed, to the holders of record of the Series C Preferred Stock to be
redeemed, addressed to such shareholders at their last addresses as shown on the books of the
Corporation. Each such notice of redemption shall specify the date fixed for redemption, the
Redemption Price, the place or places of payment, that payment will be made upon presentation and
surrender of the Series C Preferred Stock, that accrued but unpaid dividends to the date fixed for
redemption will be paid on the date fixed for redemption, and that on and after the redemption
date, dividends will cease to accrue on such shares.
Any notice which is sent to a holder as herein provided shall be conclusively presumed to have
been duly given, whether or not the holder of the Series C Preferred Stock receives such notice;
and failure to give such notice, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for the redemption of
any other shares of Series C Preferred Stock. On or after the date fixed for redemption as stated
in such notice, each holder of the shares called for redemption shall surrender the certificate (or
certificates) evidencing such shares to the Corporation at the place designated in such notice and
shall thereupon be entitled to receive payment of the Redemption Price and thereupon the
Corporation shall pay, or cause to be paid, the full Redemption Price for the shares so surrendered
in cash, provided that if a certificate is not surrendered by a holder of record of shares of
Series C Preferred Stock represented by such certificate but such holder delivers an affidavit to
the Corporation stating that the certificate or certificates representing its shares of Series C
Preferred Stock have been lost, stolen or destroyed and executes an agreement reasonably
satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such lost, stolen or destroyed certificates, payment of the full Redemption Price
shall be made to such holder. In the case of an optional redemption by the
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Corporation pursuant to Section 5(a) hereof, if fewer than all the shares represented by any
such surrendered certificate (or certificates) are redeemed, a new certificate shall be issued
representing the unredeemed shares. If, on the date fixed for redemption, funds necessary for the
redemption shall be available therefor and shall have been irrevocably deposited in a separate
account for the benefit of the holders of the shares called for redemption in a nationally
recognized financial institution, then, notwithstanding that the certificates evidencing any shares
so called for redemption shall not have been surrendered, the dividends with respect to the shares
so called shall cease to accrue after the date fixed for redemption, the shares shall no longer be
deemed outstanding, the holders thereof shall cease to be shareholders, and all rights whatsoever
with respect to the shares so called for redemption (except the right of the holders to receive the
Redemption Price without interest upon surrender of their certificates therefor) shall terminate.
The Corporation shall cause any monies deposited by the Corporation pursuant to the foregoing
provision and unclaimed by the holders of the shares called for redemption at the end of one year
from the date fixed for redemption, to the extent permitted by law, to be returned by such
financial institution to the Corporation, after which the holders of shares of Series C Preferred
Stock so called for redemption who have not claimed the Redemption Price shall look only to the
Corporation for the payment thereof. Shares of Series C Preferred Stock redeemed by the
Corporation shall be restored to the status of authorized but unissued shares of Preferred Stock of
the Corporation, without designation as to series, and may thereafter be reissued, but not as
shares of Series C Preferred Stock
Section 6. Conversion Rights. The Series C Preferred Stock will be convertible into Common
Stock as follows:
(a) Conversion. Subject to and upon compliance with the provisions of this Section 6 hereof,
the holder of any shares of Series C Preferred Stock will have the right at such holders option,
at any time or from time to time, to convert any of such shares of Series C Preferred Stock into
fully paid and nonassessable shares of Common Stock at the Conversion Price in
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effect on the Conversion Date without the payment of any additional consideration by the
holder thereof (as such terms are defined below); provided, however, that none of the person (as
defined below) specified in New York Stock Exchange Rule 312.03(b) may convert shares of Series C
Preferred Stock unless and until the issuance of such shares to such persons has been approved by
the requisite vote of the shareholders of the Corporation, or unless otherwise permitted by the New
York Stock Exchange or the rules thereof.
(b) Conversion Price. Each share of Series C Preferred Stock will be converted into a number
of shares of Common Stock determined by dividing (i) the liquidation Preference by (ii) the
Conversion Price in effect on the Conversion Date. The Conversion Price at which shares of Common
Stock will initially be issuable upon conversion of the shares of Series C Preferred Stock will be
$14.39. The Conversion Price will be subject to adjustment as set forth in Section 6(e) hereof.
Subject to Section 6(g) hereof, no dividends will accrue or be paid on any share of Series C
Preferred Stock subsequent to the conversion of such share.
(c) Mechanics of Conversion. The holder of any shares of Series C Preferred Stock may
exercise the conversion right specified in Section 6(a) hereof by surrendering to the Corporation
or the transfer agent of the Corporation the certificate or certificates for the shares to be
converted, accompanied by written notice specifying the number of shares to be converted and
stating herein such holders name or the names of such holders nominees in which such holder
wishes the certificate or certificates evidencing the shares of Common Stock issuable upon such
conversion to be issued; provided, however, that the Corporation will not be obligated to issue to
any such holder or such holders nominees the certificate or certificates evidencing shares of
Common Stock issuable upon such conversion, unless (i) (A) the certificate or certificates
evidencing the shares of Series C Preferred Stock are either delivered to the Corporation or the
transfer agent of the Corporation or (B) such holder delivers an affidavit to the Corporation
stating that the certificate or certificates representing its shares of Series C Preferred Stock
have been lost, stolen or destroyed and executes an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation from any loss incurred by it in connection with such lost,
stolen or destroyed certificates and (ii) if shares of Common Stock are to be issued in the name of
any person other than the holder, the holder establishes to the satisfaction of the Corporation
that any transfer or other applicable taxes have been paid or are not payable. Conversion will be
deemed to have been effected on the date when delivery is made of notice of an election to convert
and the certificate or certificates evidencing the Series C Preferred Stock shares to be converted
and any other documents required by the immediately preceding sentence (the Conversion Date).
Subject to the provisions of Section 6(e)(vi) hereof, as promptly as practicable thereafter, the
Corporation will issue and deliver to or upon the written order of such holder a certificate or
certificates for the number of full shares of Common Stock to which such holder or such holders
nominees is entitled and a check or cash with respect to any fractional interest in a share of
Common Stock as provided in Section 6(d). Subject to any provisions of Section 6(e)(vi) hereof, the
person (which term, when used herein, shall include any corporation, individual, limited liability
company, joint stock company, joint venture, partnership, unincorporated association, governmental
regulatory entity, country, state or political subdivision thereof, trust, municipality or other
entity as well as a natural person) in whose name the certificate or certificates for shares of
Common Stock are to be issued will be deemed to have become a holder of record of such Common Stock
on the applicable Conversion Date. Upon conversion of only a portion of the number of shares
covered by a certificate
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representing shares of Series C Preferred Stock surrendered for conversion, the Corporation
will issue and deliver to or upon the written order of the holder of the certificate so surrendered
for conversion, at the expense of the Corporation, a new certificate covering the number of shares
of Series C Preferred Stock representing the unconverted portion of the certificate so surrendered.
(d) Fractional Shares. No fractional shares of Common Stock or scrip will be issued upon
conversion of shares of Series C Preferred Stock. If more than one share of Series C Preferred
Stock is surrendered for conversion at any one time by the same holder, the number of full shares
of Common Stock issuable upon conversion thereof will be computed on the basis of the aggregate
number of shares of Series C Preferred Stock so surrendered by such holder. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon conversion of any shares
of Series C Preferred Stock, the Corporation will pay a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest based on the Market Price of the
Common Stock.
(e) Adjustments. The Conversion Price and conversion rights relating to the Series C
Preferred Stock will be subject to adjustment from time to time as follows; provided, however, that
none of the provisions in this Section 6(e) shall apply in the case of a Liquidation Event, as to
which the provisions of Section 4 will apply.
(i) Definitions. For purposed of this Section 6(e) and certain other sections herein, the
following definitions apply.
(1) Business Day means any day other than a Saturday, Sunday, or any day on which
banks in New York City are authorized or obligated by applicable law to close.
(2) Market Price of any security as of any given time means the average of the
closing prices of such securitys sales on all securities exchanges an which such security
may at the time be listed, or, if there has been no sales on any such exchange on any day,
the average of the highest bid and lowest asked prices on all such exchanges at the end of
such day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York
time, or, if on any day such security is not quoted in the NASDAQ System, the average of the
highest and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar organization, in
each such case averaged over a period of the 30 consecutive Business Days prior to the day
as of which Market Price is being determined. If at any time such security is not listed
on any securities exchange or quoted in the NASDAQ System or the over-the-counter market,
the Market Price shall be the fair value thereof determined in good faith by the Board of
Directors.
(ii) Reorganization, Reclassification or Recapitalization of the Corporation. In the case of
(a) a capital reorganization, reclassification or recapitalization of the Common Stock (other than
any liquidation Event or in the cases referred to in Sections 6(e)(iii) through 6(e)(iv) hereof),
(b) the Corporations consolidation or merger with or into another corporation in which the
Corporation is not the surviving entity, or any such transaction if the Corporation is the
surviving entity but the shares of the Common Stock outstanding immediately prior to the
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transaction are converted, by virtue of the transaction, into other property, whether in the
form of securities, cash or otherwise (other than a Liquidation Event), or (c) the sale or transfer
of the Corporations property as an entirety or substantially as an entirety (other than a
Liquidation Event), then, as part of such reorganization, reclassification, recapitalization,
merger, consolidation, sale or transfer, lawful provision shall be made so that there shall
thereafter be deliverable upon conversion of a share of Series C Preferred Stock, and without
payment of any additional consideration, the number of shares of Gray Common Stock or other
securities or property to which the holder of the number of shares of Common Stock which would
otherwise have been deliverable upon the conversion of the Series C Preferred Stock immediately
prior to such reorganization, reclassification, recapitalization, consolidation, merger, sale or
transfer would have been entitled to receive in such reorganization, reclassification,
recapitalization, consolidation, merger, sale or transfer, all subject to further adjustment as
provided in this Section 6(e). This Section 6(e)(ii) shall apply to successive reorganizations,
reclassifications, recapitalizations, consolidations, mergers, sales and transfers and to the
conversion of the Series C Preferred Stock into the stock or securities of any other corporation
into which the Series C Preferred Stock shall become convertible. Concurrently with the
consummation of such transaction, the corporation formed by or surviving any such transaction (if
other than the Corporation), or the person to which such sale or conveyance shall have been made,
shall enter into an agreement assuming the obligation (but only if such obligation is not assumed
by operation of law) to deliver to each holder of Series C Preferred Stock such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such holder may be entitled
to acquire.
(iii) Reclassifications. If the Corporation changes any of the securities into which the
Series C Preferred Stock is convertible into the same or a different number of securities of any
other class or classes, each share of Series C Preferred Stock shall thereafter represent the right
to acquire such number and kind of securities as would have been issuable as the result of such
change with respect to the securities into which the Series C Preferred Stock was convertible
immediately prior to such reclassification or other change and the Conversion Price therefore shall
be appropriately adjusted.
(iv) Splits and Combinations. If the Corporation at any time subdivides (by way of stock
split, stock dividend or otherwise) any of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, if the outstanding shares of Common Stock are combined
(by way of stock split or otherwise) into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination shall be proportionately increased.
(v) Rounding of Calculations; Minimum Adjustment; Successive Adjustments. All calculations
under this Section (e) will be made to the nearest cent or to the nearest one hundredth (1/100th)
of a share, as the case may be. Any provision of this Section 6 to the contrary notwithstanding,
no adjustment in the Conversion Price will be made if the amount of such adjustment would be less
than $0.05, but any such amount will be carried forward and an adjustment with respect thereto will
be made at the time of and together with any subsequent adjustment which, together with such amount
and any other amount or amounts so carried forward, will aggregate $0.05 or more. In the event
that, as a result of the provisions of any
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subparagraph of this Section 6(e), the holder of this Series C Preferred Stock upon subsequent
conversion shall become entitled to receive any shares of capital stock of the Corporation other
than Common Stock, the number of such other shares so receivable upon conversion of this Series C
Preferred Stock shall thereafter be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions contained herein.
(vi) Timing of Issuance of Additional Common Stock Upon Certain Adjustments. In any case in
which the provisions of this Section 6(e) require that upon the occurrence of an event of
adjustment be made, such adjustment will become effective immediately after a record date for such
event (or, if no record date is set, immediately after such event). The Corporation may defer,
until the occurrence of such event, (A) issuing to the holder of any share of Series C Preferred
Stock converted after any such record date and before the occurrence of such event any additional
shares of Common Stock issuable upon such conversion by reason of the adjustment required by such
event over and above the shares of Common Stock issuable upon such conversion before giving effect
to such adjustment and (B) paying to such holder any amount of cash in lieu of a fractional share
of Common Stock pursuant to Section 6(d) hereof; provided, however, that the Corporation will
deliver to such holder a due bill or other appropriate instrument evidencing such holders right to
receive such additional shares and such cash, upon the occurrence of the event requiring such
adjustment.
(f) Statement Regarding Adjustments. Whenever the Conversion Price is adjusted as provided in
Section 6(e) hereof, the Corporation will file, at the office of any transfer agent for the Series
C Preferred Stock and at the principal office of the Corporation, a statement showing in detail the
facts requiring such adjustment and the Conversion Price in effect after such adjustment and the
Corporation will also cause a copy of such statement to be sent by a nationally recognized
overnight courier and sent by facsimile transmission with receipt confirmed, to each holder of
shares of Series C Preferred Stock at such holders address appearing on the Corporations records.
Where appropriate, such copy may be given in advance and may be included as part of a notice
required to mailed under the provisions of Section 6(h) hereof.
(g) Conditional Conversion. If it is proposed that a registration of Common Stock is intended
to be filed, except on Form S-4 or S-8 (or any successor forms), which includes the secondary
registration on behalf of holders of Common Stock, the Corporation will notify the holders of
Series C Preferred Stock of such proposed registration and such holders may conditionally exercise
their right to convert any or all of such shares of Series C Preferred Stock so held in accordance
with this Section 6 and participate in such proposed registration in accordance with the
registration rights granted to such holders by the Corporation, if any. Only the number of shares
of Series C Preferred Stock conditionally converted pursuant to this Section 6(g) to shares of
Common Stock that are actually sold under an effective registration statement will be deemed
converted pursuant to Section 6(a) hereof. If such registration is not declared effective or is
withdrawn, any conditional exercise pursuant to this Section 6(g) will be null and void ab initio.
The number of shares of Series C Preferred Stock conditionally converted pursuant to this Section
6(g) to share of Common Stock that are not actually sold under an effective registration statement
will be deemed not to converted pursuant to Section 6(a) hereof and the conditional conversion of
such shares will be null and void ab initio upon the termination of the offering under such
registration statement and such shares will be deemed to have been
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outstanding (including, without limitation, for purposes of accruing dividends) during the
period such shares were conditionally converted pursuant to this Section 6(g). The foregoing right
of conditional conversion of Series C Preferred Stock shall also apply in the case of any proposed
transaction described in subparagraph (ii) of Section 6(e) and, if such transaction does not occur,
such conditional exercise will be null and void ab initio and such Series C Preferred Stock will be
deemed to have been outstanding during such period of conditional exercise.
(h) Notice to Holders. If the Corporation proposes to take any action of the type described
in Sections 6(e)(ii), (iii) or (iv) hereof, the Corporation will give notice to each holder of
shares of Series C Preferred Stock, in the manner set forth in Section 6(f), which notice will
specify the record date, if any, with respect to any such action and the approximate date on which
such action is to take place. Such notice will also set forth such facts with respect thereto as
will be reasonably necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the Conversion Price and the number, kind, or class of
shares or other securities or property which will be deliverable upon conversion of shares of
Series C Preferred Stock (if any). In the case of any action which would require the fixing of a
record date, such notice will be given at least ten days prior to the date so fixed, and in case of
all other action, such notice will be given at least 10 days prior to the taking of such proposed
action. Failure to give such notice, or any defect therein, will not affect the legality or
validity of such action.
(i) Costs. The Corporation will pay all documentary, stamp, transfer, or other transactional
taxes attributable to the issuance or delivery of shares of Common stock upon conversion of any
shares of Series C Preferred Stock; provided, however, that the Corporation will not be required to
pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of the shares of Series
C Preferred Stock in respect of which such shares are being issued.
(j) Reservation of Shares. The Corporation will reserve at all times so long as any shares of
Series C Preferred Stock remain outstanding, free from preemptive rights, out of its treasury stock
(if applicable) or its authorized but unissued shares of Common Stock, or both, solely for the
purpose of effecting the conversion of the shares of Series C Preferred Stock, sufficient shares of
Common Stock to provide for the conversion of all outstanding shares of Series C Preferred stock.
