Edgar Filing: GRAY TELEVISION INC

Gray Television, Inc.

This prospectus supplement relates to an effective registration statement under the Securities Act of 1933, but is not complete and may be changed. This prospectus supplement and the accompanying prospectus are not an offer to sell these securities or the solicitation of an offer to buy these securities in any jurisdiction where such offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED SEPTEMBER 3, 2002


PROSPECTUS SUPPLEMENT		Filed pursuant to Rule 424(b)(5)
(to Prospectus dated September 3, 2002)		Registration No. 333-88694

$100,000,000

GRAY TELEVISION, INC.

9 1/4% Senior Subordinated Notes Due 2011

The Company:


	•	We generate our revenues primarily from our 13 network-affiliated television stations in 11 medium-sized markets located in the Southeast, Southwest and Midwest and four daily newspapers located in the Southeast and Midwest.

	•	We recently signed a definitive merger agreement to acquire 15 television stations from Stations Holding Company, Inc., the parent of Benedek Broadcasting Corporation. These stations are located in the Southeast, Midwest and South.

	•	We will use the net proceeds of this offering to repay borrowings under our senior credit facility.

	•	On July 25, 2002 we changed our name to “Gray Television, Inc.” from “Gray Communications Systems, Inc.”

The Notes:


	•	These notes are in addition to $180,000,000 principal amount of our 9 1/4% Senior Subordinated Notes due 2011 we issued on December 21, 2001. The notes we are offering will be issued under the same indenture, will have the same terms and will form a single series with our existing notes. The notes will mature on December 15, 2011.

	•	Interest on the notes will accrue from June 15, 2002 and we will pay interest twice a year on June 15 and December 15, beginning December 15, 2002.

	•	The notes will be our unsecured senior subordinated obligations.

	•	Generally, we cannot redeem the notes before December 15, 2006. On and after that date, we may redeem them at the rates set forth on page S-39 of this prospectus supplement. However, before December 15, 2004, we can redeem up to 35% of the original principal amount of the notes at 109.250% of their principal amount, plus accrued and unpaid interest, with the proceeds of certain public equity offerings of our company.

You should consider carefully the risk factors beginning on page S-13 of this prospectus supplement and on page 3 of the accompanying prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of the notes or passed upon the adequacy or accuracy of this prospectus supplement or the accompanying prospectus. Any representation to the contrary is a criminal offense.


	Per Note
			Total


Public Offering Price(1)		%	$

Underwriting Discounts and Commissions		%	$

Proceeds to Us (before expenses)		%	$


(1)	Plus accrued interest on the notes from June 15, 2002 to the date of delivery.

The underwriters expect that delivery of the notes will be made on or about September 12, 2002 in book-entry form only through the facilities of The Depository Trust Company.

Joint Book-Running Managers

Wachovia Securities

Banc of America Securities LLC

Deutsche Bank Securities

Allen & Company LLC

The date of this prospectus supplement is , 2002.

TABLE OF CONTENTS


FORWARD-LOOKING STATEMENTS
PROSPECTUS SUPPLEMENT SUMMARY
RISK FACTORS
USE OF PROCEEDS
CAPITALIZATION
BUSINESS OF GRAY TELEVISION, INC.
MANAGEMENT
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PRINCIPAL SHAREHOLDERS
DESCRIPTION OF THE NOTES
BOOK-ENTRY; DELIVERY AND FORM
SUMMARY OF CERTAIN UNITED STATES TAX CONSIDERATIONS
UNDERWRITING
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION BY REFERENCE
ABOUT THIS PROSPECTUS
INDUSTRY, MARKET AND RANKING DATA
PROSPECTUS SUMMARY
RISK FACTORS
FORWARD-LOOKING STATEMENTS
USE OF PROCEEDS
RATIO OF EARNINGS TO FIXED CHARGES
THE MERGER
THE MERGER AGREEMENT AND RELATED AGREEMENTS
INFORMATION REGARDING GRAY
SELECTED STATION AND MARKET INFORMATION REGARDING GRAY AND STATIONS
BUSINESS OF STATIONS HOLDING COMPANY, INC.
STATIONS SELECTED FINANCIAL DATA
STATIONS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
UNAUDITED PRO FORMA FINANCIAL DATA
DESCRIPTION OF CERTAIN INDEBTEDNESS
DESCRIPTION OF CAPITAL STOCK
DESCRIPTION OF DEBT SECURITIES
PLAN OF DISTRIBUTION
LEGAL MATTERS
EXPERTS
WHERE YOU CAN FIND MORE INFORMATION
INCORPORATION BY REFERENCE
INDEX TO FINANCIAL STATEMENTS OF STATIONS HOLDING COMPANY, INC.

IMPORTANT NOTICE ABOUT INFORMATION IN THIS PROSPECTUS SUPPLEMENT

AND THE ACCOMPANYING PROSPECTUS

This document is in two parts. The first part is the prospectus supplement, which describes the specific terms of the 9 1/4% senior subordinated notes due 2011 being offered, which we refer to as the “offered notes.” The second part, the base prospectus, gives more general information, some of which may not apply to the offered notes. Generally, when we refer to the “prospectus,” we are referring to both parts combined, and when we refer to the “accompanying prospectus,” we are referring to the base prospectus.

If the description of the offered notes varies between the prospectus supplement and the accompanying prospectus, you should rely on the information in the prospectus supplement.

In this prospectus supplement and the documents incorporated by reference, we rely on and refer to market information regarding the television industry from BIA Financial Network, Inc.’s MEDIA Access Pro™ Version 3.1, updated as of July 1, 2002, which we refer to as “BIA.” We also rely on and refer to market information regarding the television industry from Nielsen Station Index, Viewers in Profile, dated May 2002, as prepared by A.C. Nielsen Company, which we refer to as “Nielsen.” Although we believe that the information obtained from third parties is reliable, we have not independently verified the accuracy and completeness of the information. To the extent this information contains forward-looking statements, readers of this prospectus supplement are cautioned that these statements involve risks and uncertainty and that actual results may differ materially from those in these statements, similarly to that described in “Forward-Looking Statements.” All statements as to station ranking in this prospectus supplement are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the “Selected Station and Market Information Regarding Gray and Stations” section in the tables titled “Competitive Landscape,” incorporated herein by reference to our Current Report on Form 8-K filed on July 17, 2002, are based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period.

When we refer in this prospectus supplement to our markets, we include Hazard, Kentucky as a separate market. Hazard, Kentucky is a special 16 county trading area defined by Nielsen and is part of the Lexington, Kentucky designated market area. We pay Nielsen to conduct the special Hazard, Kentucky trading area study.

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT


	Page

Forward-Looking Statements		iv
Prospectus Supplement Summary		S-1
Risk Factors		S-13
Use of Proceeds		S-18
Capitalization		S-19
Business of Gray Television, Inc.		S-20
Management		S-29
Certain Relationships and Related Party Transactions		S-32
Principal Shareholders		S-34
Description of the Notes		S-36
Book-Entry; Delivery and Form		S-62
Summary of Certain United States Tax Considerations		S-65
Underwriting		S-70
Legal Matters		S-72
Experts		S-72
Where You Can Find More Information		S-72
Incorporation by Reference		S-72

ACCOMPANYING PROSPECTUS


	Page

About this Prospectus		ii
Industry, Market and Ranking Data		ii
Prospectus Summary		1
Risk Factors		3
Forward-Looking Statements		17
Use of Proceeds		18
Ratio of Earnings to Fixed Charges		18
The Merger		19
The Merger Agreement and Related Agreements		21
Information Regarding Gray		29
Selected Station and Market Information Regarding Gray and Stations		34
Business of Stations Holding Company, Inc.		48
Stations Selected Financial Data		55
Stations Management’s Discussion and Analysis of Financial Condition and Results of Operation		58
Unaudited Pro Forma Financial Data		69
Description of Certain Indebtedness		80
Description of Capital Stock		82
Description of Debt Securities		84
Plan of Distribution		92
Legal Matters		92
Experts		92
Where You Can Find More Information		93
Incorporation by Reference		93
Index to Financial Statements of Stations Holding Company, Inc.		F-1

You should rely only on the information contained or incorporated by reference in this prospectus supplement and the accompanying prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus supplement, the accompanying prospectus and the documents incorporated by reference is accurate only as of their respective dates. Our business, financial condition, results of operations and prospects may have changed since those dates.

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FORWARD-LOOKING STATEMENTS

This prospectus supplement contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this prospectus supplement, the words “believes,” “expects,” “anticipates,” “estimates” and similar words and expressions are generally intended to identify forward-looking statements. Statements that describe our future strategic plans, goals or objectives, including our plans, goals and objectives with respect to our merger with Stations Holding Company, Inc., which we refer to as “Stations,” are also forward-looking statements. Readers of this prospectus supplement are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of our management or us, 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 in the forward-looking statements as a result of various factors including, but not limited to:


	•	the factors described in “Risk Factors” beginning on page S-13 of this prospectus supplement and on page 3 of the accompanying prospectus;

	•	general economic conditions in the markets in which we and Stations operate;

	•	competitive pressures in the markets in which we and Stations operate;

	•	the effect of future legislation or regulatory changes on our operations;

	•	high debt levels; and

	•	other factors described from time to time in our filings with the Securities and Exchange Commission, which we sometimes refer to as the “SEC.”

The forward-looking statements included in this prospectus supplement are made only as of the date hereof. We undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

PROSPECTUS SUPPLEMENT SUMMARY

In this prospectus supplement, unless otherwise indicated, the words “Gray,” “our,” “us” and “we” refer to Gray Television, Inc. (formerly known as Gray Communications Systems, Inc.) and its subsidiaries. Our discussion of the television stations that we own and operate does not include our interest in the stations owned by Sarkes Tarzian, Inc., which we refer to as “Tarzian.”

On July 25, 2002, we changed our name to “Gray Television, Inc.” from “Gray Communications Systems, Inc.” On August 30, 2002, we changed our ticker symbols to “GTN.A” from “GCS” for our class A common stock and to “GTN” from “GCS.B” for our class B common stock on the New York Stock Exchange. On September 16, 2002, we plan to hold a stockholder vote to approve a change in the name of our class B common stock. If the proposal passes, the new name of our class B common stock will be “Common Stock.”

This summary highlights selected information from this document and the materials incorporated by reference and does not contain all of the information that is important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus supplement, the accompanying prospectus and the documents to which we have referred you.

Our Business

We currently own and operate 13 network affiliated television stations in 11 medium-sized markets in the Southeast, Southwest and Midwest United States. Eleven of our 13 stations are ranked first in total viewing audience and news audience, with the remaining two stations ranked second in total viewing audience and second or third in news audience. Ten of our stations are affiliated with CBS Inc., or “CBS,” and three are affiliated with National Broadcasting Company, Inc., or “NBC.”

Since 1993, we have grown primarily through strategic acquisitions. Our significant historic acquisitions have included 12 television stations, three newspapers, a transportable satellite uplink business and a paging business. As a result of our acquisitions and in support of our growth strategy, we have added experienced members to our management team and have greatly expanded our operations in the television broadcasting business.

On June 4, 2002, we executed a merger agreement with Stations, the parent company of Benedek Broadcasting Corporation, which we refer to as “Benedek.” We plan to acquire 15 television stations from Stations. Stations is required under the merger agreement to sell its additional nine designated television stations to third parties prior to the merger. In consideration for Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations in accordance with an amended plan of reorganization filed by Stations with the United States bankruptcy court in Delaware on July 9, 2002. We expect the merger, if it closes, to be completed during the fourth quarter of 2002.

We believe that the merger represents an excellent opportunity for us to acquire complementary television stations that will create significant operational and financial benefits. These benefits include increased economies of scale, greater geographic and network diversification, access to additional operating cash flow, cross-promotion opportunities and the potential to increase and enhance our local franchises. Upon the completion of the proposed merger, we will own and operate 28 television stations serving 24 markets with a strong presence in the Southeast, Southwest, Midwest and Great Lakes regions of the United States. The combined station group will include 15 CBS affiliates, seven NBC affiliates and six American Broadcasting Corporation, or “ABC,” affiliates. In addition, our 15 CBS affiliates will make us the largest independent owner of CBS affiliated stations in the country. Pro forma for the acquisition, 25 of our 28 television stations will rank first or second in viewing audience and 24 of our 28 television stations will rank first or second in local news within their respective markets. In addition, our station group will reach approximately 5% of total U.S. TV households.

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We also own and operate four daily newspapers, three located in Georgia and one in Goshen, Indiana, with a total daily circulation of approximately 126,000. In addition, we own and operate a paging business located in the Southeast that had approximately 68,000 units in service at June 30, 2002.

For the year ended December 31, 2001, pro forma for the Stations acquisition, our television stations would have produced $214.0 million of net revenue and $84.7 million of broadcast cash flow. Including our publishing and other operations, we would have produced $263.9 million of net revenue and $97.0 million of media cash flow, on a pro forma basis in 2001.