(k) Valid Issuance. All shares of Common Stock or any other security which may be issued upon
conversion of the shares of Series C Preferred Stock will, upon issuance by the Corporation in
accordance with the terms hereof, be duly and validly issued, fully paid and nonassessable and free
from all liens and charges with respect to the issuance thereof, and the Corporation will take no
action which will cause a contrary result (including, without limitation, any action which would
cause the Conversion Price to be less than the par value, if any, of the Common Stock or any such
other security.
Section 7. No Sinking Fund. The shares of Series C Preferred Stock shall not be
subject to the operation of a purchase, retirement, or sinking fund.
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Section 8. Voting Rights. The holders of Series C Preferred Stock will not have any
voting rights except as set forth below or as otherwise from time to time required by law.
(a) Whenever dividends on the Series C Preferred Stock shall be in arrears in an amount equal
to at least six quarterly dividends (whether or not consecutive), the holders of the Series C
Preferred Stock (voting separately as a class) will be entitled to vote for and elect two
additional directors. Such right of the holders of Series C Preferred Stock to vote for the
election of such two directors may be exercised at an annual meeting or at any special meeting
called for such purpose as hereinafter provided or at any adjournment thereof, until dividends in
default on such outstanding shares of Series C Preferred Stock shall have been paid in full, at
which time the term of office of the two directors so elected shall terminate automatically
(subject to revesting in the event of each and every subsequent default of the character specified
in the preceding sentence). So long as such right to vote continues, the Secretary of the
Corporation may call, and upon the written request of the holders of record of 10% of the
outstanding shares of Series C Preferred Stock addressed to him at the principal office of the
Corporation shall call, a special meeting of the holders of such shares for the election of such
two directors, as provided herein. Such meeting shall be held not less than 45 nor more than 90
days after the accrual of such right, at the place and upon the notice provided by law and in the
By-laws of the Corporation for the holding of meetings of shareholders. No such special meeting or
adjournment thereof shall be held on a date less than 30 days before an annual meeting of
shareholders or any special meeting in lieu thereof, provided that at such annual meeting or
special meeting appropriate provisions are made to allow the holders of the Series C Preferred
Stock to exercise such right at such meeting. If at any such annual or special meeting or any
adjournment thereof the holders of a majority of the then outstanding shares of Series C
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Preferred Stock entitled to vote in such election shall be present or represented by proxy,
then the authorized number of directors of the Corporation shall be increased by two, and the
holder of Series C Preferred Stock shall be entitled to elect such two additional directors.
Directors so elected shall serve until the next annual meeting or until their successors shall be
elected and shall qualify, unless the term of office of the persons so elected as directors shall
have terminated by virtue of the payment in full of all dividends in arrears. In case of any
vacancy occurring among the directors so elected by the holders of Series C Preferred Stock, the
remaining director who shall have been so elected may appoint a successor to hold office for the
unexpired term of the director whose place shall be vacant, and such successor shall be deemed to
have been elected by the holders of Series C Preferred Stock. If both directors so elected by the
holders of Series C Preferred Stock shall cease to serve as directors before their term shall
expire, the holders of Series C Preferred Stock then outstanding and entitled to vote for such
directors may, at a special meeting of such holders called as provided above, elect successors to
hold office for the unexpired terms of the directors whose places shall be vacant.
(b) Without the consent or affirmative vote of the holders of at least a majority of the
outstanding shares of Series C Preferred Stock, voting separately as a class, the Corporation shall
not (i) authorize, create, or issue any shares of Senior Stock, (ii) reclassify any
Junior Stock into shares of Senior Stock, (iii) reclassify any Parity Stock into shares of
Senior Stock, or (iv) increase the number of authorized shares of Series C Preferred Stock
(except as contemplated by Section 1 hereof) or issue any shares of Series C Preferred Stock in
addition to the 4,000 shares issued on the date hereof (except pursuant to Section 3 hereof).
(c) The affirmative vote or consent of the holders of at least a majority of the outstanding
shares of the Series C Preferred Stock, voting separately as a class, will be required
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for any amendment, alteration, or repeal, whether by merger or consolidation or otherwise, of
the Corporations Restated Articles of Incorporation if the amendment, alteration, or repeal
adversely affects the powers, preferences, or special rights of the Series C Preferred Stock (for
the avoidance of doubt, it being stipulated that the matters covered by paragraph (b), which are
subject to the requirements set forth in such paragraph (b), shall not be deemed to adversely
affect the powers, preferences, or special rights of the Series C Preferred Stock).
Section 9. Outstanding Shares. For purposes hereof all shares of Series C Preferred
Stock shall be deemed outstanding except that, from the date fixed for redemption pursuant to
Section 5 hereof, all shares of Series C Preferred Stock which have been so called for redemption
under Section 5, if funds or shares necessary for the redemption of such shares are set aside as
provided herein, shall not be deemed to be outstanding.
SERIES D PERPETUAL PREFERRED STOCK
1. Designation and Amount. The shares of such series shall be designated as Series D
Perpetual Preferred Stock and shall have no par value per share (the Series D Preferred
Stock), and the number of shares constituting the Series D Preferred Stock shall be 1,000.
2. Rank. All Series D Preferred Stock shall rank, as to payment of dividends and as to
distribution of assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary (any such event, a Liquidation Event):
(a) senior to (i) all classes or series of common stock of the Corporation, whether voting or
non-voting, including, without limitation, the Class A Common Stock, no par value (the Class A
Common Stock), and the Common Stock, no par value (the Corporation Common Stock),
whether now or hereafter issued (collectively, the Common Stock) and (ii) all other
shares, interests, participations or other equivalents (however designated) of capital stock of the
Corporation which does not constitute Parity Stock or Senior Stock (as each such term is defined
below) (all of the foregoing collectively referred to as Junior Stock);
(b) on a parity with each other series or class of Preferred Stock (as defined in Article 4 of
the Restated Articles of Incorporation of the Corporation, as amended) hereafter created, the terms
of which expressly provide that such series or class ranks on a parity with the Series D Preferred
Stock as to dividends and distribution of assets upon a Liquidation Event (collectively referred to
as Parity Stock); and
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(c) junior to each series or class of Preferred Stock hereafter created, the terms of which
expressly provide that such class or series ranks senior to the Series D Preferred Stock as to
dividends and distributions of assets upon a Liquidation Event (collectively referred to as
Senior Stock).
3. Dividends and Distributions.
(a) The holders of shares of Series D Preferred Stock shall be entitled to receive, when, as
and if declared by the Board of Directors of the Corporation (the Board of Directors) out
of funds legally available for such purposes, dividends at the rate of twelve percent per annum (as
such rate may be adjusted from time to time in accordance with this Section 3, the
Dividend Rate) of the Par Amount (as defined below) per share (which Dividend Rate shall
increase to fifteen percent per annum of the Par Amount per share commencing on January 1, 2009),
which shall be fully cumulative and shall accrue without interest from the date of original
issuance of such share (whether or not declared by the Board of Directors). Upon the occurrence
and during the continuance of a Non-Compliance Event, the Dividend Rate shall be increased by two
percent per annum of the Par Amount per share. Dividends shall be payable when, as and if declared
by the Board of Directors. Dividends shall be payable in cash quarterly on April 15, July 15,
October 15 and January 15 of each year, commencing October 15, 2008 (except that if any such date
is a Saturday, Sunday or legal holiday, then such dividend shall be payable on the next day that is
not a Saturday, Sunday or legal holiday) to holders of record as they appear on the stock books of
the Corporation on the first day of the month in which the dividend is to be paid. Cash payments
shall be applied to the earliest accrued and unpaid dividend. The amount of dividends payable for
the initial dividend period and any period shorter than a full quarterly dividend period shall be
computed on the basis of a 360-day year of twelve 30-day months. No dividends or other
distributions (other than dividends payable solely in shares of Junior Stock) shall be paid,
declared or set apart for payment on, and except for the use of Common Stock to enable option
holders to exercise stock options pursuant to the stock option plans of the Corporation and its
subsidiaries, no purchase, redemption or other acquisition shall be made by the Corporation of, any
shares of Junior Stock (and no moneys shall be paid to or made available to a sinking fund for the
redemption of any shares of such stock) unless and until all accrued and unpaid dividends on the
Series D Preferred Stock, including the full dividends for the then current dividend period, shall
have been, or contemporaneously are, declared and paid.
(b) If at any time any dividend on any Senior Stock shall be in default, in whole or in part,
no dividend shall be paid, declared or set apart for payment on the Series D Preferred Stock unless
and until all accrued and unpaid dividends with respect to the Senior Stock, including the full
dividends for the then current dividend period, shall have been, or contemporaneously are, declared
and paid. No full dividends shall be paid, declared or set apart for payment on any Parity Stock
for any period unless all accrued but unpaid dividends have been, or contemporaneously are,
respectively paid, declared or set apart for such payment on the Series D Preferred Stock. No full
dividends shall be paid, declared or set apart for payment on the Series D Preferred Stock for any
period unless all accrued but unpaid dividends have been, or contemporaneously are, respectively
paid, declared or set apart for payment on the Parity Stock for all dividend periods terminating on
or prior to the date of payment of such full dividends. When dividends are not paid, declared or
set aside in full upon the Series D Preferred Stock and the Parity Stock, all dividends paid,
declared or set apart for payment upon shares of Series D Preferred
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Stock and the Parity Stock shall be respectively paid, declared or set apart for payment
pro rata, so that the amount of dividends paid, declared or set apart for payment,
as the case may be, per share on the Series D Preferred Stock and the Parity Stock shall in all
cases bear to each other the same ratio that accrued and unpaid dividends per share on the shares
of Series D Preferred Stock and the Parity Stock bear to each other.
(c) Any reference to distribution contained in this Section 3 shall not be deemed to
include any distribution or stock dividend made in connection with any Liquidation Event. For
purposes of this Section 3 and certain other sections herein, Par Amount means $100,000
(as adjusted to reflect any stock split, stock dividend, reclassification, recapitalization or
similar event involving the Series D Preferred Stock).
4. Liquidation Preference. In the event of a Liquidation Event, the holders of Series D
Preferred Stock shall be entitled to receive out of the assets of the Corporation, whether such
assets constitute stated capital or surplus of any nature, an amount equal to the sum of (a)
dividends accrued and unpaid thereon to the date of final distribution to such holders, without
interest, and (b) an amount equal to the Par Amount for each share of Series D Preferred Stock held
by them (such sum, as of any given time, the Liquidation Preference) and no more, before any
payment shall be made or any assets distributed to the holders of Junior Stock; provided,
however, that the holders of Series D Preferred Stock shall be entitled to such payment
only in the event that the Corporations payments with respect to the liquidation preference of the
holders of Senior Stock are fully met. After the liquidation preferences of Senior Stock are fully
met, the entire assets of the Corporation available for distribution shall be distributed ratably
among the holders of the Series D Preferred Stock and any Parity Stock in proportion to the
respective preferential amounts to which each is entitled (but only to the extent of such
preferential amounts). After payment in full of the Liquidation Preference of the shares of the
Series D Preferred Stock, the holders of such shares shall not be entitled to any further
participation in any distribution of assets by the Corporation. Neither a consolidation or merger
of the Corporation with another corporation nor a sale or transfer of all or part of the
Corporations assets for cash, securities or other property will be considered a Liquidation Event.
5. Redemption of Series D Preferred Stock.
(a) Redemption at Option of the Corporation. At any time on or after January 1, 2009,
the Corporation, at its option, may redeem at any time all, or from time to time a portion, of the
Series D Preferred Stock on any date set by the Board of Directors (any such date, an Optional
Redemption Date), at a redemption price per share equal to the sum of (i) the product of (A)
the Par Amount and (B) the Redemption Premium (as defined below) plus (ii) an amount equal to all
dividends on the Series D Preferred Stock accrued and unpaid on such share, pro rata to the date
fixed for redemption (or through the date of actual payment if the Corporation fails to satisfy its
payment obligations upon a holders compliance with the procedures set forth in Section
5(d)) (such amount, as of any given time, the Redemption Price). The Redemption
Price shall be payable in cash.
(b) Redemption Premium means, with respect to any Optional Redemption Date or
Mandatory Redemption Date (as defined below), the amount set forth below under the
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heading Redemption Premium for such Optional Redemption Date or Mandatory Redemption Date,
as the case may be:
|
|
|
|
|
Date of Redemption |
|
Redemption Premium |
|
January 1, 2009 through June 30, 2009 |
|
|
1.050 |
|
July 1, 2009 through December 31, 2009 |
|
|
1.065 |
|
January 1, 2010 through June 30, 2010 |
|
|
1.080 |
|
July 1, 2010 through December 31, 2010 |
|
|
1.060 |
|
January 1, 2011 through June 30, 2011 |
|
|
1.040 |
|
July 1, 2011 through December 31, 2011 |
|
|
1.020 |
|
January 1, 2012 and thereafter |
|
|
1.000 |
|
(c) In case of the redemption of less than all of the then outstanding Series D Preferred
Stock, the Corporation shall effect such redemption pro rata. Notwithstanding the
foregoing, the Corporation shall not redeem less than all of the Series D Preferred Stock at any
time outstanding pursuant to Section 5(a) until all accrued but unpaid dividends upon all
Series D Preferred Stock then outstanding shall have been paid.
(d) Mechanics of Optional Redemption. At least 30 and not more than 60 days prior to
an Optional Redemption Date, the Corporation shall give notice by a nationally recognized overnight
courier and by facsimile transmission with receipt confirmed, to the holders of record of the
Series D Preferred Stock to be redeemed, addressed to such shareholders at their last addresses as
shown on the books of the Corporation. Each such notice of redemption shall specify the Optional
Redemption Date, the Redemption Price, the place or places of payment, that payment will be made
upon presentation and surrender of the Series D Preferred Stock, that accrued but unpaid dividends
to the date fixed for redemption will be paid on the date fixed for redemption, and that on and
after the redemption date, dividends will cease to accrue on such shares.
(e) Any notice which is sent to a holder as herein provided shall be conclusively presumed to
have been duly given, whether or not the holder of the Series D Preferred Stock receives such
notice; and failure to give such notice, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for the redemption of
any other shares of Series D Preferred Stock. On or after the Optional Redemption Date as stated
in such notice, each holder of the shares called for redemption shall surrender the certificate (or
certificates) evidencing such shares to the Corporation at the place designated in such notice and
shall thereupon be entitled to receive payment of the Redemption Price and thereupon the
Corporation shall pay, or cause to be paid, the full Redemption Price for the shares so surrendered
in cash, provided that if a certificate representing shares of Series D Preferred Stock is
not surrendered by a holder of record, but such holder delivers an affidavit to the Corporation
stating that the certificate or certificates representing its shares of Series D Preferred Stock
have been lost, stolen or destroyed and executes an agreement reasonably satisfactory to the
Corporation to indemnify the Corporation for any loss incurred by it in connection with such lost,
stolen or destroyed certificate or certificates, payment of the full Redemption Price shall be made
to such holder. If fewer than all the shares represented by any
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such surrendered certificate or certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares.
(f) Redemption at Option of Holder of Series D Preferred Stock. At any time on or
after June 30, 2015, each holder of shares of Series D Preferred Stock (any such holder, an
Exercising Holder) shall have the right, at the option of such holder, by the giving of a
written notice to the Corporation (an Election Notice), to require the Corporation to
redeem all or any portion of the then outstanding shares of Series D Preferred Stock of such
Exercising Holder at a price per share equal to the Redemption Price on a date specified by such
holder that is no less than 30 days following the date of such Election Notice (any such date, a
Mandatory Redemption Date). The Redemption Price shall be payable in cash. In the event
the Corporation fails for any reason to satisfy such repurchase obligation on a Mandatory
Redemption Date (the Mandatory Redemption Obligation), the Mandatory Redemption
Obligation shall be discharged as soon as the Corporation is able to do so.
(g) Mechanics of Mandatory Redemption. Within ten days of the Corporations receipt
of an Election Notice, the Corporation shall mail written notice (the Company Notice),
first class postage prepaid, to the Exercising Holder acknowledging the Mandatory Redemption Date
and specifying the Redemption Price, the place at which payment may be obtained for redeemed shares
and such other information as the Corporation may deem advisable to provide. If the Corporation is
lawfully able to redeem only part of the Series D Preferred Stock requested to be redeemed (the
Redemption Shares), then the Corporation shall redeem the maximum number of Redemption
Shares that it is permitted to redeem on the Mandatory Redemption Date and shall redeem the
remaining Redemption Shares on the first day it may lawfully do so unless the holder thereof
otherwise determines not to have such shares redeemed and provides the Corporation with written
notice of such determination. On or after the Mandatory Redemption Date, each Exercising Holder
shall surrender the certificate or certificates evidencing such shares to the Corporation at the
place designated in such notice and shall thereupon be entitled to receive payment of the
Redemption Price and thereupon the Corporation shall pay, or cause to be paid, the full Redemption
Price for the shares so surrendered in cash, provided that if a certificate is not
surrendered by a holder of record of shares of Series D Preferred Stock represented by such
certificate but such holder delivers an affidavit to the Corporation stating that the certificate
or certificates representing its shares of Series D Preferred Stock have been lost, stolen or
destroyed and executes an agreement reasonably satisfactory to the Corporation to indemnify the
Corporation for any loss incurred by it in connection with such lost, stolen or destroyed
certificate(s), payment of the full Redemption Price shall be made to such holder. If fewer than
all the shares represented by any such surrendered certificate or certificates are redeemed, a new
certificate shall be issued representing the unredeemed shares.
(h) Rights After Redemption Date. If, on the date fixed for redemption, funds
necessary for any optional redemption pursuant to Section 5(a) or mandatory redemption
pursuant to Section 5(f) shall be available therefor and shall have been irrevocably
deposited in a separate account, for the benefit of the holders of the shares to be redeemed, in a
nationally recognized financial institution, then, notwithstanding that the certificate or
certificates evidencing any shares to be redeemed shall not have been surrendered (or that no
affidavit of loss and indemnification agreement have been delivered in lieu thereof), the dividends
with respect to the shares to be redeemed shall cease to accrue after the date fixed for
redemption, the shares shall no longer be
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deemed outstanding, the holder(s) thereof shall cease to be shareholder(s), and all rights
whatsoever with respect to the shares to be redeemed (except the right of the holder(s) to receive
the Redemption Price without interest upon surrender of the certificate or certificates therefor)
shall terminate. The Corporation shall cause any monies deposited by the Corporation pursuant to
the immediately preceding sentence and unclaimed by the holder(s) of the shares to be redeemed at
the end of one year from the Optional Redemption Date or Mandatory Redemption Date, as applicable,
to the extent permitted by law, to be returned by such financial institution to the Corporation,
after which the holder(s) of shares of Series D Preferred Stock to be redeemed who have not claimed
the Redemption Price shall look only to the Corporation for the payment thereof. Shares of Series
D Preferred Stock redeemed by the Corporation shall be restored to the status of authorized but
unissued shares of Preferred Stock of the Corporation, without designation as to series, and may
thereafter be reissued, but not as shares of Series D Preferred Stock.
6. Covenants.
6.1 Limitation on Restricted Payments.
(a) The Corporation shall not, and shall not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment, unless at the time of and immediately after
giving effect to the proposed Restricted Payment (with the value of any such Restricted Payment, if
other than cash, to be determined by the Board of Directors in good faith and which determination
shall be conclusive and evidenced by a board resolution), (i) no Non-Compliance Event (and no event
that, after notice or lapse of time, or both, would become an event of default under the terms
of any Indebtedness of the Corporation or its Restricted Subsidiaries) shall have occurred and be
continuing or would occur as a consequence thereof, (ii) the Corporation could incur at least $1.00
of additional Indebtedness pursuant to Section 6.2(a) and (iii) the aggregate amount of all
Restricted Payments made after the date on which any shares of Series D Preferred Stock are first
issued (the Issue Date) shall not exceed the sum of (A) an amount equal to the
Corporations Cumulative Operating Cash Flow less 1.4 times the Corporations Cumulative
Consolidated Interest Expense, plus (B) the aggregate amount of all net cash proceeds
received after the Issue Date by the Corporation from the issuance and sale (other than to a
Restricted Subsidiary of the Corporation) of Capital Stock of the Corporation (other than
Disqualified Stock) to the extent that such proceeds are not used to redeem, repurchase, retire or
otherwise acquire Capital Stock or any Indebtedness of the Corporation or any Subsidiary of the
Corporation pursuant to clause (ii) of Section 6.1(b), plus (C) in the case of the
disposition or repayment of any Investment for cash, which Investment constituted a Restricted
Payment made after the Issue Date, an amount equal to the lesser of the return of capital with
respect to such Investment and the cost of such Investment, in either case, reduced (but not below
zero) by the excess, if any, of the cost of the disposition of such Investment over the gain, if
any, realized by the Corporation or such Restricted Subsidiary in respect of such disposition.
(b) The foregoing provisions of Section 6.1 (a) shall not prohibit, so long as there
is no Non-Compliance Event continuing and such payment will not cause a Non-Compliance Event to
occur, the following actions (collectively, Permitted Payments):
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(i) the payment of any dividend within 60 days after the date of declaration
thereof, if at such declaration date, such payment would have been permitted under
these Articles of Incorporation;
(ii) the redemption, repurchase, retirement, defeasance or other acquisition of
any Capital Stock or any Indebtedness of the Corporation in exchange for, or out of
the proceeds of the sale (other than to a Subsidiary of the Corporation), within six
months prior to the consummation of such redemption, repurchase, retirement,
defeasance or other such acquisition of any Capital Stock or Indebtedness of the
Corporation, of Capital Stock of the Corporation (other than any Disqualified
Stock);
(iii) the payment in cash of dividends by the Corporation in respect of its
Junior Stock in the ordinary course of business on a basis consistent with past
practice in an aggregate amount not exceeding $10.0 million annually;
(iv) Restricted Investments received as consideration in connection with an
Asset Sale made in accordance with Section 6.5(a);
(v) the making of a Restricted Investment out of the proceeds of the sale
(other than to a Subsidiary of the Corporation), within one year prior to the making
of such Restricted Investment, of Capital Stock of the Corporation (other than any
Disqualified Stock);
(vi) the payment of any dividend or distribution by a Subsidiary that is a
Qualified Joint Venture to the holders of its Capital Stock on a pro
rata basis;
(vii) the repurchase, redemption or other acquisition or retirement for value
of any Capital Stock of the Corporation to effect the repurchase, redemption,
acquisition or retirement of Capital Stock that is held by any member or former
member of the Corporations management (or the management of any of the
Corporations Subsidiaries), or by any of their respective directors, employees or
consultants; provided that the aggregate price paid for all such repurchased,
redeemed, acquired or retired Capital Stock may not exceed the sum of $2.0 million
in any calendar year (with unused amounts in any calendar year being available to be
so utilized in succeeding calendar years);
(viii) repurchases of Capital Stock of the Corporation deemed to occur upon the
exercise of stock options;
(ix) payments or distributions to dissenting stockholders pursuant to
applicable law in connection with a consolidation, merger or transfer of assets that
complies with Section 6.5(b); and
(x) other Restricted Payments not to exceed $10.0 million in the aggregate.
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(c) In computing the amount of Restricted Payments for purposes of clause (iii) of Section
6.1(a), Restricted Payments made under clauses (i), (iii), (v), (vii) and (ix) of Section
6.1(b) shall be included and Restricted Payments made under clauses (ii), (iv), (vi), (viii)
and (x) of Section 6.1(b) shall not be included.
6.2 Limitation on Incurrence of Indebtedness.
(a) The Corporation shall not, and shall not permit any of its Restricted Subsidiaries to,
create, incur, assume or directly or indirectly guarantee or in any other manner become directly or
indirectly liable for (incur) any Indebtedness (including Acquired Debt) if, at the time of and
immediately after giving pro forma effect to such incurrence, the Debt to Operating
Cash Flow Ratio of the Corporation and its Restricted Subsidiaries is more than 7.0 to 1.0.
(b) The limitations in Section 6.2(a) shall not apply to the incurrence of any of the
following (collectively, Permitted Indebtedness):
(i) Indebtedness of the Corporation incurred under the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $960.0 million less
the amount of any Refinancing Indebtedness in respect of the Credit Agreement
incurred pursuant to clause (vi) of this Section 6.2(b), plus any amount of
Indebtedness incurred under the Credit Agreement pursuant to clause (vii) of this
Section 6.2(b);
(ii) Indebtedness of the Corporation outstanding on the Issue Date;
(iii) Indebtedness owed by any Restricted Subsidiary to the Corporation or to
another Restricted Subsidiary, or owed by the Corporation to any Restricted
Subsidiary; provided that any such Indebtedness shall be held by a Person that is
either the Corporation or a Restricted Subsidiary; and provided, further, that an
incurrence of additional Indebtedness which is not permitted under this clause (iii)
shall be deemed to have occurred upon either (A) the transfer or other disposition
of any such Indebtedness to a Person other than the Corporation or another
Restricted Subsidiary or (B) the sale, lease, transfer or other disposition of
shares of Capital Stock (including by consolidation or merger) of any such
Restricted Subsidiary to a Person other than the Corporation or another Restricted
Subsidiary such that such Restricted Subsidiary ceases to be a Restricted
Subsidiary;
(iv) Indebtedness of any Restricted Subsidiary consisting of guarantees of any
Indebtedness of the Corporation which Indebtedness of the Corporation has been
incurred in accordance with the provisions of these Articles of Incorporation;
(v) Indebtedness arising with respect to Interest Rate Hedge Obligations
incurred for the purpose of fixing or hedging interest rate risk with respect to any
floating rate Indebtedness (and not for speculative purposes) that is permitted by
the terms of these Articles of Incorporation to be outstanding; provided, however,
that the notional principal amount of such Interest Rate Hedge Obligation
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does not exceed the principal amount of the Indebtedness to which such Interest
Rate Hedge Obligation relates;
(vi) any Indebtedness of the Corporation or a Subsidiary of the Corporation
incurred in connection with or given in exchange for the renewal, extension,
substitution, refunding, defeasance, refinancing or replacement of any Indebtedness
of the Corporation or such Subsidiary outstanding on the Issue Date or permitted to
be incurred or outstanding under these Articles of Incorporation in accordance with
Section 6.2(a) or Indebtedness incurred under this clause (vi) with respect
to any of the foregoing (Refinancing Indebtedness); provided that (A) the
principal amount of such Refinancing Indebtedness shall not exceed the principal
amount of the Indebtedness so renewed, extended, substituted, refunded, defeased,
refinanced or replaced (plus the premiums or other payments paid in connection
therewith (which shall not exceed the stated amount of any premium or other payments
required to be paid in connection with such a refinancing pursuant to the terms of
the Indebtedness being renewed, extended, substituted, refunded, defeased,
refinanced or replaced) and the expenses incurred in connection therewith); and (B)
with respect to Refinancing Indebtedness of any Indebtedness, the Refinancing
Indebtedness shall have a Weighted Average Life to Maturity equal to or greater than
the Weighted Average Life to Maturity of the Indebtedness being renewed, extended,
substituted, refunded, defeased, refinanced or replaced;
(vii) Indebtedness incurred by the Corporation or a Restricted Subsidiary
(including any Person that becomes a Restricted Subsidiary immediately after giving
effect to such transaction) to finance any Acquisition; provided that, after giving
effect to such Acquisition and incurrence of Indebtedness, (A) the Corporation would
be permitted to incur at least $1.00 of additional Indebtedness pursuant to
Section 6.2(a) or (B) the Debt to Operating Cash Flow Ratio is lower than it
was immediately prior to such Acquisition and incurrence of Indebtedness;
(viii) Indebtedness incurred by any Unrestricted Subsidiary; and
(ix) Indebtedness of the Corporation and its Restricted Subsidiaries in
addition to that described in clauses (i) through (viii) above, and any renewals,
extensions, substitutions, refundings, refinancings or replacements of such
Indebtedness, so long as the aggregate principal amount of all such Indebtedness
incurred pursuant to this clause (ix) does not exceed $25.0 million at any one time
outstanding.
(c) For purposes of determining compliance with this Section 6.2:
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the categories of Indebtedness permitted pursuant to clauses (i) through (ix)
of Section 6.2(b), the Corporation shall, in its sole discretion, be
permitted to classify such item of Indebtedness in any manner that complies with
this
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Section 6.2 and may from time to time reclassify such items of
Indebtedness in any manner that would comply with this Section 6.2 at the
time of such reclassification;
(ii) Indebtedness permitted by this covenant need not be permitted solely by
reference to one provision permitting such Indebtedness but may be permitted in part
by one such provision and in part by one or more other provisions of this
Section 6.2 permitting such Indebtedness;
(iii) in the event that Indebtedness meets the criteria of more than one of the
types of Indebtedness described in this Section 6.2, the Corporation, in its
sole discretion, shall classify such Indebtedness and only be required to include
the amount of such Indebtedness in one of such clauses; and
(iv) accrual of interest (including interest paid-in-kind) and the accretion of
accreted value will not be deemed to be an incurrence of Indebtedness for purposes
of this Section 6.2.
(d) Notwithstanding any other provision of this Section 6.2, the maximum amount of
Indebtedness that the Corporation or any Subsidiary of the Corporation may incur pursuant to this
Section 6.2 shall not be deemed to be exceeded solely as a result of fluctuations in the
exchange rates of currencies.
6.3 Reports. Whether or not the Corporation is then subject to Section 13(a) or 15(d)
of the Securities Exchange Act of 1934, as amended (the Exchange Act), the Corporation
shall provide to the holders of Series D Preferred Stock, so long as any shares of Series D
Preferred Stock are outstanding, the annual reports (including annual financial statements),
quarterly reports (including quarterly financial statements) and other periodic reports which the
Corporation would be required to file with the Securities and Exchange Commission (the
Commission) pursuant to such Section 13(a) or 15(d) of the Exchange Act if the
Corporation were so subject, and such documents shall be mailed to the holders of Series D
Preferred Stock, addressed to such shareholders at their last addresses as shown on the books of
the Corporation, on or prior to the respective dates (the Required Filing Dates) by which
the Corporation would be required so to file such documents if the Corporation were so subject.
6.4 Limitation on Liens. The Corporation shall not, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, create, assume, incur or permit to exist or to
be created, assumed or incurred any Lien on any of its properties or assets, whether now owned or
hereafter acquired, or any income or profits therefrom, or assign or convey any right to receive
income therefrom to secure any Indebtedness, except for Permitted Liens.
6.5 Liquidation, Merger or Disposition of Assets.
(a) Limitation on Asset Sales. The Corporation shall not, and shall not permit any of
its Restricted Subsidiaries to, make any Asset Sale unless (i) the Corporation or such Restricted
Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least
equal to the fair market value (determined by the Board of Directors in good faith, which
determination shall be evidenced by a board resolution) of the assets or other property sold or
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disposed of in the Asset Sale, and (ii) at least 75% of such consideration is in the form of
cash or Cash Equivalents; provided that for purposes of this covenant cash shall include
the amount of any liabilities of the Corporation or such Restricted Subsidiary (as shown on the
Corporations or such Restricted Subsidiarys most recent balance sheet or in the notes thereto)
that are assumed by the transferee of any such assets or other property in such Asset Sale (and
excluding any liabilities that are incurred in connection with or in anticipation of such Asset
Sale), but only to the extent that such assumption is effected on a basis under which there is no
further recourse to the Corporation or any of its Restricted Subsidiaries with respect to such
liabilities. Notwithstanding clause (ii) of the immediately preceding sentence of this Section
6.5(a), (i) all or a portion of the consideration for any Asset Sale may consist of all or
substantially all of the assets or a majority of the Voting Stock of an existing television
business, franchise or station (whether existing as a separate entity, subsidiary, division, unit
or otherwise) or any business directly related thereto, (ii) Asset Sales having an aggregate value
(as measured by the value of the consideration being paid for such assets) not in excess of $35.0
million may be made without regard to clause (ii) of Section 6.5(a), (iii) Asset Sales
constituting Specified Asset Sales may be made without regard to clause (ii) of this Section
6.5(a), and (iv) the Corporation may, and may permit its Subsidiaries to, issue shares of
Capital Stock in a Qualified Joint Venture to a Qualified Joint Venture Partner without regard to
clause (ii) of Section 6.5(a); provided that, in the case of any of clause (i),
(ii), (iii) or (iv) of this sentence, after giving effect to any such Asset Sale and related
acquisition of assets or Voting Stock: (x) no Non-Compliance Event shall be continuing; and (y)
the Net Proceeds of any such Asset Sale, if any, are applied in accordance with
Section 6.6(a).