We are a Georgia corporation formed in 1891. Our principal offices are located at 4370 Peachtree Road, NE, Atlanta Georgia 30319, and our telephone number is (404) 504-9828.

Operating & Growth Strategy

We attribute our success to date and our current opportunities to increase our revenue, media cash flow and audience share to the successful implementation of our core operating strategies, the principal components of which are to:


	•	*Focus on Local News and Programming to Maintain a Strong Local Franchise.* We currently operate 13 network affiliated television stations serving 11 markets, with 12 of our 13 stations ranked first or second in local news. After completion of the merger, we will operate 28 network affiliated television stations serving 24 markets, with 24 of our 28 stations ranked first or second in local news. We endeavor to make each of our television stations a highly recognizable, local brand and believe that providing the leading source for local news and programming in our markets enables us to strengthen audience loyalty and increase viewership among attractive demographic audiences.

	•	*Continue to Develop Innovative Local Sales and Targeted Marketing Initiatives.* We employ an experienced, high-quality local sales force at each station to increase advertising revenue by leveraging our local brand. We believe that a focused, tailored advertising solution is very attractive to local advertisers, who have historically been a more stable source of revenue than national advertisers. In 2001, approximately 59% of our net television advertising revenue was generated from our local advertisers and pro forma for the proposed merger with Stations, approximately 60% of our net television advertising revenue would have been generated from our local advertisers.

	•	*Capitalize on Leading Network Brands in Markets with Limited Competition.* Currently, ten of our stations are affiliated with CBS and three are affiliated with NBC, representing approximately 81% and 19% of our total television revenue in 2001, respectively. Following the completion of the merger, we will have a broad and diverse portfolio of 28 affiliated television stations located in 24 markets, of which 15 are affiliated with CBS, seven are affiliated with NBC and six are affiliated with ABC, representing approximately 56%, 29% and 15% of our total pro forma net television revenue in 2001, respectively. Additionally, we will be the largest independent owner of CBS affiliated stations. We believe that our markets are less competitive than larger designated market areas, which we refer to as “DMAs.” Of our 24 markets, 16 markets are served by four TV stations or fewer, and seven markets are served by three or fewer television stations. Our markets also typically have fewer radio stations than larger DMAs.

	•	*Pursue Strategic Acquisitions to Expand and Enhance Regional Clusters.* We have acquired and integrated successfully 12 of our 13 television stations since 1993, and have signed a definitive agreement to acquire an additional 15 television stations from Stations. After giving effect to the proposed merger, our television stations will be located in several distinct regions throughout the United States, diminishing potential adverse effects on our business caused by specific regional economic fluctuations. We believe that we are well positioned to participate in further consolidation of our industry, including opportunities that may arise as a result of regulatory changes, such as owning more than one television station in a market.

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	•	*Attract and Retain High-Quality Management.* We believe that high-quality management at both the corporate and station level is critical to the successful implementation of our strategy. We use equity incentives to attract and retain station general managers with proven track records. Members of our senior management team have extensive experience in operating, managing and acquiring television stations. Additionally, our station managers have an average of over 21 years of industry experience with individual industry experience ranging from 11 to 32 years.

	•	*Maintain Strict Financial Planning and Cost Controls.* We employ a comprehensive ongoing strategic planning and budgeting process that enables us to continually identify and implement cost savings at each station, and is designed to increase our media cash flow. We believe that owning and operating 28 television stations will enable us to achieve economies of scale and reduce expenses for syndicated programming, capital equipment and vendor services.

	•	*Increase Advertising Revenue and Circulation at Our Newspaper Publishing Operations.* We seek to increase advertising revenues and circulation at each of our four newspapers by creating a highly recognizable local brand by focusing on the depth and quality of our coverage of local news, sports and lifestyles and through community involvement. We are able to differentiate our publications from larger competitors and build reader loyalty by becoming the primary source for local news and advertising information within each of our target markets. Our newspaper strategy is led by senior managers and publishers who have an average of over 32 years of experience in the newspaper business with individual industry experience ranging from 20 to 40 years.

Our senior management team has extensive experience in operating and managing our businesses, and is led by: J. Mack Robinson, President & Chief Executive Officer; Robert Prather, Executive Vice President-Acquisitions; James Ryan, Vice President and Chief Financial Officer; and, following the completion of the merger, James Yager, President of Benedek. Our publishing operations are led by Thomas J. Stultz, Vice President and President-Publishing. As of July 2, 2002, our directors and executives as a group owned or controlled 59.3% of our combined voting common stock.

Merger Summary

This section of the prospectus supplement describes certain material aspects of the proposed merger. This summary does not contain all of the information that is important to you. You should carefully read the entire registration statement, the accompanying prospectus and the other documents to which we refer you, including the merger agreement, for a more complete understanding of the merger.

The Merger

On June 4, 2002, we executed a merger agreement with Stations, the parent company of Benedek. The merger agreement provides that we will acquire Stations by merging our newly formed wholly-owned subsidiary, Gray MidAmerica Television, Inc., which we refer to as “Gray MidAmerica,” into Stations. In consideration for Stations, we will pay an estimated consideration of $502.5 million in cash, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations in accordance with an amended plan of reorganization filed by Stations with the United States bankruptcy court in Delaware on July 9, 2002. We intend to finance the merger by incurring approximately $250 million of additional indebtedness and issuing approximately $275 million of equity. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

Lock Up Agreements

On June 4, 2002, in connection with the transactions contemplated by the merger agreement, Stations and we entered into Lock Up, Voting and Consent Agreements with certain stockholders and creditors of Stations. Under these lock up agreements, these persons agreed to, among other things, support and vote their shares in favor of a Stations bankruptcy plan that will give effect to the transactions contemplated by

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the merger agreement. As of the date of this prospectus supplement, Stations has received executed lock up agreements from holders of 97.9% of the outstanding senior preferred stock, 98.8% of the outstanding junior preferred stock, 100% of the outstanding class B common stock, and 94.6% of the outstanding aggregate principal amount of the senior subordinated discount notes.

In addition, stockholders who signed a lock up agreement and hold Stations senior preferred stock have agreed to pay to us, if Stations receives an offer from a third party to purchase more than 50% of Stations’ outstanding senior preferred stock, and such offer is approved by the bankruptcy court, a termination fee of $15.0 million. The liability of each stockholder is limited to an amount determined by multiplying $15.0 million by such stockholder’s pro rata interest in the total number of shares of senior preferred stock whose holders signed lock up agreements.

The United States trustee in the Stations bankruptcy proceeding has asserted that the lock up agreements contravene the federal bankruptcy code and cannot be enforced against a party if it chooses not to vote for the Stations bankruptcy plan. The bankruptcy court has not ruled with respect to the U.S. trustee’s assertions, but Stations believes that the lock up agreements are enforceable under applicable law.

The Letter of Credit and the Escrow Shares

Conditions to the Merger

The parties’ obligations to consummate the merger and related transactions generally are subject to the satisfaction or waiver of the following conditions after which we are required by the merger agreement to consummate the merger within seven days:


	•	the bankruptcy court approving the order confirming Stations’ amended plan of reorganization and such confirmation order becoming a final bankruptcy court order;

	•	the Federal Communications Commission, “FCC,” approving the transactions contemplated by the merger agreement, without any condition or qualification materially adverse to us or our subsidiaries or Stations or its subsidiaries, or materially adverse to our acquisition of control of Stations and its subsidiaries;

	•	all regulatory waiting periods applicable to the merger agreement and the related transactions expiring or terminating;

	•	subject to limited exceptions, the sale by Benedek of nine television stations to third parties; and

	•	the satisfaction of other customary conditions specified in the merger agreement.

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Sale of Certain Designated Benedek Stations Prior to the Merger

Benedek has sold or plans to sell, prior to the effective time of the merger, a total of nine designated television stations, which we refer to as the “excluded stations.” Benedek plans to sell eight of the excluded stations to Chelsey Broadcasting Company, LLC, a Delaware limited liability company, which we refer to as “Chelsey,” or its affiliates pursuant to an asset purchase agreement. Benedek already has sold its television station in Wheeling, West Virginia to a third party on April 30, 2002. Benedek intends to use the net proceeds of these sales to repay indebtedness under its senior secured credit facility. The sale of the nine designated television stations is a condition to the merger.

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The Offering

The summary below describes the principal terms of the offered notes. Some of the terms and conditions described below are subject to important limitations and exceptions. For a more detailed description of the terms and conditions of the offered notes, see “Description of the Notes,” beginning on page S-36.


Issuer		Gray Television, Inc.

Securities Offered		$100.0 million principal amount of 9 1/4% senior subordinated notes due 2011.

		The offered notes will be issued under the same indenture and will have the same terms as our outstanding $180.0 million 9 1/4% senior subordinated notes due 2011, which we refer to as the “2001 notes,” all of which have been exchanged through an exchange offer for notes that are registered under the Securities Act of 1933, as amended, and are freely transferable.

Maturity Date		December 15, 2011

Interest Rate		9 1/4% per year (calculated using a 360-day year)

Interest Payment Dates		June 15 and December 15 of each year, beginning on December 15, 2002

Optional Redemption		We may redeem:

		• all or part of the original principal amount of the offered notes beginning on December 15, 2006, at the redemption prices stated in “Description of the Notes — Redemption” plus accrued and unpaid interest;

		• up to 35% of the original principal amount of the offered notes and the 2001 notes at any time prior to December 15, 2004 at a price of 109.250% of the principal amount thereof plus accrued and unpaid interest, with the proceeds of certain public equity offerings of our company; and

		• all but not part of the offered notes and the 2001 notes at any time prior to December 15, 2006 at a price equal to 100% of the principal amount thereof plus accrued and unpaid interest, if any, to the date of redemption plus a make whole premium based upon the present value of the remaining payments thereon.

Change of Control		Upon a change in control, defined as the acquisition by any persons of beneficial ownership of more than 35% of the voting power of the outstanding shares of our common stock, transfers of substantially all of our assets, certain substantial changes in our board of directors, certain consolidations or mergers of our company involving a significant change in shareholdings or the liquidation of our company, we will be required to make an offer to repurchase all of the outstanding offered notes and outstanding 2001 notes at 101% of the aggregate principal amount thereof plus accrued and unpaid interest to the date of purchase. Under certain circumstances, we may not be required to make a change of control offer. See “Description of the Notes — Change of Control.”

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Ranking and Subordination		The offered notes will be our general unsecured obligations subordinated in right of payment to all of our existing and future senior indebtedness, including all of our obligations under our amended and restated senior secured credit facility dated as of September 25, 2001, which we refer to as the “senior secured credit facility.” As of June 30, 2002, we had senior indebtedness of $200.0 million funded under our senior secured credit facility. We have unused availability of $37.5 million under our senior secured credit facility after giving effect to the $12.5 million undrawn letter of credit. See “Description of the Notes — Subordination.”

Subsidiary Guarantees		The offered notes will be guaranteed, jointly and severally, fully and unconditionally, on a senior subordinated basis by each of the guarantors, which consist of all of our subsidiaries. The obligations of a guarantor under its guarantee of the offered notes will be subordinated in right of payment, to the same extent as our obligations under the offered notes, to all existing and future senior indebtedness of such guarantor, which will include any guarantee by it of our indebtedness under our senior secured credit facility.

Basic Indenture Covenants		The indenture governing the offered notes contains certain covenants that, among other things, limit our ability to (1) transfer or issue shares of capital stock of subsidiaries to third parties, (2) pay dividends or make certain other payments, (3) incur additional indebtedness, (4) issue preferred stock, (5) incur liens to secure our indebtedness, (6) apply net proceeds from certain asset sales, (7) enter into certain transactions with affiliates or (8) merge with or into any other person. See “Description of the Notes — Covenants.”

Use of Proceeds		We will use the net proceeds of this offering primarily to repay a portion of the borrowings under our senior secured credit facility. See “Use of Proceeds.”

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Summary Historical Consolidated Financial Data

Set forth below is our summary historical consolidated financial data. The financial data for, and as of the end of, each of the years in the five-year period ended December 31, 2001 was derived from the audited consolidated financial statements included in our Annual Reports on Form 10-K and from other information in the Annual Reports. The financial data for, and as of the six month periods ended June 30, 2002 and 2001 was derived from our unaudited accounting records and have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all normal and recurring adjustments and accruals necessary for a fair presentation of such information. More comprehensive financial information is included in the Annual Reports and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002. The financial information that follows is qualified in its entirety by reference to, and should be read in conjunction with, the Annual Reports, the Quarterly Reports and all of the financial statements and related notes contained in the Annual Reports and the Quarterly Reports.