(b) Liquidation or Merger. The Corporation shall not consolidate or merge with or
into (whether or not the Corporation is the Surviving Person as such term is used in this
Section 6.5(b)), or, directly or indirectly through one or more Subsidiaries, sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions, to another Person or Persons unless: (i) the Surviving
Person is a corporation organized or existing under the laws of the United States, any state
thereof or the District of Columbia; (ii) the Series D Preferred Stock shall be converted into, or
exchanged for, and shall become shares of the Surviving Person (if other than the Corporation)
having in respect of such Surviving Person the same powers, preference and relative participating,
optional or other special rights and the qualifications, limitations or restrictions thereon, that
the Series D Preferred Stock had immediately prior to such transaction; and (iii) at the time of
and immediately after such transaction, no Non-Compliance Event shall be continuing;
provided that, after giving pro forma effect to such transaction, the
Surviving Person would (A) be permitted to incur at least $1.00 of additional Indebtedness pursuant
to Section 6.2(a) or (B) the Debt to Operating Cash Flow Ratio of the Surviving Person is
lower than that of the Corporation immediately prior to such transaction; provided,
further, that this Section 6.5(b) shall not limit or restrict any consolidation,
merger or other similar combination between the Corporation and any Person that is a Restricted
Subsidiary or between or among Persons that are Restricted Subsidiaries. In the event of any
transaction (other than a lease) described in and complying with the conditions listed in the
immediately preceding sentence in which the Corporation is not the Surviving Person and the
Surviving Person is to assume all the obligations of the Corporation under the Series D Preferred
Stock, such Surviving Person shall succeed to, and be substituted for, and may exercise every right
and power of, the Corporation, and the Corporation would be discharged from its obligations under
the Series D Preferred Stock; provided that solely for the purpose of calculating amounts
described
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in clause (iii) of Section 6.1, any such Surviving Person shall only be deemed to have
succeeded to and be substituted for the Corporation with respect to the period subsequent to the
effective time of such transaction (and the Corporation (before giving effect to such transaction)
shall be deemed to be the Corporation for such purposes for all prior periods).
6.6 Application of Net Proceeds of Asset Sales.
(a) Within 270 days after any Asset Sale, the Corporation may elect to apply or cause to be
applied the Net Proceeds from such Asset Sale to (i) permanently reduce any Indebtedness of the
Corporation or any Restricted Subsidiary, and/or (ii) make an investment in, or acquire assets
directly related to, the business of the Corporation and its Restricted Subsidiaries. Pending the
final application of any such Net Proceeds, the Corporation may temporarily reduce any Indebtedness
of the Corporation or any Restricted Subsidiary or temporarily invest such Net Proceeds in any
manner permitted by these Articles of Incorporation. Any Net Proceeds from an Asset Sale not
applied or invested as provided in the first sentence of this Section 6.6(a) within 270
days of such Asset Sale will be deemed to constitute Excess Proceeds on the 271st day
after such Asset Sale.
(b) So long as (i) no Default (as defined in the Credit Agreement) or Event of Default (as
defined under the Credit Agreement) has occurred and is continuing under the Credit Agreement and
(ii) such offer to redeem is not otherwise prohibited by the terms of the Credit Agreement or the
terms of any Senior Stock, not more than 60 days following any date that the aggregate amount of
Excess Proceeds exceeds $15.0 million, the Corporation shall make an offer in accordance with
Section 6.6(c) to redeem the maximum number of shares of Series D Preferred Stock and
Parity Stock (on a pro rata basis) that may be redeemed out of all such Excess Proceeds (an
Asset Sale Redemption Offer) at a cash redemption price per share equal to the sum of (i)
100% of the Par Amount, plus (ii) an amount equal to all dividends accrued and (a) unpaid on such
share, pro rata to the date fixed for redemption (the Asset Sale Redemption
Price). To the extent that any Excess Proceeds remain after completion of an Asset Sale
Redemption Offer, the Corporation may use the remaining amount for general corporate purposes and
such amount shall no longer constitute Excess Proceeds.
(c) The Corporation shall give notice of the Asset Sale Redemption Offer by a nationally
recognized overnight courier and by facsimile transmission with receipt confirmed, to the holders
of record of the Series D Preferred Stock, addressed to such shareholders at their last addresses
as shown on the books of the Corporation. Each such notice shall describe the Asset Sale
Redemption Offer and specify the date fixed for redemption (which shall be at least 30 days and not
more than 60 days after such notice), the Asset Sale Redemption Price, the place or places of
payment, that payment will be made upon presentation and surrender of the Series D Preferred Stock,
that accrued but unpaid dividends to the date fixed for redemption will be paid on the date fixed
for redemption, and that, on and after the redemption date, dividends will cease to accrue on such
shares.
(d) Any notice that is sent to a holder as herein provided shall be conclusively presumed to
have been duly given, whether or not the holder of the Series D Preferred Stock receives such
notice; and failure to give such notice, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for the
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redemption of any other shares of Series D Preferred Stock. On or after the date fixed for
redemption as stated in such notice, each holder of the shares to be redeemed shall surrender the
certificate (or certificates) evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Asset Sale Redemption Price
and thereupon the Corporation shall pay, or cause to be paid, the full Asset Sale Redemption Price
for the shares so surrendered in cash, provided that if a certificate representing shares
of Series D Preferred Stock is not surrendered by a holder of record, but such holder delivers an
affidavit to the Corporation stating that the certificate or certificates representing its shares
of Series D Preferred Stock have been lost, stolen or destroyed and executes an agreement
reasonably satisfactory to the Corporation to indemnify the Corporation for any loss incurred by it
in connection with such lost, stolen or destroyed certificate or certificates, payment of the full
Asset Sale Redemption Price shall be made to such holder. If fewer than all the shares represented
by any such surrendered certificate or certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. If the aggregate amount of Excess Proceeds is not sufficient
to permit the Corporation to redeem all shares of Series D Preferred Stock tendered pursuant to the
Asset Sale Redemption Offer, then the entire amount of Excess Proceeds shall be applied to redeem
such shares on a pro rata basis, in accordance with the ratio that the number of
shares of Series D Preferred Stock held by such tendering holder bears to the number of shares of
Series D Preferred Stock held by all the holders of Series D Preferred Stock then outstanding.
6.7 Change of Control.
(a) Subject to the prior repayment in full in cash of all outstanding Obligations (as defined
in the Credit Agreement) arising under, pursuant to or related to the Credit Agreement, in the
event of a Change of Control, the Corporation shall make an offer to redeem all of the then
outstanding shares of Series D Preferred Stock at a redemption price per share equal to the sum of
(i) 101% of the Par Amount thereof, plus (ii) an amount equal to all dividends accrued and
unpaid on such share, pro rata to the date fixed for redemption (the Change of
Control Redemption Price), in accordance with the terms set forth below (a Change of
Control Offer).
(b) Mechanics of Change of Control Redemption. Not more than 60 days following a
Change of Control, the Corporation shall give notice of such Change of Control by a nationally
recognized overnight courier and by facsimile transmission with receipt confirmed, to the holders
of record of the Series D Preferred Stock, addressed to such shareholders at their last addresses
as shown on the books of the Corporation. Each such notice of redemption shall describe the Change
of Control Offer and specify the date fixed for redemption (which shall be at least 30 days and not
more than 60 days after such notice), the Change of Control Redemption Price, the place or places
of payment, that payment will be made upon presentation and surrender of the Series D Preferred
Stock, that accrued but unpaid dividends to the date fixed for redemption will be paid on the date
fixed for redemption, and that, on and after the redemption date, dividends will cease to accrue on
such shares.
(c) Any notice that is sent to a holder as herein provided shall be conclusively presumed to
have been duly given, whether or not the holder of the Series D Preferred Stock receives such
notice; and failure to give such notice, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for the redemption of
any other shares of Series D Preferred Stock. On or after the date fixed for redemption
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as stated in such notice, each holder of the shares to be redeemed shall surrender the
certificate (or certificates) evidencing such shares to the Corporation at the place designated in
such notice and shall thereupon be entitled to receive payment of the Change of Control Redemption
Price and thereupon the Corporation shall pay, or cause to be paid, the full Change of Control
Redemption Price for the shares so surrendered in cash, provided that if a certificate
representing shares of Series D Preferred Stock is not surrendered by a holder of record, but such
holder delivers an affidavit to the Corporation stating that the certificate or certificates
representing its shares of Series D Preferred Stock have been lost, stolen or destroyed and
executes an agreement reasonably satisfactory to the Corporation to indemnify the Corporation for
any loss incurred by it in connection with such lost, stolen or destroyed certificate or
certificates, payment of the full Change of Control Redemption Price shall be made to such holder.
If fewer than all the shares represented by any such surrendered certificate or certificates are
redeemed, a new certificate shall be issued representing the unredeemed shares.
6.8 Limitation on Transactions with Affiliates. The Corporation shall not, and shall
not permit any of its Subsidiaries to, directly or indirectly, enter into or suffer to exist any
transaction or series of related transactions (including, without limitation, the sale, purchase,
exchange or lease of assets, property or services) with any Affiliate of the Corporation or any
beneficial owner of ten percent or more of any class of Capital Stock of the Corporation or any
Restricted Subsidiary unless such transaction or series of transactions is on terms that are no
less favorable to the Corporation or such Subsidiary, as the case may be, than would be available
in a comparable transaction in arms-length dealings with an unrelated third party.
Notwithstanding the foregoing, this provision will not apply to (a) employment agreements or
compensation or employee benefit arrangements with any officer, director or employee of the
Corporation entered into in the ordinary course of business (including customary benefits
thereunder), (b) any transaction entered into by or among the Corporation or any Restricted
Subsidiary and one or more Restricted Subsidiaries or (c) transactions pursuant to agreements
existing on the Issue Date.
6.9 Designation of Unrestricted Subsidiaries.
(a) The Board of Directors may designate any Subsidiary of the Corporation to be an
Unrestricted Subsidiary; provided that:
(i) any Guarantee by the Corporation or any Restricted Subsidiary of any
Indebtedness of the Subsidiary being so designated shall be deemed to be an
incurrence of Indebtedness by the Corporation or such Restricted Subsidiary (or
both, if applicable) at the time of such designation, and such incurrence of
Indebtedness would be permitted under Section 6.2(a);
(ii) the aggregate fair market value (determined by the Board of Directors in
good faith, which determination shall be evidenced by a board resolution) of all
outstanding Investments owned by the Corporation and its Restricted Subsidiaries in
the Subsidiary being so designated (including any Guarantee by the Corporation or
any Restricted Subsidiary thereof of any Indebtedness of such Subsidiary) shall be
deemed to be a Restricted Investment made as of the time of such designation;
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(iii) the Subsidiary being so designated:
(A) is not party to any agreement, contract, arrangement or
understanding with the Corporation or any Restricted Subsidiary unless
either (1) such agreement, contract, arrangement or understanding is with
customers, clients, suppliers or purchasers or sellers of goods or services,
in each case in the ordinary course of business, and is fair to the
Corporation and its Restricted Subsidiaries in the determination of a
majority of the Independent Directors of the Corporation, or (2) the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to the Corporation or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of the
Corporation in the determination of a majority of the Independent Directors
of the Corporation;
(B) is a Person with respect to which neither the Corporation nor any
of its Restricted Subsidiaries has any direct or indirect obligation (1) to
subscribe for additional Capital Stock or (2) to maintain or preserve such
Persons financial condition or to cause such Person to achieve any
specified levels of operating results;
(C) has not Guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Corporation or any of its
Restricted Subsidiaries, except (1) to the extent such Guarantee or credit
support would be released upon such designation or (2) a pledge of the
Capital Stock of the Unrestricted Subsidiary that is the obligor thereunder;
and
(D) does not have any Restricted Subsidiaries.
(b) Any designation of a Restricted Subsidiary of the Corporation as an Unrestricted
Subsidiary shall be evidenced to the holders of Series D Preferred Stock by mailing to each such
holder the board resolution giving effect to such designation and an officers certificate
certifying that such designation complies with the preceding conditions and is permitted by this
Section 6.9. If, at any time, any Unrestricted Subsidiary would fail to meet any of the
requirements set forth in clause (iii) of Section 6.9(a), it shall thereafter cease to be
an Unrestricted Subsidiary for purposes of these Articles of Incorporation and any Indebtedness,
Investments or Liens on the property of such Subsidiary shall be deemed to be incurred or made by a
Restricted Subsidiary of the Corporation from and after such date.
(c) The Board of Directors may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that:
(i) such designation shall be deemed to be an incurrence of Indebtedness by a
Restricted Subsidiary of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if the incurrence of such
Indebtedness is permitted under Section 6.2(a);
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(ii) all outstanding Investments owned by such Unrestricted Subsidiary shall be
deemed to be made as of the time of such designation and such designation shall only
be permitted if such Investments would be Permitted Investments; and
(iii) all Liens upon property or assets of such Unrestricted Subsidiary
existing at the time of such designation would be permitted under Section
6.4.
6.10 Defined Terms. The following terms when used herein have the following meanings:
Acquired Debt means, with respect to any specified Person, Indebtedness of any other
Person (the Acquired Person) existing at the time the Acquired Person merges with or
into, or becomes a Subsidiary of, such specified Person, including Indebtedness incurred in
connection with, or in contemplation of, the Acquired Person merging with or into, or becoming a
Subsidiary of, such specified Person.
Acquisition means (whether by purchase, lease, exchange, issuance of stock or other
equity or debt securities, merger, reorganization or any other method) (a) any acquisition by the
Corporation or any Subsidiary of any other Person, which Person shall then become consolidated with
the Corporation or any such Subsidiary in accordance with GAAP; (b) any acquisition by the
Corporation or any Subsidiary of all or substantially all of the assets of any other Person or (c)
any other acquisition by the Corporation or any Subsidiary of the assets of another Person which
acquisition is not in the ordinary course of business for the Corporation or such Subsidiary.
Affiliate means, with respect to a Person, any other Person directly or indirectly
Controlling, Controlled by or under common Control with such first Person. Affiliate shall also
mean, solely with regard to the Corporation and its Subsidiaries, any beneficial owner of Capital
Stock representing fifteen percent (15%) or more of the total voting power of such Capital Stock
(on a fully diluted basis) of the Corporation or of rights or warrants to purchase such Capital
Stock (whether or not currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof. Unless otherwise specified, Affiliate
means an Affiliate of the Corporation.
Asset Sale means the sale, lease, transfer or other disposition by the Corporation or any
Subsidiary to any Person of any of the, Capital Stock of any Subsidiary or any other assets of the
Corporation or any Subsidiary.
Capital Stock means (a) in the case of a corporation, capital stock, (b) in the case of
an association or business entity, any and all shares, interests, participations, rights or other
equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership
interests (whether general or limited), (d) in the case of a limited liability company, membership
interests and (e) any other interest or participation that confers on a Person the right to receive
a share of the profits and losses of, or distributions of assets of, the issuing Person. The term
Capital Stock shall include securities convertible into Capital Stock and all warrants, options,
purchase rights, conversion or exchange rights, voting rights, calls or claims of any character
with respect thereto.
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Capitalized Lease Obligation means that portion of any obligation of a Person as lessee
under a lease which at the time would be required to be capitalized on the balance sheet of such
lessee in accordance with GAAP.
Cash Equivalents means, as of any date of determination: (a) marketable securities (i)
issued or directly and unconditionally guaranteed as to interest and principal by the United States
government or (ii) issued by any agency of the United States government the obligations of which
are backed by the full faith and credit of the United States of America, in each case maturing
within one year after the date of purchase; (b) marketable direct obligations issued by any state
of the United States or any political subdivision of any such state or any public instrumentality
thereof, in each case maturing within one year after the date of purchase and having, at the time
of the acquisition thereof, the highest rating obtainable from either Standard & Poors Ratings
Group, a division of The McGraw-Hill Companies, Inc., or Moodys Investors Service, Inc.; (c)
commercial paper, money-market funds and business savings accounts issued by corporations, each of
which shall have a consolidated net worth of at least $100,000,000 and each of which conducts a
substantial part of its business in the United States, maturing within one year from the date of
the original issue thereof, and rated P-2 or better by Moodys Investors Service, Inc. or A-2
or better by Standard & Poors Ratings Group, a division of The McGraw-Hill Companies, Inc.; (d)
certificates of deposit or bankers acceptances maturing within one year after the date of purchase
and issued or accepted by any Lender (as defined in the Credit Agreement) or by any commercial bank
organized under the laws of the United States or any state thereof or the District of Columbia that
(i) is at least adequately capitalized (as defined in the regulations of its primary federal
banking regulator) and (ii) has Tier 1 capital (as defined in the regulations of its primary
federal banking regulator) of not less than $100,000,000; and (e) shares of any money market mutual
fund that (i) has at least ninety-five percent (95%) of its assets invested continuously in the
types of investments referred to in clauses (a), (b) and (c) above, (ii) has net assets of not less
than $500,000,000 and (iii) has the highest rating obtainable from either Standard & Poors Ratings
Group, a division of The McGraw-Hill Companies, Inc., or Moodys Investors Service, Inc.
Change of Control means the occurrence of any of the following events:
(a) any person or group (as such terms are used in Sections 13(d) and 14(d) of the
Exchange Act) (other than the Permitted Holders), becomes the beneficial owner (as defined in
Rules 13d-3 and 13d-5 under the Exchange Act, except that a person or group shall be deemed to have
beneficial ownership of all shares of Capital Stock that such person or group has the right to
acquire regardless of when such right is first exercisable), directly or indirectly, of more than
50% of the total voting power represented by the outstanding Voting Stock of the Corporation;
provided that the Permitted Holders do not have the right or ability by contract or otherwise to
elect or designate for election a majority of the Board of Directors;
(b) the Corporation merges with or into another Person or sells, assigns, conveys, transfers,
leases or otherwise disposes of all or substantially all of its assets to any Person, or any Person
merges with or into the Corporation, in any such event pursuant to a transaction in which the
outstanding Voting Stock of the Corporation is converted into or exchanged for cash, securities or
other property, other than any such transaction where (i) (x) the outstanding Voting Stock of the
Corporation is converted into or exchanged for Voting Stock of the surviving or transferee
corporation and (y) immediately after such transaction the holders of the outstanding
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Voting Stock of the Corporation immediately prior to the transaction hold, directly or
indirectly, more than 50% of the total voting power represented by the outstanding Voting Stock of
the surviving or transferee corporation; (ii) the Permitted Holders Control the surviving or
transferee corporation and such Control is continuing; or (iii) immediately after such transaction,
the Permitted Holders have the right or ability by contract or otherwise to elect or designate for
election a majority of the Board of Directors;
(c) during any consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors (together with any new directors whose election by the Board of
Directors or whose nomination for election by the stockholders of the Corporation was approved by
(x) a vote of at least a majority of the directors then still in office who were either directors
at the beginning of such period or whose election or nomination for election was previously so
approved (as described in this clause (x) or in the following clause (y)) or (y) Permitted Holders
that are beneficial owners (as defined in Rules 13d-3 and 13d-5 under the Exchange Act) of a
majority of the total voting power represented by the outstanding Voting Stock of the Corporation)
cease for any reason to constitute a majority of the Board then in office; or
(d) the Corporation is liquidated or dissolved or adopts a plan of liquidation.
Consolidated Interest Expense means, for any period, the gross interest expense accrued
by the Corporation and its Restricted Subsidiaries in respect of their Indebtedness for such
period, net of interest income for such period, determined on a consolidated basis, including,
without duplication, all fees payable under the Credit Agreement, any revolving commitments or
letters of credit, and any other fees, charges, commissions and discounts in respect of
Indebtedness, including, without limitation, any fees payable in connection with the Letters of
Credit (as defined in the Credit Agreement), but excluding deferred finance charges all calculated
in accordance with GAAP. For purposes of the foregoing, gross interest expense shall be determined
after giving effect to any net payments made or received by the Corporation and its Restricted
Subsidiaries with respect to Interest Rate Hedge Agreements, but shall exclude any non-cash
mark-to-market adjustments made by the Corporation and its Restricted Subsidiaries with respect to
Interest Rate Hedge Agreements.
Control when used with respect to any Person, means the power to direct the management or
policies of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms Controlling and Controlled have meanings
correlative to the foregoing.
Credit Agreement means that certain Credit Agreement entered into as of March 19, 2007,
as the same may be amended, restated, supplemented or otherwise modified from time to time in
accordance with its terms, by and among the Corporation, Wachovia Bank, National Association, as
Administrative Agent (and including any successors to Wachovia Bank, National Association) and the
lenders party thereto.
Cumulative Consolidated Interest Expense means, as of any date of determination,
Consolidated Interest Expense plus cumulative dividends accrued or paid in respect of the
Series D Preferred Stock and any Parity Stock from July 1, 2008 to the last day of the most
recently ended month prior to such date of determination, taken as a single accounting period.
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Cumulative Operating Cash Flow means, as of any date of determination, Operating Cash
Flow from July 1, 2008 to the last day of the most recently ended month prior to such date of
determination, taken as a single accounting period.
Debt To Operating Cash Flow Ratio means, with respect to any date of determination, the
ratio of (a) the aggregate principal amount of all outstanding Indebtedness of the Corporation and
its Restricted Subsidiaries as of such date on a consolidated basis to (b) Operating Cash Flow of
the Corporation and its Restricted Subsidiaries on a consolidated basis for the last twelve months
ending on or immediately prior to such date, determined on a pro forma basis after
giving pro forma effect to: (i) the incurrence of all Indebtedness to be incurred
on such date and (if applicable) the application of the net proceeds therefrom, including to
refinance other Indebtedness, as if such Indebtedness was incurred, and the application of such
proceeds occurred, at the beginning of such twelve-month period; (ii) the incurrence, repayment or
retirement of any other Indebtedness by the Corporation and its Restricted Subsidiaries since the
first day of such twelve-month period as if such Indebtedness was incurred, repaid or retired at
the beginning of such twelve-month period (except that, in making such computation, the amount of
Indebtedness under any revolving credit facilities shall be computed based upon the average balance
of such Indebtedness at the end of each month during such twelve-month period); (iii) in the case
of Acquired Debt, the related acquisition as if such acquisition had occurred at the beginning of
such twelve-month period; and (iv) any acquisition or disposition by the Corporation and its
Restricted Subsidiaries of any company or any business or any assets out of the ordinary course of
business, or any related repayment of Indebtedness, in each case since the first day of such
twelve-month period, assuming such acquisition or disposition had been consummated on the first day
of such twelve-month period.
Disqualified Stock means any Capital Stock that, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or
otherwise, or is redeemable at the option of the holder thereof, in whole or in part on or prior to
June 30, 2015.
GAAP means, as in effect from time to time, generally accepted accounting principles in
the United States, consistently applied.
Guaranty or Guarantee, as applied to an obligation, means and includes (a) a
guaranty, direct or indirect, in any manner, of all or any part of such obligation and (b) any
agreement, direct or indirect, contingent or otherwise, the practical effect of which is to assure
in any way the payment or performance (or payment of damages in the event of non-performance) of
all or any part of such obligation, including, without limitation, any reimbursement obligations as
to amounts drawn down by beneficiaries of outstanding letters of credit or capital call
requirements.
Indebtedness means, with respect to any Person as of any date, all liabilities,
obligations and reserves, contingent or otherwise, which, in accordance with GAAP, would be
reflected as a liability on a balance sheet (excluding trade accounts payable and accrued expenses
arising in the ordinary course of business), including, without duplication, (a) all obligations of
such Person for borrowed money or with respect to deposits or advances of any kind, (b) all
obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all
obligations of such Person upon which interest charges are customarily paid, (d) all obligations of
such Person under
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conditional sale or other title retention agreements relating to assets purchased by such Person,
(e) all obligations of such Person issued or assumed as the deferred purchase price of property or
services and which are payable over a period in excess of one year (excluding Programming
Obligations), (f) all obligations of others secured by (or for which the holder of such obligations
has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the obligations secured thereby have been assumed by such
Person, provided that if such Indebtedness shall not have been assumed by such Person and
is otherwise limited in recourse only to property of such Person securing such Indebtedness, the
amount of such Indebtedness hereunder shall not exceed the fair market value of the property of
such Person securing such Indebtedness, (g) all obligations or liabilities otherwise constituting
Indebtedness under this definition Guaranteed by such Person, (h) all Capitalized Lease Obligations
of such Person, (i) at any time after the occurrence and during the continuance of a default or
event of default under any Interest Rate Hedge Agreement, the aggregate amount payable by such
Person under such Interest Rate Hedge Agreement and (j) all obligations of such Person as an
account party to reimburse any Person in respect of letters of credit or bankers acceptances. The
Indebtedness of any Person shall include any recourse Indebtedness of any partnership in which such
Person is a general partner.
Independent Director means a director of the Corporation other than a director (i) who
(apart from being a director of the Corporation or any Subsidiary) is an employee, associate or
Affiliate of the Corporation or a Subsidiary or has held any such position during the previous five
years or (ii) who is a director, employee, associate or Affiliate of another party to the
transaction in question.
Interest Rate Hedge Agreements means any agreement or other arrangement of any Person
with any other Person whereby, directly or indirectly, such Person is entitled to receive from time
to time periodic payments calculated by applying either a floating or a fixed rate of interest on a
stated notional amount in exchange for periodic payments made by such Person calculated by applying
a fixed or a floating rate of interest on the same notional amount and shall include, without
limitation, interest rate swaps, caps, floors, collars and similar agreements.
Interest Rate Hedge Obligations means all existing and future payments and other
obligations owing by the Corporation or its Subsidiaries under any Interest Rate Hedge Agreements
permitted hereunder with any Person that is a Lender or an Affiliate thereof at the time such
Interest Rate Hedge Agreement is executed.
Lien means, with respect to any property, any mortgage, lien, pledge, negative pledge or
other agreement not to pledge, collateral assignment, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other encumbrance of any kind in
respect of such property, whether created by statute, contract, the common law or otherwise, and
whether inchoate or not, vested or perfected.
Net Earnings means, as of any date with respect to the Corporation, the consolidated net
income (or deficit) of the Corporation and its Restricted Subsidiaries for the period involved,
after taxes accrued and after all proper charges and reserves (excluding, however, non-recurring
special charges and credits), all as determined in accordance with GAAP.
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Net Proceeds means, with respect to any Asset Sale by any Person, the aggregate cash
proceeds received by such Person and/or its Affiliates in respect of such Asset Sale, which amount
is equal to the excess, if any, of (a) the cash received by such Person and/or its Affiliates
(including any cash payments received by way of deferred payment pursuant to, or monetization of, a
note, an equity security or installment receivable or otherwise, but only as and when received) in
connection with such Asset Sale, over (b) the sum of (i) the amount of any Indebtedness that is
secured by such asset and which is required to be repaid by such Person in connection with such
Asset Sale, plus (ii) all fees, commissions and other expenses incurred by such Person in
connection with such Asset Sale, plus (iii) provision for taxes, including income taxes,
attributable to the Asset Sale or attributable to required prepayments or repayments of
Indebtedness with the proceeds of such Asset Sale, plus (iv) a reasonable reserve for the after-tax
cost of any indemnification payments (fixed or contingent) attributable to sellers indemnities to
purchaser in respect of such Asset Sale undertaken by the Corporation or any of its Subsidiaries in
connection with such Asset Sale plus (v) if such Person is a Subsidiary, any dividends or
distributions payable to holders of minority interests in such Subsidiary from the proceeds of such
Asset Sale.
Non-Compliance Event means (a) any time that an aggregate amount of three accrued
quarterly dividend payments in respect of the Series D Preferred Stock remains unpaid; (b) the
failure of the Corporation to perform or comply with any covenant in Section 6, which
failure described in this clause (b) continues for 90 days after written notice thereof has been
given to the Corporation by any holder of the then outstanding Series D Preferred Stock; (c) the
failure of the Corporation to perform or comply with any covenant in Section 5(f); or (d) the
making of any payment to holders of Junior Stock in violation of Section 3(a).
Operating Cash Flow means, with respect to the Corporation and its Restricted
Subsidiaries, as of any date for any period, (a) the Net Earnings for such period (excluding, to
the extent included in Net Earnings for such period, (i) the effect of any exchange of advertising
time for non-cash consideration, such as merchandise or services, (ii) any other non-cash income or
expense (including the cumulative effect of a change in accounting principles and extraordinary
items), (iii) any gains or losses from sales, exchanges and other dispositions of property not in
the ordinary course of business and (iv) the non-cash portion of any reserves or accruals for
one-time charges which are equal to or greater than $1,000,000 incurred in connection with
corporate restructurings or expense-saving measures), minus (b) any cash payments made by
the Corporation and its Restricted Subsidiaries during such period in respect of (i) Programming
Obligations or (ii) reserves or accruals described in clause (a)(iv) above, to the extent such
reserves or accruals were excluded from Net Earnings in a prior period, plus (c) the sum, without
duplication, of (to the extent deducted in determining Net Earnings) (i) depreciation on or
obsolescence of fixed or capital assets and amortization of intangibles and leasehold improvements
(including, without limitation, amortization in respect of Programming Obligations) for such
period, plus (ii) Consolidated Interest Expense and deferred finance charges in such period,
plus (iii) federal, state and local income taxes in such period to the extent deducted in
calculating Net Earnings in such period (other than any such taxes resulting from any gains from
sales and exchanges and other distributions not in the ordinary course of business), plus
(d) to the extent such expenses do not constitute Efficiency Capital Expenditures (as defined in
the Credit Agreement), the OTO System Integration Expenses (as defined in the Credit Agreement), in
an aggregate amount not to exceed $900,000 for fiscal year 2007, plus (e) adjustments to
actual historical Operating Cash Flow in connection with any Acquisition permitted under these
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Articles of Incorporation (it being understood that any such adjustments under this provision shall
not apply to the calculation under Section 6. 1 (a)(iii)); provided that any such
adjustment (or series of related adjustments) (i) is consistent with Regulation S-X under the
Exchange Act or (ii) is identified with reasonable specificity prior to the closing of such
Acquisition and, with respect to an adjustment (or series of related adjustments) under this clause
(ii), is five percent (5%) or less of the Operating Cash Flow of the Corporation and its Restricted
Subsidiaries for such period; provided, further, that, in each case, such
adjustments shall be on a consolidated basis and computed on the accrual method. For the purposes
of calculating Operating Cash Flow for any period, any Acquisition or Asset Sale that occurs during
such period shall be deemed to have occurred on the first day of such period.
Permitted Holders means: (a) each of J. Mack Robinson and Robert S. Prather, Jr.; (b)
their spouses and lineal descendants; (c) in the event of the incompetence or death of any of the
Persons described in clauses (a) and (b), such Persons estate, executor, administrator, committee
or other personal representative; (d) any trusts created for the benefit of the Persons described
in clause (a) or (b); or (e) any Person controlled by any of the Persons described in clause (a),
(b), or (d). For purposes of this definition, control, as used with respect to any Person, means
the possession, directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through ownership of voting securities or by
contract or otherwise.
Permitted Investments means: (a) any Investment in the Corporation, any Restricted
Subsidiary or any Qualified Joint Venture; (b) any Investments in Cash Equivalents; (c) any
Investment in a Person (an Acquired Person) if, as a result of such Investment, (i) the
Acquired Person becomes a Restricted Subsidiary, or (ii) the Acquired Person either (A) is merged,
consolidated or amalgamated with or into the Corporation or a Restricted Subsidiary and the
Corporation or such Restricted Subsidiary is the surviving Person, or (B) transfers or conveys
substantially all of its assets to, or is liquidated into, the Corporation or a Restricted
Subsidiary; (d) Investments in accounts and notes receivable acquired in the ordinary course of
business; (e) Interest Rate Hedge Obligations permitted pursuant to Section
6.2(a)(v); and (f) any other Investments in an aggregate amount up to $25.0 million
plus, in the case of the disposition or repayment of any such Investment made pursuant to
this clause (f) for cash, an amount equal to the lesser of the return of capital with respect to
such Investment and the cost of such Investment, in either case, reduced (but not below zero) by
the excess, if any, of the cost of the disposition of such Investment over the gain, if any,
realized by the Corporation or Restricted Subsidiary, as the case may be, in respect of such
disposition.