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(dollars in thousands except per share data)
Statements of Operations Data:
Revenues
	Broadcast (less agency commissions)	$	72,300		$	91,007		$	97,015		$	120,640		$	106,430		$	52,575		$	55,006
	Publishing		24,536			29,330			37,808			41,499			41,189			19,927			21,216
	Paging		6,712			8,553			9,130			9,074			8,725			4,405			4,083

Total revenues			103,548			128,890			143,953			171,213			156,344			76,907			80,305

Operating expenses
	Broadcast, publishing and paging		65,771			82,783			93,994			105,314			104,025			50,846			50,149
	Corporate and administrative		2,528			3,063			3,448			3,594			3,615			1,829			2,116
	Depreciation and amortization		14,519			18,117			24,451			31,207			30,824			15,696			7,433

Total operating expenses			82,818			103,963			121,893			140,115			138,464			68,371			59,698

Operating income			20,730			24,927			22,060			31,098			17,880			8,536			20,607
Gain on disposition of television stations			—			72,646			—			—			—			—			—
Valuation adjustments of goodwill and other assets			—			(2,074	)		—			—			—			—			—
Appreciation (depreciation) in value of derivative, net			—			—			—			—			(1,581	)		(961	)		730
Miscellaneous income (expense), net			(31	)		(242	)		336			780			194			98			97

Income (loss) before interest expense, income taxes, extraordinary charge and cumulative effect of accounting change			20,699			95,257			22,396			31,878			16,493			7,673			21,434
Interest expense			21,861			25,454			31,021			39,957			35,783			18,167			16,866

Income (loss) before income taxes, extraordinary charge and cumulative effect of accounting change			(1,162	)		69,803			(8,625	)		(8,079	)		(19,290	)		(10,494	)		4,568
Income tax expense (benefit)			240			28,144			(2,310	)		(1,867	)		(5,972	)		(3,232	)		1,616

Net income (loss) before extraordinary charge and cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		2,952
Extraordinary charge on extinguishment of debt			—			—			—			—			—			—			(7,318	)

Net income (loss) before cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		(4,366	)
Cumulative effect of accounting change, net			—			—			—			—			—			—			(30,592	)

Net income (loss)			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		(34,958	)
Preferred dividends			1,410			1,318			1,010			1,012			616			308			803
Non-cash preferred dividends associated with preferred stock redemption			—			3,360			—			2,160			—			—			3,969

Net income (loss) available to common stockholders		$	(2,812	)	$	36,981		$	(7,325	)	$	(9,384	)	$	(13,934	)	$	(7,570	)	$	(39,730	)

S-8



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(dollars in thousands except per share data)
Other Data:
Media cash flow(d)		$	38,061		$	46,624		$	50,944		$	66,247		$	53,074		$	26,411		$	30,520
Media cash flow margin(d)			36.8%			36.2%			35.4%			38.7%			33.9%			34.3%			38.0%
Operating cash flow(e)		$	35,533		$	43,561		$	47,496		$	62,653		$	49,459		$	24,582		$	28,404
Operating cash flow margin(e)			34.3%			33.8%			33.0%			36.6%			31.6%			32.0%			35.4%
Cash flows provided by (used in):
	Operating activities	$	9,744		$	20,074		$	20,842		$	22,765		$	16,823		$	8,268		$	3,355
	Investing activities		(57,498	)		(55,299	)		(126,780	)		(8,276	)		(186,165	)		(2,679	)		154,741
	Financing activities		49,071			34,744			105,839			(14,061	)		167,685			(6,109	)		(143,184	)
Capital expenditures			10,372			9,271			11,712			5,702			7,593			2,597			8,133
Ratio of total debt to operating cash flow																					7.1x	(g)
Ratio of operating cash flow to interest expense																					1.6	(g)
Balance Sheet Data (at end of period):
Cash and cash equivalents		$	2,367		$	1,887		$	1,787		$	2,215		$	169,115	(f)	$	1,695		$	15,470
Total intangible assets, net			263,425			376,015			526,434			511,616			497,311			504,458			457,633
Total assets			345,051			468,974			658,157			636,772			794,337	(f)		616,870			595,911
Long-term debt (including current portion)			227,076			270,655			381,702			374,887			551,444	(f)		368,557			378,878
Preferred stock			11,111			7,371			7,371			4,637			4,637			4,637			39,234
Total stockholders’ equity			92,295			126,703			168,188			155,961			142,196			148,765			98,288


(a)	Reflects the operating results of our acquisition of substantially all of the assets of WITN-TV and our acquisition of all of the outstanding common stock of GulfLink Communications, Inc. as of their respective acquisition dates, August 1, 1997 and April 24, 1997.

(b)	Reflects the operating results of our acquisition of all of the outstanding capital stock of Busse Broadcasting Corporation and our related acquisition of the assets of WEAU-TV in exchange for the assets of WALB-TV as of July 31, 1998, the closing date of the respective transactions. See Note B to our audited consolidated financial statements incorporated by reference in this prospectus.

(c)	Reflects the operating results of our acquisition of all of the outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company, as well as the assets of KXII Broadcasters Ltd., completed on October 1, 1999, and our acquisition of substantially all of the assets of The Goshen News from News Printing Company, Inc. and its affiliates, completed on March 1, 1999, as of their respective acquisition dates. See Note B to our audited consolidated financial statements incorporated by reference in this prospectus.

(d)	Media cash flow is defined as operating income, plus depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and corporate overhead, less payments for program broadcast obligations. Media cash flow margin is defined as media cash flow divided by revenues.

(e)	Operating cash flow is defined as media cash flow less corporate overhead. Operating cash flow margin is defined as operating cash flow divided by revenues.

	We have included media cash flow, operating cash flow and certain related calculations because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. Media cash flow, operating cash flow and certain related calculations are not, and should not, be used as an indicator or alternative to operating income, net income or cash flow as reflected in our consolidated financial statements. Media cash flow, operating cash flow and certain related calculations are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.

S-9

(f)

On December 21, 2001, we deposited $168.6 million with the trustee of our 10 5/8% Senior Subordinated Notes due 2006 to redeem those notes, including payment of principal, the applicable premium costs and accrued interest through the redemption date of January 22, 2002. Total assets include the $168.6 million reflected as restricted cash for redemption of long-term debt and long-term debt(including current portion) includes the related $155.2 million of our 10 5/8% notes that were extinguished on January 22, 2002.


(g)	Represents ratios for the 12 months ended June 30, 2002.

(h)	The following table presents the transitional disclosures regarding the adoption of SFAS 142:



															Six Months Ended
	Year Ended December 31,														June 30,

	1997(a)			1998(b)		1999(c)			2000			2001			2001			2000


	(dollars in thousands except per share data)
Reported net income (loss) before extraordinary charge and cumulative effect of accounting	$	(1,402	)	$	41,659	$	(6,315	)	$	(6,212	)	$	(13,318	)	$	(7,262	)	$	2,952
Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		4,175			5,697		8,499			11,022			11,033			5,516			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	2,773		$	47,356	$	2,184		$	4,810		$	(2,285	)	$	(1,746	)	$	2,952

S-10

Summary Unaudited Pro Forma Financial Data

The unaudited pro forma combined condensed statements of operations for the six months ended June 30, 2002 and June 30, 2001 reflect the transactions associated with the acquisition of Stations as if they had been completed on January 1, 2001. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2001 reflects these transactions as if they had been completed on January 1, 2001. The June 30, 2002 unaudited pro forma combined condensed balance sheet reflects these transactions as if they had been completed on June 30, 2002. The unaudited pro forma financial statements are presented under “Unaudited Pro Forma Financial Data” in the accompanying prospectus.

The unaudited pro forma financial data presented below is for illustrative purposes only and is not necessarily indicative of the operating results that would have actually occurred had the acquisition of Stations been completed, nor is it necessarily indicative of future operating results. The unaudited pro forma financial data should be read in conjunction with our consolidated financial statements and notes thereto incorporated by reference in this prospectus, and in conjunction with Stations’ consolidated financial statements and notes thereto included in the accompanying prospectus. See “Unaudited Pro Forma Financial Data” included in the accompanying prospectus for further information about the compilation of the unaudited pro forma financial data.



					Pro Forma Six
		Pro Forma			Months Ended
		Year Ended			June 30,
		December 31,
		2001			2001			2002

Statements of Operations Data:
Revenues
	Broadcast (less agency commissions)	$	213,991		$	104,603		$	109,647
	Publishing		41,189			19,927			21,216
	Paging		8,725			4,405			4,083

Total revenues			263,905			128,935			134,946

Operating expenses
	Broadcast, publishing and paging		168,032			83,729			83,091
	Corporate and administrative		7,251			3,861			4,023
	Depreciation and amortization		40,406			20,487			12,224

Total operating expenses			215,689			108,077			99,338

Operating income			48,216			20,858			35,608
Interest expense			53,797			27,245			25,944
Appreciation (depreciation) in value of derivative, net			(1,581	)		(961	)		730
Miscellaneous income, net			353			185			153

Income (loss) from continuing operations before provision for (benefit from) income taxes			(6,809	)		(7,163	)		10,547
Income tax expense (benefit)			(946	)		(1,727	)		3,853

Net income (loss) from continuing operations			(5,863	)		(5,436	)		6,694
Preferred dividends			3,200			1,600			1,600

Net income (loss) from continuing operations available to common stockholders		$	(9,063	)	$	(7,036	)	$	5,094

Other Data:
Media cash flow(a)		$	97,008		$	45,609		$	51,897
Media cash flow margin(a)			36.8	%		35.4	%		38.5	%
Operating cash flow(b)		$	89,757		$	41,748		$	47,874
Operating cash flow margin(b)			34.0	%		32.4	%		35.5	%
Capital expenditures		$	21,283		$	8,314		$	12,776
Ratio of total debt to operating cash flow									6.6(c	)
Ratio of operating cash flow to interest expense									1.8(c	)

S-11


	Pro Forma
	June 30,
	2002

Balance Sheet Data (at end of period):
Cash and cash equivalents	$	5,241
Total intangible assets, net		1,028,377
Total assets		1,234,219
Long-term debt (including current portion)		636,999
Preferred stock		39,234
Total stockholders’ equity		351,668


(a)	Media cash flow is defined as operating income, plus depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and corporate overhead, less payments for program broadcast obligations. Media cash flow margin is defined as media cash flow divided by revenues.

(b)	Operating cash flow is defined as media cash flow less corporate overhead. Operating cash flow margin is defined as operating cash flow divided by revenues.

We have included media cash flow, operating cash flow and certain related calculations because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. Media cash flow, operating cash flow and certain related calculations are not, and should not, be used as an indicator or alternative to operating income, net income or cash flow as reflected in our consolidated financial statements. Media cash flow, operating cash flow and certain related calculations are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.


(c)	Represents ratios for the 12 months ended June 30, 2002.

(d)	The following table presents the transitional disclosures regarding the adoption of SFAS 142:



				Pro Forma Six
	Pro Forma			Months Ended
	Year Ended			June 30,
	December 31,
	2001			2001			2002

Reported net income (loss) before extraordinary charge and cumulative effect of accounting change	$	(5,863	)	$	(5,436	)	$	6,694
Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		11,033			5,516			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	5,170		$	80		$	6,694

S-12

RISK FACTORS

You should carefully consider the following risk factors and the additional risk factors described in the accompanying prospectus, as well as other information contained in this prospectus supplement, the accompanying prospectus or incorporated herein by reference, before purchasing any of the offered notes.

We depend on the cash flow of our subsidiaries to satisfy our obligations, including our obligations under the offered notes.

Our operations are conducted through our direct and indirect wholly-owned subsidiaries, which guarantee the offered notes, jointly and severally, fully and unconditionally, on an unsecured senior subordinated basis. As a holding company, we own no significant assets other than our equity in our subsidiaries, and we are dependent upon the cash flow of our subsidiaries to meet our obligations. Accordingly, our ability to make interest and principal payments when due to holders of the offered notes and our ability to purchase the offered notes upon a change of control is dependent upon the receipt of sufficient funds from our subsidiaries, which may be restricted by the terms of any senior indebtedness of our subsidiaries, including the terms of existing and future guarantees of our indebtedness given by our subsidiaries. There can be no assurance that the funds received from our subsidiaries will be adequate to allow us to make payments on the offered notes. As a result, the offered notes and the subsidiary guarantees effectively are subordinated to all senior indebtedness and other liabilities and commitments of our subsidiaries.

Your right to receive payment on the offered notes and under the guarantees is junior to all of our and the guarantors’ senior debt.

All indebtedness under our senior secured credit facility is secured by substantially all of our assets, as well as the assets of our subsidiaries. Additionally, the offered notes and the guarantees are subordinated to the claims of the lenders under our senior secured credit facility.

In the event that we or a guarantor is declared bankrupt, becomes insolvent or is liquidated or reorganized, any debt that ranks ahead of the offered notes and the guarantees will be entitled to be paid in full in cash or cash equivalents or in any other manner acceptable to holders of senior debt from our assets or the assets of the guarantor, as applicable, before any payment may be made with respect to the offered notes or under the affected guarantees. In any of these events, we cannot assure you that we would have sufficient assets to pay amounts due on the offered notes. As a result, holders of the offered notes may receive less, proportionally, than the holders of debt that is senior to the offered notes and the guarantees. The subordination provisions of the indenture also provide that we can make no payment to you during the continuance of payment defaults on our senior debt, and payments to you may be suspended for a period of up to 179 days if a nonpayment default exists under our senior debt. See “Description of the Notes — Subordination” for additional information.

As of June 30, 2002, we had senior indebtedness of $200.0 million funded under our senior secured credit facility. We have unused availability of $37.5 million under our senior secured credit facility after giving effect to the $12.5 million undrawn letter of credit. The interest rate on the balance outstanding was 5.3%. In conjunction with the merger, we intend to amend our existing credit facility or enter into a new credit facility. In addition, our indenture and our senior secured credit facility permit, subject to specified limitations, the incurrence of additional indebtedness, which may be senior indebtedness. If we incur such additional indebtedness, the risks described above could intensify. See “Description of the Notes — Covenants” included elsewhere herein and “Description of Certain Indebtedness” in the accompanying prospectus for additional information.

S-13

Our indebtedness could materially and adversely affect our business and prevent us from fulfilling our obligations under the offered notes.

After completion of this offering, we will be highly leveraged and will have significant fixed debt service obligations in addition to our operating expenses. Our indebtedness could have significant adverse effects on our business. For example, it could:


	•	increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;

	•	reduce the availability of our cash flow to fund working capital, capital expenditures and other general business purposes;

	•	limit our flexibility in planning for, or reacting to, changes in our industries, making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressure;

	•	place us at a competitive disadvantage compared to our competitors that have less debt; and

	•	limit our ability to borrow additional funds.

If our indebtedness affects our operations in these ways, our business, financial condition and results of operations could suffer, making it more difficult for us to satisfy our obligations under the offered notes. Furthermore, the indenture governing the offered notes and our senior secured credit facility permit us to incur substantial amounts of additional debt in specified circumstances. If we incur additional debt in the future, the related risks could intensify.

Covenant restrictions under the indenture may limit our ability to operate our business.

The indenture governing the offered notes contains covenants that may restrict our ability and the guarantors’ ability to finance future operations or capital needs or to engage in other business activities.

In addition, the indenture governing the offered notes restricts, among other things, our ability and the guarantors’ ability to:


	•	incur additional indebtedness;

	•	make specified restricted payments;

	•	make specified asset sales;

	•	incur liens;

	•	engage in intra-company transactions, such as the payment of dividends and the making of loans or advances;

	•	engage in transactions with affiliates;

	•	issue and sell capital stock of our subsidiaries; and

	•	engage in a merger, consolidation or sale of substantial assets.

We cannot assure you that we will meet the covenants in the indenture or that the holders of the offered notes that are party to the indenture will waive any failure to meet these covenants. A breach of any of these covenants would result in a default under the indenture, and may in turn result in a default under our senior secured credit facility. If an event of default occurs under our senior secured credit facility and continues beyond any applicable cure period, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If our indebtedness were to be accelerated, there can be no assurance that we would be able to pay it. Such acceleration would have a material adverse effect on our financial condition. See “Description of Certain Indebtedness” in the accompanying prospectus and “Description of the Notes” included elsewhere in this prospectus supplement.

S-14

The guarantees may not be enforceable because of fraudulent conveyance laws.

We are a holding company with no direct operations and no significant assets other than the stock of our subsidiaries. We will depend on funds from our subsidiaries to meet our obligations, including cash interest payments on the offered notes. If a court voids the guarantees, your right as a holder of offered notes to participate in any distribution of the assets of any of our subsidiaries upon the liquidation, reorganization or insolvency of a subsidiary will be subject to the prior claims of that subsidiary’s creditors.

Our subsidiaries’ guarantees may be subject to review under U.S. federal bankruptcy laws or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of the guarantors’ unpaid creditors. Although laws differ among various jurisdictions, in general under fraudulent conveyance laws a court could subordinate or avoid a guarantee if it is found that:


	•	the debt under the guarantee was incurred with the actual intent to hinder, delay or defraud creditors; or

	•	a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee and a guarantor:


	•	was insolvent or was rendered insolvent because of its guarantee;

	•	was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital; or

	•	intended to incur, or believed that we or it would incur, debts beyond its ability to pay upon maturity (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes).

It may be asserted that, since the guarantors incurred their guarantees for our benefit, they incurred the obligations under the guarantees for less than reasonably equivalent value or fair consideration.

The standards for determining insolvency for purposes of the foregoing considerations will vary depending upon the law of the jurisdiction that is being applied in any such proceeding. Generally, a company would be considered insolvent if, at the time it issued the guarantee, either:


	•	the sum of its debts, including contingent liabilities, is greater than its assets, at fair valuation; or

	•	the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and matured.

We believe that, at the time the guarantors initially incur the debt represented by the guarantees, the guarantors will not be insolvent or rendered insolvent by the incurrence of the debt, be lacking sufficient capital to run their businesses effectively or be unable to pay obligations on the guarantees as they mature or become due.

In reaching the foregoing conclusions, we have relied upon our analyses of internal cash flow projections and estimated values of the assets and liabilities of the guarantors. We cannot assure you, however, that a court passing on the same questions would reach the same conclusions.

If a guarantee is voided as a fraudulent conveyance or found to be unenforceable for any other reason, you will not have a claim against that particular guarantor and you will only be a creditor of any guarantor whose obligation was not set aside or found to be unenforceable.

S-15

There is no assurance that an active trading market for the offered notes will develop or, if it develops, that it will continue.

There is an existing market for the 2001 notes and we expect that there will be a market for the offered notes; however, there is no assurance that a market for the offered notes will develop or, if it develops, that it will continue. We cannot assure you with respect to:


	•	the liquidity of a market for the offered notes;

	•	your ability to sell the offered notes; or

	•	the price at which you will be able to sell the offered notes.

The offered notes could trade at prices that may be higher or lower than their principal amount or purchase price, depending on many factors, including the number of holders of the offered notes, prevailing interest rates, the market for similar notes, our financial performance and prospects and the prospects for companies in our industry generally. We do not intend to list the offered notes on any securities exchange or to seek approval for quotations through any automated quotation system. A market in the offered notes has been made by the underwriters, who have advised us that they currently anticipate to continue making a market in the offered notes, but they are not obligated to do so and may discontinue making a market at any time without notice.

We may not be able to finance a change of control offer required by the indenture.

If we were to experience a change of control, the indenture governing the offered notes requires us to offer to purchase all of the notes then outstanding at 101% of their principal amount, plus accrued interest to the date of purchase. If a change of control were to occur, we cannot assure you that we would have sufficient funds to purchase the offered notes. The purchase of the offered notes may require additional third-party financing and we cannot assure you that we would be able to obtain that financing on favorable terms or at all.

In addition, our senior secured credit facility restricts our ability to purchase the offered notes, even when we are required to do so by the indenture in connection with a change of control. Furthermore, similar change of control events will result in an event of default under our senior secured credit facility and could cause the acceleration of our debt thereunder. The inability to repay that debt, if accelerated, and to purchase all of the tendered offered notes in the event of a change of control, would constitute an event of default under the indenture.

We may enter into transactions, including acquisitions, refinancings or recapitalizations, or highly leveraged transactions, that do not constitute a change of control under the indenture governing the offered notes. Any of these transactions may result in an increase in our debt or otherwise affect our capital structure, harm our credit ratings or have a material adverse effect on holders of the offered notes.

The guarantors may be released under certain circumstances.

Any guarantee of a guarantor may be released if we sell, exchange or transfer the stock of that guarantor or substantially all of its assets to a non-affiliate and the guarantor no longer guarantees any of our other debt. The indenture also permits us to sell a majority interest and retain a minority interest in a subsidiary engaged in our paging or satellite business and does not require that subsidiary to remain as a guarantor of the offered notes.

Because a significant portion of our assets are intangible, they may have little value upon a liquidation.

S-16

sufficient to satisfy our obligations to our creditors and debtholders, including the holders of the offered notes.

Restrictions under our existing senior secured credit facility limit our flexibility.

Our existing senior secured credit facility prevents us from taking certain actions and requires us to meet certain tests. These limitations and tests include the following:


	•	limitations on liens;

	•	limitations on additional debt;

	•	limitations on dividends and distributions;

	•	limitations on management and consulting fees;

	•	limitations on stock repurchases;

	•	limitations on transactions with affiliates;

	•	limitations on guarantees;

	•	limitations on asset sales;

	•	limitations on sale-leaseback transactions;

	•	limitations on acquisitions;

	•	limitations on changes in our business;

	•	limitations on mergers and other corporate reorganizations;

	•	limitations on loans, investments and advances, including investments in joint ventures and foreign subsidiaries; and

	•	financial ratio and condition tests.

These restrictions and tests may prevent us from taking action that could increase the value of our securities, or may require actions that decrease the value of our securities. In addition, we may fail to meet the tests and thereby default under our senior secured credit facility. If we default on our obligations, creditors could require immediate payment of the obligations or foreclose on collateral. If this happens, we could be forced to sell assets or take other action that would reduce the value of our securities.

Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.

Our ability to service our debt depends on our ability to generate significant cash flow in the future. This, to some extent, is subject to general economic, financial, competitive, legislative and regulatory factors as well as other factors that are beyond our control. In addition, the ability to borrow funds under our senior secured credit facility in the future will depend on our meeting the financial covenants in that agreement. We cannot assure you that our business will generate cash flow from operations, or that future borrowings will be available to us under our senior secured credit facility or otherwise, in an amount sufficient to enable us to pay our debt 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 additional capital. Additional debt or equity financing may not be available in sufficient amounts 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 obligations.

S-17

USE OF PROCEEDS

We estimate that the net proceeds of this offering will be approximately $97.5 million, after deducting the underwriting discount and estimated offering expenses. We expect to use the net proceeds of this offering primarily to repay a portion of the borrowings under our senior secured credit facility. We intend to use any remaining proceeds for general corporate purposes, including capital expenditures and to meet working capital needs.

As of June 30, 2002, the interest rate on our outstanding borrowings of $200.0 million under our senior secured credit facility was 5.3%. See “Description of Certain Indebtedness — Senior Secured Credit Facility” in the accompanying prospectus for a description of how the interest rate is calculated. The final maturity date for any outstanding amounts under the revolving credit facility is December 31, 2008 and for any outstanding amounts under the term facility is September 30, 2009. We used our outstanding borrowings for our general corporate purposes.

S-18

CAPITALIZATION

The following table sets forth our cash and cash equivalents and capitalization as of June 30, 2002


	•	on an actual basis;

	•	as adjusted to give effect to the issuance of the offered notes; and

	•	pro forma as adjusted to give effect to the issuance of the offered notes and the merger.

The information set forth below should be read in conjunction with “Information Regarding Gray — Selected Historical Consolidated Financial Data” and “Unaudited Pro Forma Financial Data” in the accompanying prospectus, “Use of Proceeds” included elsewhere in this prospectus supplement and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes incorporated in this prospectus supplement by reference to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.



		As of June 30, 2002

								Pro Forma As
					As Adjusted for			Adjusted for
		Actual			this Offering			the Merger


		(dollars in thousands)
Cash and cash equivalents		$	15,470		$	12,970		$	5,241

Long-term debt:
	Senior Credit Facility(a)	$	200,000		$	100,000		$	353,092
	9 1/4% senior subordinated notes due 2011 net of unamortized issue discount of $1,370		178,630			278,630			278,630
	Other		248			248			5,277

			378,878			378,878			636,999
	Less current portions		(202	)		(202	)		(2,181	)

Total long-term debt			378,676			378,676			634,818

Series C Redeemable Convertible Preferred Stock			39,234			39,234			39,234

Stockholders’ Equity:
	Class A Common Stock		20,173			20,173			20,173
	Class A Common — Treasury Stock		(8,339	)		(8,339	)		(8,339	)
	Class B Common Stock		118,721			118,721			375,721
	Accumulated Deficit		(32,268	)		(32,268	)		(35,887	)

Total Stockholders’ Equity			98,287			98,287			351,668

	Total Capitalization	$	516,197		$	516,197		$	1,025,720

(a)

Amounts outstanding as of June 30, 2002 for actual and for as adjusted for this offering do not include a $12.5 million standby letter of credit which we have issued in connection with the merger with Stations. As of June 30, 2002 we had senior indebtedness of $200.0 million funded under our senior secured credit facility. We have unused availability of $37.5 million under our senior secured credit facility after giving effect to the $12.5 million undrawn letter of credit.

S-19

BUSINESS OF GRAY TELEVISION, INC.

Our Business

On June 4, 2002, we executed a merger agreement with Stations, the parent company of Benedek. We plan to acquire 15 television stations from Stations. Stations is required under the merger agreement to sell its additional nine designated television stations to third parties prior to the merger. In consideration for Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations in accordance with an amended plan of reorganization filed by Stations with the United States bankruptcy court in Delaware on July 9, 2002. We expect the merger, if it closes, to be completed during the fourth quarter of 2002.