Permitted Liens means (a) Liens on assets or property of the Corporation that secure
Indebtedness of the Corporation, either existing on the Issue Date or which Indebtedness is
permitted to be incurred under these Articles of Incorporation, and Liens on assets or property of
a Restricted Subsidiary that secure Indebtedness of such Restricted Subsidiary, either existing on
the Issue Date or which Indebtedness is permitted to be incurred under these Articles of
Incorporation; (b) Liens securing Indebtedness of a Person existing at the time that such Person is
merged into or consolidated with the Corporation or a Restricted Subsidiary of the Corporation,
provided that such Liens were in existence prior to the contemplation of such merger or
consolidation and do not extend to any assets other than those of such Person; (c) Liens on
property acquired by the Corporation or a Restricted Subsidiary, provided that such Liens were in
existence prior to the contemplation of such acquisition and do not extend to any other property;
(d) Liens in favor of the
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Corporation or any Restricted Subsidiary of the Corporation; (e) Liens incurred, or pledges and
deposits in connection with, workers compensation, unemployment insurance and other social
security benefits, and leases, appeal bonds and other obligations of like nature incurred by the
Corporation or any Restricted Subsidiary of the Corporation in the ordinary course of business; (f)
Liens imposed by law, including, without limitation, mechanics, carriers, warehousemens,
materialmens, suppliers and vendors Liens, incurred by the Corporation or any Restricted
Subsidiary of the Corporation in the ordinary course of business and restrictions on transfer of
assets of the Corporation or any of its Restricted Subsidiaries imposed by the Communications Act
of 1934, as amended, and any similar or successor federal statute, and the rules and regulations
thereunder; (g) Liens for ad valorem, income or property taxes or assessments and similar charges
which either are not delinquent or are being contested in good faith by appropriate proceedings for
which the Corporation has set aside on its books reserves to the extent required by GAAP; (h)
easements, rights-of-way, zoning and other restrictions, leases, licenses, reservations or
restrictions on use and other similar encumbrances on the use of Real Property (as defined in the
Credit Agreement) which do not materially interfere with the ordinary conduct of the business of
such Person or the use or value of such property; (i) Liens to secure performance of statutory
obligations, surety or appeal bonds, performance bonds, bids, tenders or escrow deposits in
connection with Acquisitions, in each case, in the ordinary course of business; (j) judgment Liens
which do not result in an Event of Default (as defined in the Credit Agreement) under Section
8.1(i) of the Credit Agreement; (k) Liens approved by the Administrative Agent and set forth in any
title policy insuring the interest of the Administrative Agent (as defined in the Credit Agreement)
in any Collateral (as defined in the Credit Agreement), or set forth in title report, title
examination or similar document with respect to any of the Collateral; (l) (i) Liens of a
collecting bank arising in the ordinary course of business under Section 4-208 of the Uniform
Commercial Code in effect in the relevant jurisdiction and (ii) Liens of any depositary bank in
connection with statutory, common law and contractual rights of set-off and recoupment with respect
to any deposit account; (m) leases, subleases or licenses granted by the Corporation or any of its
Restricted Subsidiaries to third persons in the ordinary course of business that do not interfere
in any material respect with the business of the Corporation or any of its Restricted Subsidiaries;
and (n) licenses of patents, trademarks and other intellectual property rights granted by the
Corporation or any of its Restricted Subsidiaries in the ordinary course of business to the
Corporation or another Restricted Subsidiary.
Person means an individual, corporation, limited liability company, association,
partnership, joint venture, trust or estate, unincorporated organization, or government or any
agency or political subdivision thereof, or any other entity.
Programming Obligations means all direct or indirect monetary liabilities, contingent or
otherwise, with respect to contracts for television broadcast rights relating to television series
or other programs produced or distributed for television release.
Qualified Joint Venture means a newly-formed, majority-owned Subsidiary where Capital
Stock of the Subsidiary is issued to a Qualified Joint Venture Partner in consideration of the
contribution of assets used or useful in the television broadcasting or paging business.
Qualified Joint Venture Partner means a person who is not affiliated with the
Corporation.
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Related Joint Venture Holder means any holder (other than the Corporation and its
Restricted Subsidiaries) of any Capital Stock of a joint venture of the Corporation or any of its
Restricted Subsidiaries that is not a Qualified Joint Venture.
Restricted Investment means an Investment other than a Permitted Investment.
Restricted Payment means (a) any direct or indirect distribution, dividend or other
payment to any Person (other than to the Corporation or any of its Restricted Subsidiaries) on
account of any Junior Stock of the Corporation or any of its Restricted Subsidiaries (other than
dividends payable solely in Junior Stock of such Person and splits thereof), (b) any management,
consulting or similar fees, or any interest thereon, payable by the Corporation or any of its
Subsidiaries to any of their respective Affiliates (other than such fees and interest payable to
the Corporation or any of its Subsidiaries) or (c) any payment on account of the purchase,
redemption, or other acquisition or retirement of any Junior Stock of the Corporation or any of its
Restricted Subsidiaries, including, without limitation, any warrants or other rights or options to
acquire shares of Junior Stock of the Corporation or of any of its Subsidiaries.
Restricted Subsidiary means any Subsidiary of the Corporation that is not an Unrestricted
Subsidiary.
Specified Asset Sales means, with respect to any joint venture of the Corporation or any
of its Restricted Subsidiaries that is not a Qualified Joint Venture, (a) any Asset Sale of all or
any portion of such asset to a Related Joint Venture Holder or any Affiliates of a Related Joint
Venture Holder, (b) any contribution of all or any portion of such asset to a joint venture of a
Related Joint Venture Holder or (c) any Asset Sale of all or any portion of such asset to any
Person in connection with a related transaction or series of related transactions involving a
Related Joint Venture Holder or any Affiliate of a Related Joint Venture Holder; provided
that any joint venture to which this definition applies generates less than five percent (5%) of
the aggregate consolidated revenues of the Corporation and its Restricted Subsidiaries.
Subsidiary means, as applied to any Person, (a) any corporation of which more than fifty
percent (50%) of the outstanding Capital Stock (other than directors qualifying shares) having
ordinary voting power to elect at least a majority of its board of directors, regardless of the
existence at the time of a right of the holders of any class or classes of securities of such
corporation to exercise such voting power by reason of the happening of any contingency, or any
partnership or limited liability company of which more than fifty percent (50%) of the outstanding
Capital Stock, is at the time owned directly or indirectly by such Person, or by one or more
Subsidiaries of such Person, or by such Person and one or more Subsidiaries of such Person, or (b)
any other entity which is directly or indirectly controlled or capable of being controlled by such
Person, or by one or more Subsidiaries of such Person, or by such Person and one or more
Subsidiaries of such Person. Subsidiaries as used herein means the Subsidiaries of the
Corporation unless otherwise specified.
Unrestricted Subsidiary means any Subsidiary of the Corporation that is designated
by the Board of Directors of the Corporation as an Unrestricted Subsidiary pursuant to a board
resolution
in compliance with Section 6.9(a).
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Voting Stock means, with respect to any Person, Capital Stock of such Person
of the class or classes pursuant to which the holders thereof have the general voting power under
ordinary circumstances to elect at least a majority of the board of directors, managers or trustees
of such Person (irrespective of whether or not at the time stock of any other class or classes
shall have or might have voting power by reason of the happening of any contingency).
Weighted Average Life to Maturity means, with respect to any Indebtedness at any date,
the number of years obtained by dividing (a) the sum of the products obtained by multiplying (i)
the amount of each then remaining installment, sinking fund, serial maturity or other required
scheduled payment of principal, including payment as final maturity, in respect thereof, with (ii)
the number of years (calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (b) the then outstanding aggregate principal amount of such
Indebtedness.
7. No Sinking Fund. The shares of Series D Preferred Stock shall not be subject to the
operation of a purchase, retirement, or sinking fund.
8. Voting Rights.
(a) The holders of Series D Preferred Stock will not have any voting rights except as set
forth in this Section 8 or as otherwise from time to time required by law.
(b) Without the consent or affirmative vote of the holders of at least a majority of the
outstanding shares of Series D Preferred Stock, voting separately as a class, the Corporation shall
not (i) authorize, create, or issue any shares of Senior Stock, (ii) reclassify any Junior Stock
into shares of Parity Stock or Senior Stock, (iii) reclassify any Parity Stock into shares of
Senior Stock, or (iv) authorize, create or issue any shares of Parity Stock, other than additional
shares of Series D Preferred Stock in an aggregate par amount of $25.0 million that are issued in
accordance with these Articles of Incorporation.
(c) The affirmative vote or consent of the holders of at least a majority of the outstanding
shares of the Series D Preferred Stock, voting separately as a class, will be required for any
amendment, alteration or repeal, whether by merger or consolidation or otherwise, of the
Corporations Restated Articles of Incorporation, as amended, if the amendment, alteration or
repeal adversely affects the powers, preferences or special rights of the Series D Preferred Stock
(for the avoidance of doubt, any matters approved in accordance with Section 8(b), and any
merger or consolidation that does not result in a Non-Compliance Event shall not be deemed to
adversely affect the powers, preferences or special rights of the Series D Preferred Stock).
9. Outstanding Shares. For purposes of Section 8, all issued and outstanding shares of
Series D Preferred Stock shall be deemed outstanding except that, from the date fixed for
redemption pursuant to Section 5, all shares of Series D Preferred Stock which are to be redeemed
in accordance with Section 5, if funds or shares necessary for the redemption of such shares are
set aside as provided herein, shall not be deemed to be outstanding.
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GRAY COMMON STOCK
The powers, preferences and rights of the Class A Common Stock and the Common Stock, and the
qualifications, limitations and restrictions thereof, shall be as follows:
(a) Voting. Holders of Class A Common Stock are entitled to ten (10) votes per share.
Holders of Common Stock are entitled to one (1) vote per share. All actions submitted to a vote of
shareholders are voted on by holders of Class A Common Stock and Common Stock voting together as a
single class, except as otherwise provided herein or by law.
(b) Dividends and Other Distributions. Holders of Class A Common Stock and holders of Common
Stock are entitled to receive dividends and other distributions in cash, stock or property of the
Corporation as may be declared thereon by the Board of Directors out of funds legally available
therefore. Each share of Class A Common Stock and each share of Common Stock shall have identical
rights with respect to dividends and distributions (including distributions in connection with any
recapitalization, and upon liquidation, dissolution or winding up, either partial or complete, of
the Corporation).
(c) Common Stock Rights.
(1) If, after the date the Articles of Amendment adding this provision to the Articles
are filed with the Secretary of State of Georgia (the Effective Date), any person or group
acquires beneficial ownership of 100% of the then issued and outstanding shares of Class A
Common Stock (such acquisition making such person or group a Significant Shareholder), and
such person or group does not immediately after such acquisition beneficially own an equal
percentage of the then issued and outstanding Common Stock, such Significant Shareholder
must, within a 90-day period beginning the day after becoming a Significant Shareholder,
commence a public tender offer in compliance with all applicable laws and regulations to
acquire additional shares of Common Stock (a Common Stock Protection Transaction) as
provided in this subsection (c) of the section entitled Gray Common Stock of this Article
4.
(2) In a Common Stock Protection Transaction, the Significant Shareholder must offer to
acquire from all other holders of the Common Stock all of the issued and outstanding shares
of Common Stock beneficially owned by them. The Significant
Shareholder must acquire all shares validly tendered.
(3) The offer price for any shares of Common Stock required to be purchased by a
Significant Shareholder pursuant to a Common Stock Protection Transaction shall be the
greater of (i) the highest price per share paid by the Significant Shareholder for any share
of Class A Common Stock or Common Stock (whichever is higher) in the six month period ending
on the date such person or group became a Significant Shareholder and (ii) the highest
closing price of a share of Class A Common Stock or Common Stock (whichever is higher) on
The New York Stock Exchange (or such other quotation system or securities exchange
constituting the principal trading market for either class of Gray Common Stock) during the
30 calendar days preceding the date such person or group became a Significant Shareholder.
If the Significant
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Shareholder has acquired Class A Common Stock or Common Stock in the six-month period
ending on the date such person or group becomes a Significant Shareholder for consideration
other than cash, the value of such consideration per share of Class A Common Stock or Common
Stock shall be as determined in good faith by the Board of Directors.
(4) The requirement to engage in a Common Stock Protection Transaction is satisfied by
making the requisite offer and purchasing validly tendered shares,
even if the number of shares tendered is less than the number of shares for which tender was sought in the
required offer.
(5) If a Significant Shareholder fails to make an offer required by this such section
(c) of the section entitled Gray Common Stock of this Article 4, or to purchase shares
validly tendered and not withdrawn, such Significant Shareholder shall not be entitled to
vote any shares of Class A Common Stock beneficially owned by such Significant Shareholder
and acquired by such Significant Shareholder after the Effective Date that exceeded such
Significant Shareholders comparable percentage of Common Stock unless and until such
requirements are complied with or unless and until all shares of Class A Common Stock which
would require an offer to be made are, no longer owned by such Significant Shareholder. To
the extent that the voting power of any shares of Class A Common
Stock is so suspended, such shares will not be included in the determination of aggregate voting shares for any purpose
under these Articles of Incorporation or the Georgia Business Corporation Code.
(6)
All calculations with respect to percentage ownership of issued and outstanding shares of either class of Gray Common Stock will be based upon the numbers of issued and
outstanding shares reported by the Corporation on the last filed of (i) the Corporations
most recent Annual Report on Form-10-K, (ii) its most recent definitive proxy statement,
(iii) its most recent Quarterly Report on Form 10-Q, or (iv) if any, its most recent Current
Report on Form 8-K.
(7) For purposes of this subsection (c) of the section entitled Gray Common Stock of
this Article 4, the term person means a natural person, company, government, or political
subdivision, agency or instrumentality of a government, or other entity. The terms
beneficial ownership and group have the same meanings as used in Regulation 13D
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act),
subject to the following qualifications: (i) relationships by blood or marriage between or
among any persons will not constitute any of such persons a member of a group with any other
such persons, absent affirmative attributes of concerted action; (ii) any person acting in
his official capacity as a director or officer of the Corporation shall not be deemed to
beneficially own shares of Gray Common Stock where such beneficial ownership exists solely
by virtue of such persons status as a trustee (or similar position) with respect to shares
of Gray Common Stock held by plans or trusts for the general benefit of employees or
retirees of the Corporation, and actions taken or agreed to be taken by him in such official
capacity or in any other official capacity will not be deemed to constitute such a person a
member of a group with any
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other person; and (iii) formation of a group will not be deemed to be an acquisition by
the group (or any member thereof) of beneficial ownership of any shares of Class A Common
Stock then owned by a group member and acquired by such member from the Corporation, by
operation of law, by will or the laws of descent or distribution, by charitable contribution
or gift, or by foreclosure of a bona fide loan. Furthermore, for the purposes of
calculating the number of shares of Common Stock beneficially owned by such shareholder or
member of such group only if such gift is made in good faith and not for the purpose of
circumventing the Common Stock Rights; (b) only shares of Common Stock owned of record by
such shareholder or member of such group, or held by others as nominees of such shareholder
or member and identified as such to the Corporation, shall be deemed to be beneficially
owned by such shareholder or group (provided that shares with respect to which such
shareholder or member has sole investment and voting power shall be deemed to be
beneficially owned thereby); and (c) only shares of Common Stock acquired by such
shareholder or member of such group for an equitable price shall be treated as being
beneficially owned by such shareholder or group. An equitable price will be deemed to
have been paid only when shares of Common Stock have been acquired at a price at least equal
to the great of (i) the highest price per share paid by the Significant Shareholder in cash
or in non-cash consideration for any shares of Class A Common Stock or Common Stock
(whichever is higher) in the six-month period ending on the date such person or group became
a Significant Shareholder and (ii) the highest closing price of a share of Class A Common
Stock or Common Stock (whichever is higher) on The New York Stock Exchange (or such other
quotation system or securities exchange constituting the principal trading market for either
class of Common Stock) during the 30 calendar days preceding the date such person or group
became a Significant Shareholder with the value of any non-cash consideration in either case
being determined by the Board of Directors acting in good faith.
(d) Preemptive Rights. The holders of the Class A Common Stock and Common Stock do not have
preemptive rights enabling them to subscribe for or receive shares of any class of stock of the
Corporation or any other securities convertible into shares of any class of stock of the
Corporation.
(e) Merger and Consolidation. In the event of a merger or consolidation of the Corporation
with or into another entity (whether or not the Corporation is the surviving entity), or a
statutory share exchange involving the Common Stock, the holders of Common Stock shall be entitled
to receive the same amount and form of consideration per share as the per share consideration, if
any, received by any holder of the Class A Common Stock in such merger or consolidation.
(f) Subdivision of Shares. If the Corporation shall in any manner split, subdivide or combine
the outstanding shares of Class A Common Stock or Common Stock, the outstanding shares of the other
such class of Gray Common Stock shall be proportionally split, subdivided or combined in the same
manner and on the same basis as the outstanding shares of the other class of Gray Common Stock have
been split, subdivided, or combined.
(g) Power to Sell and Purchase Shares. The Board of Directors shall have the power to cause
the Corporation to issue and sell all or any part of any class of stock herein or hereafter
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authorized to such persons, firms, associations, or corporations, and for such consideration,
as the Board of Directors shall from time to time, in its discretion, determine whether or not
greater consideration could be received upon the issue or sale of the same number of shares of
another class, and as otherwise permitted by law. The Board of Directors shall have the power to
cause the Corporation to purchase any class of stock herein or hereafter authorized from such
persons, firms, associations, or corporations, and for such consideration, as the Board of
Directors shall from time to time, in its discretion, determine, whether or not less consideration
could be paid upon the purchase of the same number of shares of another class, and as otherwise
permitted by law.
(h) Amendments. In addition to any other vote provided for by law, by these Articles or by
the By-Laws of the Corporation or by the Board of Directors, the affirmative vote of at least a
majority of the vote cast by the holder of shares of Common Stock, voting as a separate group, at
any meeting of shareholders shall be required to amend, alter, or repeal any provision of Article
4(e).
5.