We believe that the merger represents an excellent opportunity for us to acquire complementary television stations that will create significant operational and financial benefits. These benefits include increased economies of scale, greater geographic and network diversification, access to additional operating cash flow, cross-promotion opportunities and the potential to increase and enhance our local franchises. Upon the completion of the proposed merger, we will own and operate 28 television stations serving 24 markets with a strong presence in the Southeast, Southwest, Midwest and Great Lakes regions of the United States. The combined station group will include 15 CBS affiliates, seven NBC affiliates and six ABC affiliates. In addition, our 15 CBS affiliates will make us the largest independent owner of CBS affiliated stations in the country. Pro forma for the acquisition, 25 of our 28 television stations will rank first or second in viewing audience and 24 of our 28 television stations will rank first or second in local news within their respective markets. In addition, our station group will reach approximately 5% of total U.S. TV households.

Operating & Growth Strategy


	•	*Focus on Local News and Programming to Maintain a Strong Local Franchise.* We currently operate 13 network affiliated television stations serving 11 markets, with 12 of our 13 stations ranked first or second in local news. After completion of the merger with Stations, we will operate 28 network affiliated television stations serving 24 markets, with 24 of our 28 stations ranked first or second in local news. We endeavor to make each of our television stations a highly recognizable,

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		local brand through the depth, quality and focus of its local news, programming and community involvement. We believe that providing the leading source for local news and programming in our markets enables us to strengthen audience loyalty and increase viewership among attractive demographic audiences. As a result, we believe that the strength of our local franchises enables us to maximize advertising revenues from local, regional and national accounts. We believe that our commitment to local news, programming and community involvement is essential to our ability to serve each of the communities in which we operate and provides us with a strong competitive advantage.

	•	*Continue to Develop Innovative Local Sales and Targeted Marketing Initiatives.* We employ an experienced, high-quality local sales force at each station to increase advertising revenue by leveraging our local brand. In 2001, approximately 59% of our net television advertising revenue was generated from our local advertisers and pro forma for the proposed merger with Stations, approximately 60% of our net television advertising revenue would have been generated from our local advertisers. Additionally, our net revenue from local television advertisers represented approximately 67% of the combined total of our local and national net advertising revenues and, pro forma for the proposed merger with Stations, approximately 68% of the combined total of our local and national net advertising revenues would have been generated from local television advertisers. Our goal is to develop customized advertising campaigns for our customers, which directly target their desired audience and address their long-term advertising objectives. We believe that a focused, tailored advertising solution is very attractive to local advertisers, who have historically been a more stable source of revenue than national advertisers. In addition to focusing on expanding our relationships with existing advertisers, we seek to identify and create new relationships with local, regional and national customers in our markets. Each station’s sales personnel are trained to understand local advertisers’ needs and are required to meet performance standards with respect to client activity, including new customer identification.

	•	*Capitalize on Leading Network Brands in Markets with Limited Competition.* Currently, ten of our stations are affiliated with CBS and three are affiliated with NBC, representing approximately 81% and 19% of our total television revenue in 2001, respectively. Following the completion of the merger, we will have a broad and diverse portfolio of 28 affiliated television stations located in 24 markets, of which 15 are affiliated with CBS, seven are affiliated with NBC and six are affiliated with ABC, representing approximately 56%, 29% and 15% of our total pro forma net television revenue in 2001, respectively. Additionally, we will be the largest independent owner of CBS affiliated stations. Our network affiliations provide our television stations with top-rated programming, which complements and enhances our leading local brand. We believe that our markets are less competitive than larger DMAs. Of our 24 markets, 16 markets are served by four TV stations or fewer, and seven markets are served by three or fewer television stations. Our markets also typically have fewer radio stations than larger DMAs.

	•	*Pursue Strategic Acquisitions to Expand and Enhance Our Regional Clusters.* We have acquired and integrated successfully 12 of our 13 television stations since 1993, and have signed a definitive agreement to acquire an additional 15 television stations from Stations. After giving effect to the proposed merger, our television stations will be located in several distinct regions throughout the United States, with significant presence in the Southeast, Midwest, Texas and Great Lakes regions, diminishing potential adverse effects on our business caused by specific regional economic fluctuations. We believe that we are well positioned to participate in further consolidation of our industry, including opportunities that may arise as a result of future regulatory changes. For example, a number of the FCC’s most restrictive ownership regulations, including newspaper-television cross ownership and television duopoly rules, are currently under review and could be relaxed in the future, providing us with further attractive growth opportunities. In pursuing future acquisitions, we intend to focus on network affiliated television stations in medium-sized markets that offer superior growth. Specifically, we pursue television stations proximate to our existing clusters, as evidenced by the proposed merger with Stations in which five of the 15 television

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		stations we intend to acquire are adjacent to markets in which we currently own and operate television stations. Additionally, we focus on acquiring television stations where we can successfully implement our operating strategies to establish leading local news, increase revenue and audience share, develop relevant regional content and reduce costs.

	•	*Attract and Retain High-Quality Management.* We believe that high-quality management at both the corporate and station level is critical to the successful implementation of our strategy. We use equity incentives to attract and retain station general managers with proven track records. Members of our senior management team have extensive experience in operating, managing and acquiring television stations, and include: J. Mack Robinson, President and Chief Executive Officer; Robert Prather, Executive Vice President- Acquisitions; James Ryan, Vice President and Chief Financial Officer; and after the proposed merger, K. James Yager, currently the President of Benedek. Additionally, our station managers have an average of over 21 years of industry experience with individual industry experience ranging from 11 to 32 years.

	•	*Maintain Strict Financial Planning and Cost Controls.* We employ a comprehensive ongoing strategic planning and budgeting process that enables us to continually identify and implement cost savings at each station, and is designed to increase our media cash flow. We believe that owning and operating 28 television stations will enable us to achieve economies of scale and reduce expenses for syndicated programming, capital equipment and vendor services. Furthermore, we believe that the synergies generated through geographic clustering, further enhanced by the Stations acquisition and the realization of technological and automation efficiencies, will enable us to achieve additional cost savings in the near future.

	•	*Increase Advertising Revenue and Circulation at Our Newspaper Publishing Operations.* We seek to increase advertising revenues and circulation at each of our four newspapers by creating a highly recognizable local brand by focusing on the depth and quality of our coverage of local news, sports and lifestyles and through community involvement. We are able to differentiate our publications from larger competitors and build reader loyalty by becoming the primary source for local news and advertising information within each of our target markets. We also sponsor community events with the objective of strengthening our community relationships. We employ an experienced local sales force to increase advertising revenue by leveraging our local brand. Through our ongoing strategic planning and budgeting process, we continually identify and implement cost savings at each newspaper to increase our media cash flow. In 2001, publishing represented approximately 16% of our total pro forma net revenue. Our newspaper strategy is led by senior managers and publishers who have an average of over 32 years of experience in the newspaper business with individual experience ranging from 20 to 40 years. Our publishing operations are led by Thomas J. Stultz, Vice President and President-Publishing.

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Television Broadcasting

The following is a list of all our stations pro forma following the merger. In markets where we have satellite stations and stations that serve distant communities, the figures have been combined.


																		Station
													FCC		Station			News				In Market
									Network Affiliation				License		Rank			Rank		Commercial		Share of			Television
	DMA						Analog						Renewal		in			In		Stations in		Household			Households(a)
	Rank(a)		Market		Station		Channel		Network		Expiration		Date		DMA(b)			DMA(c)		DMA(d)		Viewing(b)			(in thousands)

*		62		Knoxville, TN		WVLT		8		CBS		12/31/04		8/1/05		2 (tied	)		3		5		22	%		478
		65	Wichita- Hutchinson, KS			KAKE		10		ABC		1/1/06		6/1/06		3			3		4		21	%		453
				(Colby, KS)		KLBY(e)		4		ABC		1/1/06		6/1/06
				(Garden City, KS)		KUPK(e)		13		ABC		1/1/06		6/1/06
*		66		Lexington, KY		WKYT		27		CBS		12/31/04		8/1/05		1			1		5		35	%		436
*		Note (f)		Hazard, KY		WYMT		57		CBS		12/31/04		8/1/05		1			1				39	%		169
		75		Omaha, NE		WOWT		6		NBC		1/1/12		6/1/06		1			1		5		36	%		386
		85		Madison, WI		WMTV		15		NBC		1/1/12		12/1/05		2			2		4		30	%		339
		91		Colorado Springs, CO		KKTV		10		CBS		6/30/05		4/1/06		1			1		5		33	%		306
*		94		Waco-Temple- Bryan, TX		KWTX		10		CBS		12/31/05		8/1/06		1			1		6		42	%		299
*				(Bryan, TX)		KBTX(g)		3		CBS		12/31/05		8/1/06		1			1
*		102	Lincoln-Hastings- Kearney, NE			KOLN		10		CBS		12/31/05		6/1/06		1			1		5		54	%		269
*				(Grand Island, NE)		KGIN(h)		11		CBS		12/31/05		6/1/06
*		106	Greenville- New Bern- Washington, NC			WITN		7		NBC		12/31/11		12/1/04		2			2		4		30	%		251
		111		Lansing, MI		WILX		10		NBC		1/1/12		10/1/05		1			1		4		39	%		238
*		113	Tallahassee, FL- Thomasville, GA			WCTV		6		CBS		12/31/04		4/1/05		1			1		5		57	%		237
*		114		Augusta, GA		WRDW		12		CBS		3/31/05		4/1/05		1			1		4		35	%		234
*		127	La Crosse- Eau Claire, WI			WEAU		13		NBC		12/31/11		12/1/05		1			1		4		39	%		198
		132		Rockford, IL		WIFR		23		CBS		6/30/05		12/1/05		2			1		4		32	%		176
		137	Wausau- Rhinelander, WI			WSAW		7		CBS		6/30/05		12/1/05		1			2		4		42	%		169
		138		Topeka, KS		WIBW		13		CBS		6/30/05		6/1/06		1			1		4		49	%		166
*		159		Panama City, FL		WJHG		7		NBC		12/31/11		2/1/05		1			1		3		50	%		121
*		160		Sherman, TX- Ada, OK		KXII		12		CBS		12/31/05		8/1/06		1			1		2		74	%		119
		172		Dothan, AL		WTVY		4		CBS		6/30/05		4/1/05		1			1		3		69	%		95
		178		Harrisonburg, VA		WHSV		3		ABC		11/1/04		10/1/04		1			1		1		97	%		84
		181		Bowling Green, KY		WBKO		13		ABC		11/1/04		8/1/05		1			1		2		83	%		81
		185		Meridian, MS		WTOK		11		ABC		11/1/04		6/1/05		1			1		3		66	%		70
		186		Parkersburg, WV		WTAP		15		NBC		1/1/12		10/1/05		1			1		1		96	%		63

																										5,437

(Approximately 5% of all

US television households)


	*	Denotes a television station currently owned by Gray.


(a)		Based on data published by Nielsen for the period September 2001 through September 2002.

(b)		Based on Nielsen data for the May 2002 rating period, Sunday to Saturday, 6 a.m. – 2 a.m.

(c)		Based on our review of the Nielsen data for the May 2002 rating period during various news hours.

(d)		Based on stations that BIA has reported at one share or more in three of the four most recent rating periods.

(e)		KLBY and KUPK are satellite stations of KAKE under FCC rules.

(f)		Special 16 county trading area defined by Nielsen and is part of the Lexington, KY DMA.

(g)		KBTX is a satellite station of KWTX under FCC rules.

(h)		KGIN is a satellite station of KOLN under FCC rules.

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	Industry Background

Currently, there is a limited number of channels available for broadcasting in any one geographic area, and the license to operate a television station is granted by the FCC. Television stations that broadcast over the very high frequency band (channels 2-13) of the spectrum generally have some competitive advantage over television stations that broadcast over the ultra-high frequency band (channels above 13) of the spectrum, because the former usually have better signal coverage and operate at a lower transmission cost.

Advertising Sales. Television station revenues primarily are derived from local, regional and national advertising and, to a much lesser extent, from network compensation and revenues from studio and tower space rental and commercial production activities. Advertising rates are based upon a variety of factors, including a program’s popularity among the viewers an advertiser wishes to attract, the number of advertisers competing for the available time, the size and demographic makeup of the market served by the station and the availability of alternative advertising media in the market area. Rates also are determined by a station’s overall ratings and in-market share, as well as the station’s ratings and share among particular demographic groups, which 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 are affected by broad economic trends, affect the broadcast industry in general and the revenues of individual broadcast television stations.

Rating Service Data. All television stations in the country are grouped by Nielsen, a national audience measuring service, into approximately 210 DMAs, that 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.

Description of Network Affiliations. Four major broadcast networks, ABC, NBC, CBS and Fox Broadcasting Company, which we refer to as “FOX,” dominate broadcast television. Additionally, the United Paramount Network, which we refer to as “UPN,” Warner Brothers Network, which we refer to as “WB,” and the Pax TV Network, which we refer to as “Pax TV,” have been launched as additional television networks. An affiliate of FOX, UPN, WB or Pax TV receives a smaller portion of each day’s programming from its network compared to an affiliate of ABC, NBC or CBS.

The affiliation of a station with ABC, NBC or CBS has a significant impact on the composition of the station’s programming, revenues, expenses and operations. A typical affiliate of these networks receives the majority of each day’s programming from the network. This programming, along with network compensation in the form of cash payments, in certain instances, is provided to the affiliate by the network 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 the revenues from time sold during breaks in and between network programs and programs the affiliate produces or purchases from non-network sources. In acquiring programming to supplement programming supplied by the affiliated network, 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. In addition, a television station may acquire programming through barter arrangements. Under barter arrangements, a national program distributor may receive advertising time in exchange for the programming it supplies, with the station paying a reduced fee or no fee for such programming. Most successful commercial television stations obtain their brand identity from locally produced news programs.

In contrast to a station affiliated with a network, a fully independent station purchases or produces all of the programming that it broadcasts, resulting in generally higher programming costs. An independent station, however, retains its entire inventory of advertising time and all the revenues obtained therefrom. As a result of the smaller amount of programming provided by its network, an affiliate of FOX, UPN, WB

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or Pax TV must purchase or produce a greater amount of programming, resulting in generally higher programming costs. These affiliate stations, however, retain a larger portion of the inventory of advertising time and the revenues obtained therefrom compared to stations affiliated with the major networks.

Cable-originated programming is a significant competitor for viewers of broadcast television programming, although no single cable programming network regularly attains audience levels amounting to more than a small fraction of any single major broadcast network. The advertising share of cable networks has increased as a result of the growth in cable penetration (the percentage of television households which are connected to a cable system). Notwithstanding such increases in cable viewership and advertising, over-the-air broadcasting remains the dominant distribution system for mass-market television advertising.

Network Affiliations of the Television Stations. Each of our stations and each of the stations that we intend to acquire in the merger 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 network with which the station is affiliated. In return, the network has the right to sell a substantial majority of the advertising time during such broadcasts. In exchange for every hour that a station elects to broadcast network programming, the network pays the station a specific network compensation fee, which varies with the time of day. Typically, prime-time programming generates the highest hourly network compensation payments. Such payments are subject to increase or decrease by the network during the term of an affiliation agreement with provisions for advance notices and right of termination by the station in the event of a reduction in such payments. In January 2002 we reached a preliminary agreement with NBC on the terms of a new 10-year affiliation agreement for WJHG. The agreement extends WJHG’s affiliation with NBC until December 31, 2011. Effective January 1, 2002, WJHG no longer receives network compensation payments from NBC under the affiliation agreement. In addition, we have preliminarily agreed with NBC to extend the existing affiliation agreements for WITN and WEAU until December 31, 2011. The network aggregate compensation payments made by NBC to WITN and WEAU will remain generally consistent with the terms of the existing agreements until June 30, 2006 for WITN and December 31, 2005 for WEAU, after which times NBC will cease making further compensation payments. We are working with NBC to finalize the definitive agreements with respect to these revised NBC affiliation agreements. As a result of these affiliation agreement renewals with NBC as well as with CBS, network compensation for our three NBC affiliates and our CBS affiliates, KWTX, KBTX and KXII will be phased out over the next few years. Each affiliation agreement is for a definite term and generally contains renewal provisions. Although we historically have renewed network affiliation agreements with the respective networks, we cannot guarantee that any agreements will be renewed in the future under their current terms. Please see the television station summary table for a listing of the expiration dates of the current network affiliation agreements for each of our stations and for each of the stations that we intend to acquire in the merger.

Network Compensation

The table below shows the total network compensation we earned in 1999, 2000 and 2001 as well as what we currently estimate we will earn in 2002 through 2005 for our stations and the stations that we intend to acquire in the merger. The amounts estimated below for 2002 through 2005 are based on the network affiliation agreements currently in effect. We cannot guarantee that the future amounts we currently expect to earn will be realized. We currently do not expect to receive network compensation after 2005.


	1999		2000		2001		2002		2003		2004		2005


	(dollars in millions)
Gray	$	6.5	$	8.3	$	6.9	$	5.3	$	5.2	$	5.6	$	3.4
Stations		5.7		5.4		4.7		3.5		3.3		3.5		2.2

Combined Total	$	12.2	$	13.7	$	11.6	$	8.8	$	8.5	$	9.1	$	5.6

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Newspaper Publishing

We own and operate four daily newspapers located in Georgia and Indiana. In the aggregate, our newspapers have approximately 126,000 daily subscribers. Seeking to build a loyal readership and to distinguish our newspapers from other publications, we focus our papers on local news, sports and lifestyle.

For the 12 months ended June 30, 2002, revenues and operating cash flow before corporate and administrative expenses generated by our publishing segment were $42.5 million and $11.0 million, respectively. During this 12-month period, retail advertising at 50% comprised the largest percent of our publishing revenue, while classifieds accounted for 29%, circulation revenue accounted for 19% and miscellaneous revenue accounted for 2%.

The Albany Herald

The Albany Herald Publishing Company, Inc., which we refer to as “The Albany Herald,” located in Albany, Georgia, publishes The Albany Herald seven days a week, serving southwest Georgia. The Albany Herald has a circulation of approximately 31,000 Sunday subscribers and 28,000 daily subscribers. The Albany Herald also produces a weekly advertising shopper and other niche publications.

Gwinnett Daily Post and The Rockdale Citizen/ Newton Citizen

The Gwinnett Daily Post and The Rockdale Citizen/ Newton Citizen are newspapers that serve communities in the metro Atlanta area with complete local news, sports and lifestyles coverage together with national stories that directly impact their local communities.

The Gwinnett Daily Post is published Tuesday through Sunday and has a circulation of approximately 65,000 subscribers. The Gwinnett Daily Post is located northeast of Atlanta in Gwinnett County, one of the fastest growing areas in the nation with an estimated population of approximately 650,000. According to Woods and Poole 2000 MSA Profile, Gwinnett County’s population is projected to grow by 25% between 1999 and 2004. Since we purchased the Gwinnett Daily Post in 1995, its frequency of publication has increased from three to six days per week and its circulation has grown from approximately 13,000 to 65,000 subscribers.

The Rockdale Citizen/ Newton Citizen is published seven days per week with a circulation of approximately 17,000 subscribers. In 2000, we began publishing the Newton Citizen for distribution into neighboring Newton County. The Rockdale Citizen is located in Conyers, Georgia, the county seat of Rockdale County, which is 19 miles east of downtown Atlanta. Rockdale County and Newton County’s combined population is estimated to be approximately 132,000.

The Goshen News

The Goshen News is published seven days a week with a circulation of approximately 16,000 subscribers and serves Goshen, Indiana and surrounding areas. The Goshen News also contains a weekly advertising shopper. Since we acquired The Goshen News in 1999, it has added a Sunday edition and converted the Saturday edition to morning delivery.

Industry Background

Newspaper publishing is the oldest segment of the media industry and, as a result of the focus on local news, newspapers, in general, remain an important media for local advertising. Newspaper advertising revenues are cyclical and generally have been affected by changes in national and regional economic conditions. Financial instability in the retail industry, including bankruptcies of larger retailers and consolidations among large retail chains, can result in reduced retail advertising expenditures. Classified advertising, which makes up approximately one-third of newspaper advertising expenditures, can be affected by an economic slowdown and its effect on employment, real estate transactions and automotive sales. However, growth in housing starts and automotive sales, although cyclical in nature, generally provide continued growth in newspaper advertising expenditures. While the newspaper publishing industry

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is impacted by the economic cycles, it generally is not affected by the cyclical nature of political advertising revenue.

Pagers and Wireless Services

The paging business, which we acquired in September 1996, is based in Tallahassee, Florida and operates in Columbus, Macon, Albany, Thomasville, Valdosta and Savannah, Georgia, in Dothan, Alabama, in Tallahassee, Gainesville, Orlando and Panama City, Florida and in certain contiguous areas. Our paging operations had approximately 68,000 units in service as of June 30, 2002. For the 12 months ended June 30, 2002, revenues and operating cash flow before corporate and administrative expenses generated by our paging segment were $8.4 million and $2.6 million, respectively.

Our paging system operates by connecting a telephone call placed to a local telephone number with a local paging switch. The paging switch processes a caller’s information and sends the information to a link transmitter which relays the processed information to paging transmitters, which in turn alert an individual pager by means of a coded radio signal. This process provides service to a “local coverage area.” To further enhance coverage to our customer base, all of our local coverage areas are interconnected or networked, providing for “wide area coverage” or “network coverage.” A pager’s coverage area is programmable and can be customized to include or exclude any particular paging switch and its respective geographic coverage area, thereby providing our paging customers with a choice of coverage areas. In addition, we are able to network with other paging companies which share our paging frequencies in other markets, by means of an industry standard network paging protocol, to increase the geographic coverage area in which our customers can receive paging service. During 1999, we introduced services which allow our paging customers to receive electronic mail on their pagers. In addition, we expanded our capability so that individuals may send text messages via the Internet to our paging customers by accessing the paging businesses web page. In 2001, we introduced WebTouch, allowing our customers to access their account information through the web to make changes and payments.

A subscriber to our paging services either owns a pager, thereby paying solely for the use of our paging services, or leases a pager, thereby paying a periodic charge for both the pager and the paging services. Of our pagers that currently are in service, approximately 70% are customer owned and maintained, which we refer to as “COAM,” with the remainder being leased. COAM customers historically maintain service longer, thus enhancing the stability of the subscriber base and earnings. We are focusing our marketing efforts on increasing our base of COAM users.

Industry Background

Three tiers of carriers have emerged in the paging industry: (i) large nationwide providers serving multiple markets throughout the United States; (ii) regional carriers, like our paging business, which operate in regional markets such as several contiguous states in one geographic region of the United States; and (iii) small, single market operators.

The paging industry traditionally has marketed its services through direct distribution by sales representatives. In recent years, additional channels of distribution have evolved, including: (i) carrier-operated retail stores; (ii) resellers who purchase paging services on a wholesale basis from carriers and resell those services on a retail basis to their own customers; and (iii) sales agents who solicit customers and are compensated on a salary and commission basis.

Legal Proceedings

We are not a party to any legal proceedings in which an adverse outcome would have a material adverse effect, either individually or in the aggregate, on us except for the income tax matter described below.

The Internal Revenue Service, which we refer to as the “IRS,” is auditing our federal tax returns for the years ended December 31, 1996 and 1998. In conjunction with this examination, we extended the time

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period that the IRS has to audit our federal tax returns for the 1996 and 1997 tax years until December 31, 2001.

In connection with an audit of our 1996 and 1998 federal income tax returns, the IRS has asserted a deficiency in income taxes of $12.1 million, plus related interest and penalties. The asserted deficiency relates principally to our acquisition in 1996 of certain assets of First American Media, Inc. If the IRS is successful in its claims, we would be required to account for the 1996 acquisition transaction as a stock purchase instead of an asset purchase which would significantly lower the tax basis in the assets acquired. On January 18, 2002, we filed a petition in the United States Tax Court to contest this deficiency, and we believe that we have a meritorious position with respect to the issues related to the deficiency. We cannot be certain when, and if, this matter will be resolved in our favor, and if it is not, we could incur negative consequences in future years.

Environmental Matters

Our operations are subject to federal, state and local laws and regulations relating to the protection of the environment, including those governing the management and disposal of, and exposure to, hazardous materials, the release of pollutants and the cleanup of contamination. As an owner and operator of property and in connection with the current and historical storage and use of hazardous materials at our sites, we could incur significant costs resulting from the cleanup of contaminated sites (regardless of the fault or lawfulness of the activity that resulted in contamination) or violations of environmental laws. For example, some of our properties contain, or formerly contained, underground storage tanks, or have above-ground storage tanks, used for the storage of fuel for back-up generators or have been the site of other industrial or commercial operations in the past. We believe, however, that our operations are in substantial compliance with all applicable environmental laws and regulations.

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MANAGEMENT


	Directors and Executive Officers

The following table sets forth certain information regarding our directors and executive officers as of August 1, 2002.


Name	Age		Position

J. Mack Robinson		79	President, Chief Executive Officer, Director
Hilton H. Howell, Jr.		40	Executive Vice President, Director
Robert S. Prather, Jr.		57	Executive Vice President – Acquisitions, Director
James C. Ryan		41	Vice President – Finance, Chief Financial Officer
Robert A. Beizer		62	Vice President – Law and Development, Secretary
Thomas J. Stultz		50	Vice President, President – Publishing
Wayne M. Martin		55	Regional Vice President – Television
Rich D. Adams		54	Regional Vice President – Texas
Frank J. Jonas		55	Regional Vice President – Midwest
William E. Mayher, III		63	Chairman, Director
Richard L. Boger		55	Director
Ray M. Deaver		61	Director
Howell W. Newton		55	Director
Hugh Norton		69	Director
Harriett J. Robinson		71	Director


	Background of Directors and Executive Officers

J. Mack Robinson, age 79, has been our President and Chief Executive Officer since 1996. He has served as one of our directors since 1993. He is the Chairman of the Executive Committee and a member of the Management Personnel Committee of our board of directors. Mr. Robinson has served as Chairman of the Board of Bull Run Corporation, which we refer to as “Bull Run,” one of our principal stockholders, since 1994, Chairman of the Board and President of Delta Life Insurance Company and Delta Fire and Casualty Insurance Company since 1958, President of Atlantic American Corporation, an insurance holding company, from 1988 until 1995 and Chairman of the Board of Atlantic American Corporation since 1974. Mr. Robinson also serves as a director of the following companies: Bankers Fidelity Life Insurance Company, American Independent Life Insurance Company, Georgia Casualty & Surety Company, American Southern Insurance Company and American Safety Insurance Company. He is a director emeritus of Wachovia Corporation. Mr. Robinson is the husband of Mrs. Harriett J. Robinson and the father-in-law of Mr. Hilton H. Howell, Jr., both members of our board of directors.