The location of the principal office of the Corporation shall be in Dougherty County, Georgia,
but the Corporation shall have the privilege of establishing branch offices and places of business
both within and without the State of Georgia.
6.
The bylaws of the Corporation shall be adopted by the stockholders and such bylaws shall
provide for the officers of the Corporation, the manner of their selection and such other rules
appropriate to bylaws which have as their purpose the control and management of the Corporation,
including provisions whereby the bylaws may be amended.
7.
No director of the Corporation shall be personally liable to the Corporation or its
shareholders for monetary damages for breach of duty of care or other duty as a director; provided,
however, that to the extent required by applicable law, this Paragraph 7 shall not eliminate or
limit the liability of a director (i) for any appropriation, in violation of his duties, of any
business opportunity of the Corporation; (ii) for acts or omissions which involve intentional
misconduct or a knowing violation of law; (iii) for the types of liability set forth in Section
14-2-
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832 of the Georgia Business Corporation Code; or (iv) for any transaction from which the
director derived an improper personal benefit. If applicable law is amended to authorize corporate
action further eliminating or limiting the liability of directors, then the liability of each
director of the Corporation shall be eliminated or limited to the fullest extent permitted by
applicable law, as amended. Neither the amendment nor repeal of this Paragraph 7 nor the adoption
of any provision of these Articles of incorporation inconsistent with the Paragraph 7 shall
eliminate or reduce the effect of this Paragraph 9 in respect of any acts or omissions occurring
prior to such amendment, repeal or adoption of an inconsistent provision.
8.
The Corporation may acquire its own shares and any such shares that are reacquired shall
become treasury shares.
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exv3w2
Exhibit 3.2
GRAY TELEVISION, INC.
BYLAWS
ARTICLE I
OFFICES
The principal office of the corporation in the State of Georgia shall be located in the City of
Albany, County of Dougherty. The corporation may have such other offices, either within or without
the State of Georgia, as the Board of Directors may designate or as the business of the corporation
may require from time to time.
ARTICLE II
STOCKHOLDERS
Section 1. ANNUAL MEETING. Commencing in 1973, the annual meeting of stockholders shall be held on
the third Tuesday in November of each year at such hour as the Board of Directors may determine,
for the purpose of electing directors and for the transaction of such other business as may come
before the meeting, provided that the Board of Directors may designate some other date in any
particular year for the annual meeting. If the day fixed for the annual meeting shall be a legal
holiday in the State of Georgia, such meeting shall be held on the next succeeding business day.
If the election of directors shall not be held on the day designated for any annual meeting of
stockholders, or at any adjournment thereof, the Board of Directors shall cause the election to be
held at a special meeting of the stockholders as soon thereafter as conveniently may be.
Section 2. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the Chairman of the Board, or by the
President, or by the Board of Directors, and shall be called by the President at the request of the
holders of not less than one-third of all outstanding shares of the corporation entitled to vote at
a meeting, such request shall state the purpose of purposes of the proposed meeting.
Section 3. PLACE OF MEETING. The Board of Directors may designate any place in or out of the State
of Georgia as the place of meeting for any annual meeting or for any special meeting called by the
Board of Directors. If no designation is made, or if a special meeting be otherwise called, the
place of meeting shall be the principal office of the Company in the State of Georgia.
Section 4. NOTICE OF MEETING. Written or printed notice stating the place, day and hour of
meeting, and in case of a special meeting, the purpose or purposes for which the meeting is called,
shall be delivered not less than ten nor more than sixty days before the date of the meeting,
either personally or by mail, by or at the direction of the President, or the Secretary, or the
officer or persons calling the meeting, to each stockholder of record entitled to vote at such
meeting. If mailed, the notice shall be deemed to be delivered when deposited in the United States
mail, addressed to the stockholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid. Any stockholder may waive notice of any meeting,
whether before or after said meeting.
Section 5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of determining
stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or stockholders entitled to receive payment of any dividend, or in order to make a
determination of stockholders for any other proper purpose, the Board of Directors of the
corporation may provide that the stock transfer books shall be closed for a stated period not to
exceed in any case, fifty days; provided notice of the closing of the stock transfer books is
published prior to the commencement of the stated period in the manner, form and within such time
limitations as now or hereafter may be required by law. If the stock transfer books shall be
closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least ten days immediately preceding such meeting.
In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as
the record date for any such determination of stockholders, such date in any case to be not more
than seventy days, and, in case of a meeting of stockholders, not less than ten days prior to the
date on which the particular action, requiring such determination of stockholders, is to be taken;
provided notice is published prior to such date in the manner, form and within such time
limitations as now or hereafter may be required by law. If the stock transfer books are not closed
no record date is fixed for the determination of stockholders entitled to notice of or to vote at a
meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on
which notice of the meeting is mailed or the date on which the resolution of the Board of Directors
declaring such dividend is adopted, as the case may be, shall be the record date for such
determination of stockholders. When a determination of stockholders entitled to vote at any
meeting of stockholders has been made as provided in this section, such determination shall apply
to any adjournment thereof, unless the Board of Directors, as provided in this section, fixes a new
stated period for closing of the stock transfer books or fixes a new record date for the adjourned
meeting.
Section 6. VOTING LISTS. The officer or agent having charge of the stock transfer books for shares
of the corporation shall make, at least ten days before each meeting of stockholders, a complete
list of the stockholders entitled to vote at such meeting, or any adjournment thereof arranged in
alphabetical order, with the address of, and the number of shares held by each, which list, for a
period of ten days prior to such meeting, shall be kept on file at the principal office of the
corporation and shall be subject to inspection of any stockholder at any time during usual business
hours. Such list shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the whole time of the meeting. The
original stock transfer books shall be prima facie evidence as to who are stockholders entitled to
examine such list or transfer books or to vote at any meeting of stockholders.
Section 7. QUORUM. A majority of the shares outstanding of the corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of stockholders. If less
than a majority of the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time without further notice. At such adjourned
meeting at which a quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. The stockholders present at a
duly organized meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
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Section 8. PROXIES. At all meetings of stockholders, a stockholder may vote by proxy executed in
writing by the stockholder or by his duly authorized attorney in fact. Such proxy shall be filed
with the Secretary of the corporation before or at the time of the meeting. No proxy shall be
valid after eleven months from the date of its execution, unless otherwise provided in the proxy.
Section 9. VOTING OF SHARES. All elections by stockholders shall be by ballot unless waived by the
unanimous consent of those stockholders present in person or by proxy in the meeting. The vote on
any questions, upon demand of a stockholder present in person or by proxy, shall be by a stock vote
and by ballot. The stockholders shall have power by a majority vote at any meeting to remove any
director or officer from office.
Section 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the name of another
corporation may be voted by such officer, agent, or proxy as the bylaws of such corporation may
prescribe, or, in the absence of such provision, as the Board of Directors of such corporation may
determine.
Shares held by an administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares standing in the name
of a trustee may be voted by him, either in person or by proxy, but no trustee shall be entitled to
vote shares held by him without a transfer of such shares into his name.
Shares standing in the name of receiver may be voted by such receiver, and shares held by or under
the control of a receiver may be voted by such receiver without the transfer thereof into his name
if authority so to do be contained in an appropriate order of the court by which such receiver was
appointed.
A stockholder whose shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote
the shares so transferred.
Shares of its own stock belonging to the corporation or held by it in a fiduciary capacity shall
not be voted, directly or indirectly, at any meeting, and shall not be counted in determining the
total number of outstanding shares at any given time.
Section 11. INSPECTORS OF ELECTION. At each meeting of the stockholders, the polls shall be opened
and closed, the proxies and ballots shall be received and be taken in charge, and all questions
touching the qualification of voters and the validity of proxies and the acceptance or rejection of
votes, shall be decided by three inspectors. At the first meeting of the Board of Directors held
immediately after the annual meeting of stockholders, the Board of Directors shall appoint three
persons as Inspectors of Election, to serve until the close of the next annual meeting and until
their successors are chosen. In case of a failure to elect inspectors, or in case an inspector
shall fail to attend or refuse or be unable to serve, the Board of Directors may choose an
inspector or inspectors to act at such meeting.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the corporation shall be managed by its
Board of Directors.
Section 2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the Corporation shall be
not less than 3 nor more than 15, the exact number of which may be established by the Board of
Directors. Each Director shall hold office until the next annual meeting of stockholders and until
his or her successor shall have been elected and qualified. A majority of the directors shall be
bona fide residents of the State of Georgia.
Section 3. REGULAR MEETINGS. A regular meeting of the Board of Directors shall be held without
other notice than this bylaw immediately after, and at the same place as, the annual meeting of
stockholders. The Board of Directors may provide, by resolution, the time and place either within
or without the State of Georgia, for the holding of additional regular meetings without other
notice than such resolution.
Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the
request of the Chairman of the Board, the President, or any three directors. The person or persons
authorized to call special meetings of the Board of Directors may fix any place within the State of
Georgia as the place for holding any special meeting of the Board of Directors called by them.
Section 5. NOTICE. Notice of any special meeting shall be given at least five days previously
thereto by written notice delivered personally or mailed to each director at his business address,
or by telegram. If mailed, such notice shall be deemed to be delivered when deposited in the
United States mail so addressed, with postage thereon prepaid. If notice be given by telegram,
such notice shall be deemed to be delivered when the telegram is delivered to the telegraph
company. Any director may waive notice of any meeting. The attendance of a director at a meeting
shall constitute a waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board need be specified in the notice or waiver of notice of such
meeting.
Section 6. QUORUM. A majority of the Board of Directors for the time being in office shall
constitute a quorum for the transaction of business at any meeting of the Board of Directors, but
if less than such majority is present at a meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice.
Section 7. MANNER OF ACTING. The act of the majority of the directors present at a meeting at
which a quorum is present shall be the act of the Board of Directors.
Section 8. VACANCIES. Any vacancy occurring in the Board of Directors may be filled by the
affirmative vote of a majority of the remaining directors though less than a quorum of the Board of
Directors. A director elected to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an increase in the
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number of directors shall be filled by an affirmative vote of a majority of the Board of
Directors but only for a term of office continuing until the next election of directors by the
stockholders and until the election and qualification of the successor.
Section 9. COMPENSATION OF DIRECTORS. By resolution of the Board of Directors, the directors may
be paid their expenses, if any, of attendance at each meeting of the Board of Directors, and may be
paid a fixed sum for attendance at each meeting of the Board of Directors. No such payment shall
preclude any director from serving the corporation in any other capacity and receiving compensation
therefor.
Section 10. PRESUMPTION OF ASSENT. A director of the corporation who is present at a meeting of
the Board of Directors at which action on any corporate matter is taken shall be presumed to have
assented to the action taken unless his dissent shall be entered in the minutes of the meeting or
unless he shall file his written dissent to such action with the person acting as the secretary of
the meeting before the adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
ARTICLE IV
COMMITTEES
Section 1. EXECUTIVE COMMITTEE. At their first meeting after the annual meeting of stockholders,
the Board of Directors shall elect an Executive Committee consisting of not less than three nor
more than five members of the Board, and shall designate its chairman. The Chairman of the Board
of Directors and the President shall be two of the members elected to the committee. During the
intervals between the meetings of the Board of Directors, the executive committee shall possess and
may exercise all the powers of the Board of Directors in the management and direction of the
affairs of the company in all cases in which specific directions shall not have been given by the
Board of Directors. All actions by the executive committee shall be reported to the Board of
Directors at its meeting next succeeding such action, and shall be subject to revision and
alteration by the Board; provided, that no rights of third parties shall be affected by any such
revision or alteration. Regular minutes of the proceedings of the executive committee shall be
kept in a book provided for that purpose. Vacancies in the executive committee shall be filled by
the Board of Directors. A majority of the committee shall be necessary to constitute a quorum, and
in every case the affirmative vote of a majority of the members present shall be necessary for the
passage of any resolution. The Executive Committee may act by the written resolution of a quorum
thereof although not formally convened; it shall fix its own rules of procedure, and shall meet as
provided by such rules or by resolution of the Board, and it shall also meet at the call of the
chairman or of any two members of the committee.
Section 2. MANAGEMENT PERSONNEL COMMITTEE. At the first meeting after the annual meeting of the
stockholders, the Board of Directors shall elect a management personnel committee consisting of not
less than three nor more than five members of the Board and shall designate its chairman. It shall
be the duty of the management personnel committee to make recommendations with respect to executive
salaries, bonuses, and compensation, and it shall be their further duty to serve as the nominating
committee with respect to the principal officers
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and other committees of the Board of Directors, as
well as making nominations respecting membership to the Board of Directors. Regular minutes of the
proceedings of the management personnel committee shall be kept in the book provided for that purpose. Vacancies in the
management personnel committee shall be filled by the Board of Directors. A majority of the
members of the committee shall constitute a quorum, and in every case the affirmative vote of a
majority of the members present shall be necessary for the passage of any resolution. The
management personnel committee may act by the written resolution of a quorum though they are not
formally convened; it shall fix its own rules of procedure and shall meet as provided by such
rules, and it shall meet on the call of the Chairman or any two (2) members of the committee.
Section 3. INTERPRETATION. In these bylaws, unless there is something in the context inconsistent
therewith, the term Board of Directors shall include and embrace the committees herein provided
for to the extent of their delegated authority.
ARTICLE V
OFFICERS
Section 1. NUMBER. The officers of the corporation shall be a Chairman of the Board of Directors,
a president, one or more vice presidents (the number thereof to be determined by the Board of
Directors), a secretary and a treasurer, each of whom shall be elected by the Board of Directors.
Such other officers and assistant officers as may be deemed necessary may be elected or appointed
by the Board of Directors. Any person may hold two or more offices, except that the president may
not also be the secretary of the corporation.
Section 2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected by the Board
of Directors shall be elected annually by the Board of Directors at the first meeting of the Board
held after each annual meeting of the stockholders. If the election of officers shall not be held
at such meeting, such election shall be held as soon thereafter as conveniently may be. Each
officer shall hold office until his successor shall have been duly elected and qualified, or until
his death or until he shall resign or shall have been removed in the manner hereinafter provided.
Section 3. REMOVAL. Any officer or agent elected or appointed by the Board of Directors may be
removed by the Board of Directors whenever in its judgment the best interests of the corporation
would be served thereby.
Section 4. VACANCIES. A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of
the term.
Section 5. SALARIES. The salaries of the officers shall be fixed from time to time by the Board of
Directors and no officer shall be prevented from receiving such salary by reason of the fact that
he is also a director of the corporation.
Section 6. CHAIRMAN OF BOARD OF DIRECTORS. The Chairman of the Board shall be a director and shall
preside, when present, at all meetings of the stockholders and of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of
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Directors from time to time. The Board of Directors may appoint a Vice Chairman of the
Board who shall perform such duties as may be prescribed by the Board of Directors from time to
time.
Section 7. PRESIDENT. The president shall be a director. He shall preside, in the absence of the
Chairman or Vice Chairman, at all meetings of the stockholders or the Board of Directors. He may
sign, with the secretary or any other proper officer of the corporation thereunto authorized by the
Board of Directors, certificates for shares of the corporation, any deeds, mortgages, bonds,
policies of insurance, contracts investment certificates, or other instruments which the Board of
Directors has authorized to be executed, except in cases where the signing and execution thereof
shall be expressly delegated by the Board of Directors or by these bylaws to some other officer or
agent of the corporation, or shall be required by law to be otherwise signed or executed; and in
general shall perform all duties incident to the office of president and such other duties as may
be prescribed by the Board of Directors from time to time.
Section 8. VICE PRESIDENTS. In the absence of the President or in the event of his death or
inability or refusal to act, the Vice President (or in the event there be more than one vice
president, the vice presidents in the order designated at the time of their election) shall perform
the duties of the president, and when so acting, shall have all the powers of and be subject to all
the restrictions upon the president. Any vice president may sign, with the Secretary or an
assistant secretary certificates for shares of the corporation, and shall perform such other duties
as shall from time to time be assigned to him by the President or by the Board of Directors. All
vice presidents shall have such other duties as may be prescribed by the Board of Directors from
time to time. The Board of Directors may from time to time add to the title of Vice President
such additional descriptive prefix as may indicate his service, duty or duties.
Section 9. SECRETARY. The secretary shall:
(a) attend and keep the minutes of the stockholders meetings and of the Board of Directors
meetings in one or more books provided for that purpose;
(b) see that all notices are duly given in accordance with the provisions of these bylaws as
required by law;
(c) be custodian of the corporate records and of the seal of the corporation and see that the
seal of the corporation is affixed to all documents, the execution of which on behalf of the
corporation under its seal is duly authorized;
(d) keep a register of the post office address of each stockholder which shall be furnished to
the secretary by such stockholder,
(e) sign with the president, or a vice president, certificates for shares of the corporation,
the issuance of which shall have been authorized by resolution of the Board of Directors;
(f) have general charge of the stock transfer books of the corporation;
- 7 -
(g) in general perform all duties incident to the office of secretary and such other duties as
from time to time may be assigned to him by the president or by the Board of Directors.