Hilton H. Howell, Jr., age 40, has been our Executive Vice President since September 2000 and one of our directors since 1993. He has served as President and Chief Executive Officer of Atlantic American Corporation, an insurance holding company, since 1995 and Executive Vice President from 1992 to 1995. He has been Executive Vice President and General Counsel of Delta Life Insurance Company and Delta Fire and Casualty Insurance Company since 1991, and Vice Chairman of Bankers Fidelity Life Insurance Company and Georgia Casualty & Surety Company since 1992. He has been a director, Vice President and Secretary of Bull Run, one of our principal stockholders, since 1994. Mr. Howell also serves as a director of the following companies: Atlantic American Corporation, Bankers Fidelity Life Insurance Company, Delta Life Insurance Company, Delta Fire and Casualty Insurance Company, Georgia Casualty & Surety Company, American Southern Insurance Company, American Safety Insurance Company, Association Casualty Insurance Company and Association Risk Management General Agency. He is the son-in-law of J. Mack Robinson and Harriett J. Robinson, both members of our board of directors.

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Robert S. Prather, Jr., age 57, has served as our Executive Vice President-Acquisitions since 1996. He has served as one of our directors since 1993. He is a member of the Executive Committee and the Management Personnel Committee of our board of directors. He has served as President and Chief Executive Officer and a director of Bull Run, one of our principal stockholders, since 1992. He serves as a director of Swiss Army Brands, Inc. and The Morgan Group, Inc. and serves on the Board of Trustees of the Georgia World Congress Center Authority.

James C. Ryan, age 41, has served as our Vice President and Chief Financial Officer since October 1998. He was the Chief Financial Officer of Busse Broadcasting Corporation from 1987 until we acquired it in 1998.

Robert A. Beizer, age 62, 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, Baetjer, Howard & Civiletti, 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.

Thomas J. Stultz, age 50, has served as our Vice President and President of our Publishing Division since 1996. Prior to joining us, he served as Vice President of Multimedia Newspaper Company, a division of Multimedia, Inc. from 1988 to 1995, having responsibility for developing and coordinating Multimedia’s newspaper marketing initiatives and directly supervising several Multimedia daily and non-daily publications. Mr. Stultz has approximately 32 years of experience in the newspaper industry.

Wayne M. Martin, age 55, has served as our Regional Vice President-Television since 1998. In 1998, he also was appointed President of WVLT-TV, our subsidiary in Knoxville, Tennessee. Since 1993, Mr. Martin has served as President of Gray Kentucky Television, Inc., one of our subsidiaries, which operates WKYT-TV, in Lexington, Kentucky and WYMT-TV, in Hazard, Kentucky. Mr. Martin has approximately 16 years of experience in the broadcast industry.

Rich Adams, age 54, assumed the positions of our Regional Vice President-Texas and General Manager of KWTX-TV, Waco, Texas, in January 2002. He replaced Mr. Ray Deaver who retired from these positions on December 31, 2001. Prior to his appointment in January 2002 to these positions, Mr. Adams served as General Manager of KXII-TV, our Sherman, Texas station since 1980. We acquired KXII and KWTX in October 1999. Mr. Adams has approximately 31 years of experience in the broadcast industry.

Frank J. Jonas, age 55, has served as our Regional Vice President-Midwest since June 2000. He has served as the President and General Manager of KOLN/ KGIN-TV, Lincoln and Grand Island, Nebraska, since 1985. We acquired KOLN/ KGIN-TV in 1998. Mr. Jonas has approximately 29 years of experience in the broadcast industry.

William E. Mayher, III, age 63, is a member of the 1992 Long Term Incentive Plan Committee, the Executive Committee and the Management Personnel Committee of our board of directors and has served as Chairman of our board of directors since August 1993. Dr. Mayher was a neurosurgeon in Albany, Georgia from 1970 to 1998. Dr. Mayher is Chairman of the Medical College of Georgia Foundation and a past member of the American Association of Neurological Surgeons. He also serves as a director of Gaston Loughlin, Inc. and Palmyra Medical Centers.

Richard L. Boger, age 55, has served as one of our directors since 1991. Mr. Boger is a member of the Executive Committee and the Audit Committee of our board of directors and he is Chairman of the Management Personnel Committee and the 1992 Long Term Incentive Plan Committee of our board of directors. Mr. Boger has been President and Chief Executive Officer of Export Insurance Services, Inc., an insurance brokerage and agency until February 15, 2002, President and Chief Executive Officer of Lex-Tek International, Inc., an insurance software company, and a director of CornerCap Group of Funds, a “Series” investment company since prior to 1992.

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Ray M. Deaver, age 61, has served as one of our directors since January 2002. Prior to his appointment to our board of directors, Mr. Deaver served as our Regional Vice President-Texas from October 1999 until his retirement on December 31, 2001. He was the President and General Manager of KWTX Broadcasting Company and President of Brazos Broadcasting Company from November 1997 until their acquisition by us in October 1999. Prior to 1995, he was Vice President of KWTX Broadcasting Company and Brazos Broadcasting Company. He has approximately 40 years of experience in the broadcast industry. Mr. Deaver is currently the Chairman of the CBS Television Network Affiliates Advisory Board.

Howell W. Newton, age 55, has served as one of our directors since 1991. Mr. Newton is Chairman of the Audit Committee of our board of directors. Mr. Newton has been President and Treasurer of Trio Manufacturing Co., a textile manufacturing company, since 1978.

Hugh Norton, age 69, has served as one of our directors since 1987. He is a member of the 1992 Long Term Incentive Plan Committee, the Management Personnel Committee and the Audit Committee of our board of directors. Mr. Norton has been President of Norco, Inc., an insurance agency since 1973. Mr. Norton is also a real estate developer in Destin, Florida.

Harriett J. Robinson, age 71, has served as one of our directors since 1997. Mrs. Robinson has been a director of Atlantic American Corporation since 1989. Mrs. Robinson has also been a director of Delta Life Insurance Company and Delta Fire and Casualty Insurance Company since 1967. Mrs. Robinson is the wife of Mr. J. Mack Robinson and the mother-in-law of Mr. Hilton H. Howell, Jr.

Our board of directors currently is composed of nine directors, three of whom are our employees. Directors serve until the next annual stockholders’ meeting or until their successors have been duly elected and qualified.

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

The following information is current as of July 2, 2002.

General

J. Mack Robinson, President, Chief Executive Officer and one of our directors, is Chairman of the Board of Bull Run and the beneficial owner of 24.9% of the outstanding shares of Bull Run common stock (including certain shares as to which such beneficial ownership is disclaimed by Mr. Robinson). Robert S. Prather, Jr., Executive Vice President-Acquisitions and one of our directors, is President, Chief Executive Officer and a director of Bull Run and the beneficial owner of 8.7% of the outstanding shares of Bull Run common stock (including certain shares as to which such beneficial ownership is disclaimed by Mr. Prather). Bull Run is the owner of 18.2% of our total outstanding common stock. Hilton H. Howell, Jr., Executive Vice President and one of our directors, is Vice President, Secretary and a director of Bull Run. Bull Run and the executive officers and directors mentioned above, and their affiliates, hold or have the right to vote in the aggregate 49.9% in voting power of our currently outstanding common stock. Furthermore, if all options and warrants that are currently outstanding were exercised, their voting power would increase to 56.0%.

Harriett J. Robinson serves as a director of Delta Life Insurance Company and Delta Fire and Casualty Insurance Company, which are both holders of a portion of our Series C convertible preferred stock, which we refer to as the “Series C.”

J. Mack Robinson is the father-in-law and Harriett J. Robinson is the mother-in-law of Hilton H. Howell, Jr. Mr. and Mrs. Robinson are husband and wife.

Compensation Committee Interlocks and Insider Participation

Richard L. Boger, William E. Mayher, III, Robert S. Prather, Jr., Hugh Norton and J. Mack Robinson are the members of the Management Personnel Committee, which serves as our Compensation Committee. Mr. Robinson, President, Chief Executive Officer and one of our directors, serves on the Compensation Committee of Bull Run. Mr. Prather, Executive Vice President-Acquisitions and one of our directors, also serves as President, Chief Executive Officer and director of Bull Run.

Gray Kentucky Television, Inc., which we refer to as “Gray Kentucky,” one of our subsidiaries, is a party to a rights sharing agreement with Host Communications, Inc., which we refer to as “Host,” a wholly owned subsidiary of Bull Run. Under this agreement, the parties agreed to exploit Host’s rights to broadcast and market certain University of Kentucky football and basketball games and related activities. Under such agreement, Gray Kentucky is licensed to broadcast certain University of Kentucky football and basketball games and related activities. Under this agreement, Gray Kentucky also provides Host with production and certain marketing services and Host provides accounting and various marketing services. During the year ended December 31, 2001, we paid $125,000 under this rights sharing agreement.

During 2001, we paid preferred stock dividends of $616,347 to the holders of our series A and series B preferred stock. The holders of our series A and series B preferred stock consisted of Bull Run, J. Mack Robinson and certain of his affiliates. During the six months ended June 30, 2002, we paid preferred stock dividends of $321,905 to affiliated holders of our series A, series B and series C preferred stock.

On December 3, 2001, we exercised our option to acquire 301,119 shares of the outstanding common stock of Tarzian from Bull Run. Bull Run had purchased these same shares from U.S. Trust Company of Florida Savings Bank as Personal Representative of the Estate of Mary Tarzian, the “Estate,” in January 1999.

We paid $10.0 million to Bull Run to complete the acquisition of the 301,119 shares of Tarzian. We have previously capitalized and paid to Bull Run $3.2 million of costs associated with our option to acquire these shares. In connection with the option agreement, we granted warrants to Bull Run to purchase up to

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100,000 shares of our class B common stock at $13.625 per share. The warrants vested immediately upon our exercise of our option to purchase the Tarzian shares. The warrants expire on December 3, 2011 (10 years following the date on which we exercised our option).

On February 12, 1999, Tarzian filed a complaint against Bull Run and the Estate in the United States District Court for the Southern District of Indiana. Tarzian claims that it had a binding and enforceable contract to purchase the Tarzian shares from the Estate prior to Bull Run’s purchase of the shares, and requests judgment providing that the contract be enforced. On May 3, 1999, the action was dismissed without prejudice against Bull Run, leaving the Estate as the sole defendant. The litigation between the Estate and Tarzian is ongoing and we cannot predict when the final resolution of the litigation will occur. The purchase agreement with the Estate provides that if a court of competent jurisdiction awards title to the Tarzian shares to a person or entity other than the purchaser (or its successors or assigns), the purchase agreement will be rescinded. In that event, the Estate will be required to pay for our benefit, as successor in interest, the full $10.0 million purchase price, plus interest.

On April 22, 2002, we issued a total of $40.0 million of new Series C. We issued $31.4 million to a limited number of outside accredited investors, and $8.6 million to J. Mack Robinson and certain of his affiliates in exchange for all of the outstanding shares of our series A preferred stock and series B preferred stock on a one-for-one basis. Shares of the Series C are convertible into our class B common stock at an initial conversion price of $14.39 per share, subject to customary adjustments.

For advisory services rendered by Bull Run to us in connection with the proposed acquisition of Stations, we advanced to Bull Run $5.0 million on June 10, 2002. In the event that the acquisition is not consummated, Bull Run will be required to repay to us the advisory fee in full.

We obtain certain workers compensation insurance coverage from Georgia Casualty & Surety Co., which is a wholly-owned subsidiary of Atlantic American Corporation, a publicly traded company in which J. Mack Robinson and certain of his affiliates have a substantial ownership interest. During 2001, we paid insurance premiums of $240,395 to Georgia Casualty.

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PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the ownership of our class A common stock and class B common stock as of July 2, 2002 by (i) any person who is known to us to be the beneficial owner of more than five percent of our class A common stock or class B common stock, (ii) all directors and (iii) all directors and executive officers as a group. Warrants and options to acquire our class A common stock or class B common stock included in the amounts listed below are currently exercisable or will be exercisable within 60 days after July 2, 2002. As of July 2, 2002, our directors and executives as a group owned or controlled 59.3% of our combined voting common stock.