Section 10. TREASURER The treasurer shall give a bond for the faithful discharge of his duties in
such sum and with such surety or sureties as the Board of Directors shall determine. He shall:
(a) have charge and custody of and be responsible for all funds and securities of the
corporation; receive and give receipts for monies due and payable to the corporation from any
source whatsoever, and deposit all such monies in the name of the corporation in such banks, trust
companies, or other depositories as shall be selected in accordance with the provisions of Article
VI of these bylaws; and
(b) in general perform all the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to him by the president or by the Board of Directors.
Section 11. CONTROLLER. The controller shall be the accounting officer of the corporation. He
shall keep adequate and correct accounts of the corporations business transactions, including the
accounts of its assets, liabilities, reserves, gains, losses, capital, surplus, and shares. It
shall be his duty, in conjunction with other proper officers, to enforce budget rules and
regulations and other measures and procedures whereby the business of the company shall be
conducted with the maximum of safety, efficiency, economy, and profit; and he shall see to it that
adequate internal audits are currently and accurately made. He shall, in general, perform all
duties incident to the office of controller and such other duties as from time to time may be
assigned to him by the President or by the Board of Directors.
Section 12. ASSISTANT SECRETARIES AND ASSISTANT TREASURERS. The assistant secretaries and
assistant treasures, in general, shall perform such duties as shall be assigned to them by the
secretary or the treasurer, respectively, or by the Board of Directors.
Section 13. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer, subject to the control of the
Board of Directors, shall be in general charge of the affairs of the corporation and in general
manage, supervise and control all of its business activities and without limitation on the
foregoing shall supervise all the public relations of the Company. Any officer or agent of the
corporation may be suspended and removed by the Chief Executive Officer, subject to ratification or
reinstatement by the Board of Directors, whenever in his judgment the best interest of the
corporation; would be served thereby.
The Board of Directors may designate by resolution either the Chairman of the Board, the Vice
Chairman of the Board (if one), or the President as the Chief Executive Officer, but in the absence
of such a resolution the President shall be the Chief Executive Officer.
ARTICLE VI
CONTRACTS, LOANS. CHECKS AND DEPOSITS
Section 1. CONTRACTS. The Board of Directors may authorize any officer or officers,
agents or agents, to enter into any contract or execute and deliver any instrument, including
- 8 -
contracts or policies of insurance, in the name of and on behalf of the corporation, and such
authority may be general or confined to specific instances.
Section 2. LOANS. No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a resolution of the
Board of Directors. Such authority may be general or confined to specific instances.
Section 3. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the corporation shall be
signed by such officer or officers, agent or agents of the corporation and in such manner as shall
from time to time be determined by resolution of the Board of Directors.
Section 4. DEPOSITS. All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks, trust companies, or
other depositories as the Board of Directors may select.
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. CERTIFICATES FOR SHARES. Certificates representing shares of the
corporation shall be in such form as shall be determined by the Board of Directors. Such
certificates shall be signed by the president or vice president and by the secretary or an
assistant secretary, but when such certificate is signed by a transfer agent and a registrar the
signatures of such president, vice president, secretary or assistant secretary may be facsimiles.
All certificates for shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with the number of shares
and date of issue, shall be entered on the transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be cancelled and no new certificates shall be
issued until the former certificate for a like number of shares shall have been surrendered and
cancelled, except that in case of a lost, destroyed or mutilated certificate a new one may be
issued therefor upon such terms and indemnity to the corporation as the Board of Directors may
prescribe.
Section 2. TRANSFER OF SHARES. Transfer of shares of the corporation shall be made
only on the stock transfer books of the corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to transfer, or by his attorney
thereto authorized by power of attorney duly executed and filed with the secretary of the
corporation, and on surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the corporation shall be deemed by the corporation to be
the owner thereof for all purposes.
Section 3. REGULATIONS. The Board of Directors shall have power and authority to make
all such rules and regulations as respectively they may deem expedient, concerning the issue,
transfer and registration of certificates for shares of the capital stock of the company.
The Board of Directors may appoint one or more transfer agents or assistant transfer agents and one
or more registrars of transfer, and may require all stock certificates to bear the signature of a
transfer agent or assistant transfer agent and a registrar of transfer. The Board of Directors
- 9 -
may at any time terminate the appointment of any transfer agent or any assistant transfer agent or any
registrar of transfers.
ARTICLE VIII
FISCAL YEAR
The fiscal year of the corporation shall begin on the first day of January of each year, and end on
the 31st day of December of the same year.
ARTICLE IX
DIVIDENDS
The Board of Directors may from time to time declare, and the corporation may pay, dividends on its
outstanding shares in the manner and upon the terms and conditions provided by law, its charter,
and these bylaws.
ARTICLE X
ANNUAL STATEMENT
The Board of Directors shall publish and submit to the stockholders, at or in advance of the annual
meeting of stockholders, a statement of the financial condition of the corporation, such statement
to show the income of the corporation during the previous fiscal year and such statement to include
a balance sheet showing the assets and liabilities of the corporation at the end of the preceding
fiscal year.
ARTICLE XI
SEAL
The Board of Directors shall provide a corporate seal which shall be circular in form and shall
have inscribed thereon the name of the corporation and the state of incorporation and the words
Corporate Seal.
ARTICLE XII
WAIVER OF NOTICE
Whenever any notice is required to be given to any stockholder or director of the corporation under
the provisions of these bylaws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to the giving of such notice.
ARTICLE XIII
AMENDMENTS
These bylaws may be altered, amended, or repealed and new bylaws may be adopted by a majority vote
of the stockholders at any regular or special meeting of the stockholders.
- 10 -
ARTICLE XIV
INDEMNIFICATION
Section 1. AUTHORITY TO INDEMNIFY. The corporation shall indemnify or obligate itself to indemnify
an individual made a party to a proceeding because he or she is or was a
director, officer, employee or agent of the Corporation (or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) for reasonable expenses, judgments, fines, penalties and
amounts paid in settlement (including attorneys fees), incurred in connection with the proceeding
of the individual acted in the manner he or she believe in good faith to be in or not opposed to
the best interests of the Corporation and, in the case of any criminal proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful. The termination of a proceeding by a
judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent is
not, of itself, determinative that the director, officer, employee or agent did not meet the
standard of conduct set forth above. Indemnification permitted under this section in connection
with a proceeding by or in the right of the corporation is limited to reasonable expenses incurred
in connection with the proceeding.
Section 2. MANDATORY INDEMNIFICATION. To the extent that a director, officer, employee or agent of
the Corporation has been successful, on the merits or otherwise, in the defense of any proceeding
to which he or she was a party, or in defense of any claim, issue or matter therein, because he or
she is or was a director, officer, employee or agent of the Corporation, the Corporation shall
indemnify the director, employee or agent against reasonable expenses incurred by him or her in
connection therewith.
Section 3. ADVANCE FOR EXPENSES. The Corporation shall pay for or reimburse the reasonable
expenses incurred by a director, officer, employee or agent of the Corporation who is a party to a
proceeding in advance of final disposition of the proceeding if (a) he or she furnishes the
Corporation written affirmation of his or her good faith belief that he or she has met the standard
of conduct set forth in Section 1 of this Article, and (b) he or she furnishes the Corporation a
written undertaking, executed personally or on his or her behalf, to repay any advances if it is
ultimately determined that he or she is not entitled to indemnification. The undertaking required
by this section must be an unlimited general obligation, but need not be secured and may be
accepted without reference to financial ability to make repayment.
Section 4. COURT-ORDERED INDEMNIFICATION AND ADVANCES FOR EXPENSES. A director, officer, employee
or agent of the Corporation who is a party to a proceeding may apply for indemnification or
advances for expenses to the court conducting the proceeding or to another court of competent
jurisdiction.
Section 5. DETERMINATION OF INDEMNIFICATION. Except as provided in Section 2 and except as may be
ordered by the court, the Corporation may not indemnify a director, officer, employee or agent
under Section 1 unless authorized thereunder and a determination has been made in the specific case
that indemnification of the director, officer, employee or agent is permissible in the
circumstances because he or she has met the standard of conduct set forth in Section 1. The
determination shall be made:
- 11 -
(a) by the Board of Directors by majority vote of a quorum consisting of directors not at the
time parties to the proceeding;
(b) if a quorum cannot be obtained, by majority vote of a committee duly designated by the
Board of Directors (in which designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to the proceeding;
(c) by special legal counsel:
(i) selected by the Board of Directors or its committee in the manner prescribed in paragraph
(a) or (b) of this section; or
(ii) if a quorum of the Board of Directors cannot be obtained and committee cannot be
designated, selected by majority vote of the full Board of Directors (in which selection directors
who are parties may participate); or
(d) by the shareholders, but shares owned by or voted under the control of directors, who are
at the time parties to the proceeding, may not be voted on the determination.
Section 6. AUTHORIZATION OF INDEMNIFICATION. Authorization of indemnification or determination of
an obligation to indemnify and evaluation as to the reasonableness of expenses shall be made in the
same manner as the determination that indemnification is permissible, except that if the
determination is made by the special legal counsel, authorization of indemnification and evaluation
as to reasonableness of expenses shall be made by those entitled under subsection (c) of Section 5
to select counsel.
Section 7. OTHER RIGHTS. The indemnification and advancement of expenses provided by or granted
pursuant to this Article XIV shall not be deemed exclusive of any other rights, in respect of
indemnification or otherwise, to which those seeking indemnification or advancement of expenses may
be entitled under any bylaw, resolution, agreement or contract either specifically or in general
terms approved by the affirmative vote of the holders of a majority of the share entitled to vote
thereon taken at a meeting the notice of which specified that such bylaw, resolution or agreement
would be placed before the stockholders, both as to action by a director, trustee, officer,
employee or agent in his or her official capacity and as to action in another capacity while
holding such office or position, except that no such other rights, in respect to indemnification or
otherwise, may be provided or granted to a director, trustee, officer, employee or agent pursuant
to this Section 7 by the Corporation for liability for (a) any appropriation, in violation of his
or her duties, of any business opportunity of the Corporation; (b) acts of omissions not in good
faith or which involve intentional misconduct or a knowing violation of law; (c) the types of
liability set forth in Section 14-2-832 of the Georgia Business Corporation Code dealing with
illegal or unauthorized distributions of corporate assets, whether as dividends or in liquidation
of the Corporation or otherwise; or (d) any transaction from which the director derived an improper
material tangible personal benefit.
Section 8. INSURANCE. The Corporation may purchase and maintain insurance on behalf of an
individual who is or was a director, officer, employee or agent of the Corporation or who, while a
director, officer, employee or agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent of another
- 12 -
foreign or domestic corporation, partnership, joint venture, trust, employee benefit plan or other enterprise
against liability asserted against or incurred by him or her in that capacity or arising
from his or her status as a director, officer, employee or agent whether or not the Corporation
would have power to indemnify him or her against the same liability under this Article XIV.
Section 9. CONTINUATION OF EXPENSES. The indemnification and advancement of expenses provided by
or granted pursuant to this Article XIV shall continue as to a person who has ceased to be a
director, trustee, officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
Section 10. If applicable law is amended to authorize corporate action further eliminating or
limiting the liability of directors, then the liability of each director of the Corporation shall
be eliminated or limited to the fullest extent permitted by applicable law, as amended. Neither
the amendment nor repeal of this Article XIV, nor the adoption of any provision of these Bylaws
inconsistent with this Article XIV, shall eliminate or reduce the effect of this Article XIV in
respect of any acts of omission occurring prior to such amendment, repeal or adoption of any
inconsistent provision.
- 13 -
exv21w1
EXHIBIT 21.1
List of
Subsidiaries
Gray Television, Inc.
As of December 31, 2009
|
|
|
Name of Subsidiary
|
|
Jurisdiction of Incorporation
|
|
WVLT-TV,
Inc.
|
|
Georgia
|
Gray Television Group, Inc.
|
|
Delaware
|
Gray Television Licensee, LLC
|
|
Nevada
|
exv23w1
EXHIBIT 23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the
Registration Statements on
Form S-8
(Nos.
333-160362,
333-156012,
333-143493,
333-117248
and
333-17773)
of Gray Television, Inc. of our report dated April 6, 2010
relating to our audits of the consolidated financial statements,
financial statement schedule and internal control over financial
reporting, which appears in this Annual Report on
Form 10-K
of Gray Television, Inc. for the year ended December 31,
2009.
/s/ MCGLADREY &
PULLEN, LLP
Ft. Lauderdale, Florida
April 6, 2010
exv31w1
EXHIBIT 31.1
I, Hilton H. Howell, Jr., certify that:
1. I have reviewed this annual report on
Form 10-K
of Gray Television, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
|
|
|
|
By:
|
/s/ Hilton
H. Howell, Jr.
|
Vice-Chairman and Chief Executive Officer
Date: April 6, 2010
exv31w2
EXHIBIT 31.2
I, James C. Ryan, certify that:
1. I have reviewed this annual report on
Form 10-K
of Gray Television, Inc.;
2. Based on my knowledge, this report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and
other financial information included in this report, fairly
present in all material respects the financial condition,
results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrants other certifying officer(s) and I
are responsible for establishing and maintaining disclosure
controls and procedures (as defined in Exchange Act Rules
13a-15(e)
and
15d-15(e))
and internal control over financial reporting (as defined in
Exchange Act
Rules 13a-15(f)
and
15d-15(f))
for the registrant and have:
a) designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be designed
under our supervision, to ensure that material information
relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is
being prepared;
b) designed such internal control over financial reporting,
or caused such internal control over financial reporting to be
designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles;
c) evaluated the effectiveness of the registrants
disclosure controls and procedures and presented in this report
our conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period covered by
this report based on such evaluation; and
d) disclosed in this report any change in the
registrants internal control over financial reporting that
occurred during the registrants most recent fiscal quarter
(the registrants fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably
likely to materially affect, the registrants internal
control over financial reporting; and
5. The registrants other certifying officer(s) and I
have disclosed, based on our most recent evaluation of internal
control over financial reporting, to the registrants
auditors and the audit committee of the registrants board
of directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
registrants ability to record, process, summarize and
report financial information; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant role in the
registrants internal control over financial reporting.
Senior Vice President and Chief Financial Officer
Date: April 6, 2010
exv32w1
EXHIBIT 32.1
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying annual report on
Form 10-K
of Gray Television, Inc. (the Company) for
the year ended December 31, 2009 (the Periodic
Report), the undersigned Chief Executive Officer of
the Company, hereby certifies pursuant to Title 18,
Section 1350 United States Code, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, to the best
of his individual knowledge and belief, that the Periodic Report
fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that the
information contained in the Periodic Report fairly presents, in
all material respects, the financial condition and results of
operations of the Company.
/s/ Hilton
H. Howell, Jr.
Hilton H. Howell, Jr.,
Vice-Chairman and Chief Executive Officer
Date: April 6, 2010
A signed original of this written statement required by
Section 906 has been provided to Gray Television, Inc. and
will be retained by Gray Television, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished pursuant to
18 U.S.C. Section 1350. It is not being filed for
purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and it is not to be incorporated by reference
into any filing of the Company, regardless of any general
incorporation language in such filing.
exv32w2
EXHIBIT 32.2
CERTIFICATION
PURSUANT TO 18 U.S.C. SECTION 1350
In connection with the accompanying annual report on
Form 10-K
of Gray Television, Inc. (the Company) for the year
ended December 31, 2009 (the Periodic Report),
the undersigned Chief Financial Officer of the Company, hereby
certifies pursuant to Title 18, Section 1350 United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, to the best of his individual
knowledge and belief, that the Periodic Report fully complies
with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 and that the information
contained in the Periodic Report fairly presents, in all
material respects, the financial condition and results of
operations of the Company.
James C. Ryan,
Senior Vice President and Chief Financial Officer
Date: April 6, 2010
A signed original of this written statement required by
Section 906 has been provided to Gray Television, Inc. and
will be retained by Gray Television, Inc. and furnished to the
Securities and Exchange Commission or its staff upon request.
The foregoing certification is being furnished pursuant to
18 U.S.C. Section 1350. It is not being filed for
purposes of Section 18 of the Securities Exchange Act of
1934, as amended, and it is not to be incorporated by reference
into any filing of the Company, regardless of any general
incorporation language in such filing.