	Class A					Class B
	Common Stock					Common Stock					Combined
											Voting Percent
											of Common
	Beneficially Owned					Beneficially Owned					Stock
Name
	Shares		Percent			Shares		Percent
Robert A. Beizer (a)		—		*			42,691		*			*
Richard L. Boger (a)		3,736		*			13,763		*			*
Ray M. Deaver (b)		—		*			406,168		4.6	%		*
Hilton H. Howell, Jr. (c) (d) (e)		3,778,577		47.3	%		296,247		3.3	%		42.8	%
Wayne M. Martin (a)		7,005		*			37,314		*			*
William E. Mayher, III (a)		13,500		*			23,750		*			*
Howell W. Newton (a)		2,625		*			7,500		*			*
Hugh Norton (a)		13,500		*			23,750		*			*
Robert S. Prather, Jr. (c) (f)		3,352,910		42.1	%		392,650		4.2	%		38.2	%
Harriett J. Robinson (a) (c) (e) (g)		4,998,752		59.9	%		563,600		6.1	%		54.6	%
J. Mack Robinson (c) (e) (h)		4,998,752		59.9	%		563,600		6.1	%		54.6	%
Thomas J. Stultz (a)		2,250		*			26,011		*			*
Bull Run Corporation (i)		3,123,897		39.3	%		111,750		1.2	%		35.4	%
Mario J. Gabelli (j)		462,485		6.8	%		2,824,855		31.8	%		9.6	%
George H. Nader (k)		359,998		5.3	%		—		*			4.7	%
Shapiro Capital Management Company, Inc. (l)		—		*			970,496		10.9	%		1.3	%
All directors and executive officers as a group		5,363,956		64.2	%		1,643,562		16.9	%		59.3	%


*	Less than 1%.


	(a)	Includes options to purchase our class B common stock, as follows: each of Messrs. Boger, Mayher, Newton and Norton and Mrs. Robinson — 5,000 shares of our class B common stock; Mr. Martin — 36,250 shares of our class B common stock; Mr. Beizer — 42,000 shares of our class B common stock and Mr. Stultz — 22,500 shares of our class B common stock.


	(b)	Includes 213,228 shares of our class B common stock owned by Mr. Deaver’s wife, as to which shares he disclaims beneficial ownership.


	(c)	Includes 2,017,647 shares of our class A common stock and 11,750 shares of our class B common stock owned by Bull Run and warrants to purchase 1,106,250 shares of our class A common stock and 100,000 shares of our class B common stock owned by Bull Run, as described in footnote (9) below, because Messrs. Howell, Prather and Robinson are directors and officers of Bull Run and Messrs. Prather and Robinson are principal shareholders of Bull Run. In addition, Mrs. Robinson is the spouse of Mr. Robinson. Each of Messrs. Howell, Prather and Robinson and Mrs. Robinson disclaims beneficial ownership of the shares owned by Bull Run.


	(d)	Includes 59,075 shares of our class A common stock owned by Mr. Howell’s wife directly and as trustee for her children, as to which shares he disclaims beneficial ownership.


	(e)	Includes as to Messrs. Robinson and Howell and Mrs. Robinson, an aggregate of 523,605 shares of our class A common stock and 16,000 shares of our class B common stock owned by certain

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		companies of which Mr. Howell is an officer and a director, Mr. Robinson is an officer, director and a principal or sole shareholder and Mrs. Robinson is a director. Also includes warrants to purchase 37,500 shares of our class A common stock owned by one of these companies.


	(f)	Includes 225 shares of our class A common stock and 100 shares of our class B common stock owned By Mr. Prather’s wife, as to which shares he disclaims beneficial ownership. Includes options to purchase 9,337 shares of our class A common stock and options to purchase 266,000 shares of our class B common stock.


	(g)	Includes: (1) an aggregate of 401,975 shares of our class A common stock and 92,950 shares of our class B common stock, options to purchase 10,000 shares of our class A common stock, options to purchase 265,000 shares of our class B common stock and warrants to purchase 75,000 shares of our class A common stock owned by Mrs. Robinson’s husband; (2) warrants to purchase 112,500 shares of our class A common stock; and (3) 336,950 shares of our class A common stock, 40,000 shares of our class B common stock and warrants to purchase 150,000 shares of our class A common stock owned by Mrs. Robinson, as trustee for her daughters. Mrs. Robinson disclaims beneficial ownership of all such securities. Mrs. Robinson’s address is 4370 Peachtree Road NE, Atlanta, Georgia 30319.

	(h)	Includes: (1) options to purchase 10,000 shares of our class A common stock and options to purchase 265,000 shares of our class B common stock; (2) warrants to purchase 75,000 shares of our class A common stock held by Mr. Robinson; and (3) 564,275 shares of our class A common stock and 72,900 shares of our class B common stock owned by Mr. Robinson’s wife directly and as trustee for their daughters, options to purchase 5,000 shares of our class B common stock and warrants to purchase 262,500 shares of our class A common stock held by Mr. Robinson’s wife directly and as trustee for their daughters. Mr. Robinson disclaims beneficial ownership of all such securities. Mr. Robinson’s address is 4370 Peachtree Road NE, Atlanta, Georgia 30319.


	(i)	Includes warrants to purchase 1,106,250 shares of our class A common stock and 100,000 shares of our class B common stock. The address of Bull Run is 4370 Peachtree Road NE, Atlanta, Georgia 30319.


	(j)	This information was furnished to us on a Schedule 13D filed by Gabelli Funds, Inc. and also by Mario J. Gabelli and various entities which he directly or indirectly controls or for which he acts as chief investment officer. The Schedule 13D reports the beneficial ownership of our class A common stock as follows: Gabelli Funds, LLC — 102,125 shares; GAMCO Investors, Inc. — 310,400 shares; Gabelli Securities, Inc. — 7,070 shares, Gabelli Performance Partnership, L.P. — 40,750 shares and Gabelli Advisers, Inc. — 2,500 shares. The Schedule 13D reports the beneficial ownership of our class B common stock as follows: Gabelli Funds, LLC — 1,153,347 shares; GAMCO Investors, Inc. — 1,570,791 shares; Gabelli Securities, Inc. — 16,340; Gabelli International Limited — 44,100 shares; Gabelli Advisers, Inc. — 29,000 shares, Gabelli Performance Partnership, L.P. — 11,000 shares and Gemini Capital Management, LLC — 277 shares. GAMCO Investors, Inc. only has the authority to vote 1,513,041 of the shares beneficially held by it. The address of Mr. Gabelli and Gabelli Funds, Inc. is One Corporate Center, Rye, New York 10580.


	(k)	Mr. Nader’s address is P.O. Box 271, 1011 Fifth Avenue, West Point, Georgia 31833.


	(l)	This information was furnished to us on a Schedule 13G, filed on July 11, 2002 by Shapiro Capital Management Company, Inc., the address of which is 3060 Peachtree Road NW, Atlanta, Georgia 30306.

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DESCRIPTION OF THE NOTES

We will issue offered notes under an indenture, which we refer to as the “indenture,” dated as of December 15, 2001, by and among us, the Subsidiary Guarantors and Bankers Trust Company, which has since changed its name to Deutsche Bank Trust Company Americas, as trustee, as supplemented by a supplemental indenture, which will be entered into on or before the issuance of the offered notes. The terms of the Notes include those stated in the indenture and those made part of the indenture by reference to the Trust Indenture Act of 1939, as amended, which we refer to as the “Trust Indenture Act,” as in effect on the date of the indenture. The Notes are subject to all such terms, and holders of Notes are referred to the indenture and the Trust Indenture Act for a statement of those terms. An aggregate of $180.0 million principal amount of the 2001 notes were previously issued on December 21, 2001 pursuant to the indenture. The offered notes, as an additional issuance of 9 1/4% senior subordinated notes due 2011, will be “Additional Notes” as defined in the indenture which permits us to issue up to $100.0 million principal amount of additional notes. The offered notes are identical to, and will be pari passu with and treated identically with, the 2001 notes, all of which have been exchanged through an exchange offer which was consummated in August 2002 for notes that are registered under the Securities Act of 1933 and are freely transferable.

We summarize below certain material provisions of the indenture, but do not restate the indenture in its entirety. We urge you to read the indenture because it defines your rights. You can obtain a copy of the indenture and a form of the Notes from us or the underwriters.

Key terms used in this section are defined under “— Certain Definitions.” When we refer in this section to:


	•	the “Company,” we mean Gray Television, Inc. and not its subsidiaries; and

	•	the “Notes,” we mean the 2001 notes, exchange notes issued therefor and the offered notes.

Overview of the Notes

The Notes are:


	•	general unsecured senior subordinated obligations of the Company.

	•	subordinated to Senior Debt existing on the Issue Date or incurred thereafter;

	•	guaranteed, jointly and severally, on an unsecured senior subordinated basis by the Subsidiary Guarantors; and

	•	limited in aggregate principal amount to $280.0 million, which includes $100.0 million of the offered notes.

As described in the consolidated financial information included elsewhere in this prospectus supplement (or incorporated by reference herein), after giving effect to this offering and the use of proceeds thereof, at June 30, 2002:


	•	our total indebtedness would have been $378.9 million, which includes $180.0 million of the 2001 notes and $100.0 million of the offered notes;

	•	the Company would have had senior indebtedness of $100.0 million funded under the Senior Credit Facility and unused availability of $37.5 million under the Senior Credit Facility after giving effect to the $12.5 million undrawn letter of credit; and

	•	the Subsidiary Guarantors would have had $378.9 million of indebtedness, including indebtedness of $248,000 and guarantees of indebtedness of $100.0 million under the Senior Credit Facility and guarantees of $280.0 million of indebtedness from the issuance of the Notes.

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Principal, Maturity and Interest

We will issue $100.0 million of aggregate principal amount of offered notes in denominations of $1,000 and integral multiples of $1,000. The Notes will mature on December 15, 2011.

Interest on the offered notes will accrue at the rate of 9.25% per annum and will be payable semi-annually in arrears on June 15 and December 15, commencing on December 15, 2002, to holders of record on the immediately preceding June 1 and December 1. On December 15, 2002, we will pay interest on the offered notes and the 2001 notes for the full six month period from and including June 15, 2002. Interest will be computed on the basis of a 360-day year comprised of twelve 30-day months.

Principal of, premium, if any, and interest on the Notes will be payable at the office or agency of the Company maintained for such purpose within the City of New York or, at the option of the Company, payment of interest may be made by check mailed to the holders of the Notes at their respective addresses as set forth in the register of holders of Notes. Until otherwise designated by the Company, the Company’s office or agency in the City of New York will be the office of the trustee maintained for such purpose. The offered notes will be issued in fully registered form, without coupons, and in denominations of $1,000 and integral multiples thereof.

Subordination

The payment of principal of, premium, if any, and interest on the Notes will be subordinated in right of payment, to the extent and in the manner provided in the indenture, to the prior payment in full in cash or any other form acceptable to the holders of Senior Debt, of all Senior Debt of the Company, whether outstanding on the Issue Date or incurred thereafter. As of June 30, 2002, the Company had senior indebtedness of $200.0 million funded under the Senior Credit Facility, a portion of which will be repaid with proceeds of this offering. The Company has unused availability of $37.5 million under the Senior Credit Facility after giving effect to the $12.5 million undrawn letter of credit. See “Description of Certain Indebtedness — Senior Secured Credit Facility” in the accompanying prospectus and “— Covenants — Limitation on Incurrence of Indebtedness.”

Upon any payment or distribution of cash, securities or other property of the Company to creditors upon any liquidation, dissolution or winding up of the Company, or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding relating to the Company or its property or securities, the holders of any Senior Debt of the Company will be entitled to receive payment in full, in cash or any other form acceptable to the holders of Senior Debt, of all Obligations due in respect of such Senior Debt before the holders of the Notes will be entitled to receive any payment or distribution with respect to the Notes (excluding certain equity or subordinated debt securities).

The Company also may not make any payment or distribution of any assets or securities of the Company or any Subsidiary Guarantor of any kind or character (including, without limitation, cash, property and any payment or distribution which may be payable or deliverable by reason of the payment of any other debt of the Company or the Subsidiary Guarantors being subordinated to the payment of the Notes) upon or in respect of the Notes (excluding certain equity or subordinated debt securities) if the trustee has received written notice, a “Payment Blockage Notice,” from the representative of any holders of Designated Senior Debt that (x) a default (whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default, has occurred) in the payment of principal of (or premium, if any) or interest on or any other amount payable in connection with any Designated Senior Debt has occurred and is continuing (a “Payment Default”) or (y) any other default has occurred and is continuing with respect to any Designated Senior Debt (whether or not any requirement for the giving of notice, the lapse of time or both, or any other condition to such default becoming an event of default, has occurred), a “Non-Payment Default.” Payments on the Notes shall resume (and all past due amounts on the Notes, with interest thereon as specified in the indenture, shall be paid) (i) in the case of a Payment Default, on the date on which such Payment Default is cured or waived, and (ii) in the case of a Non-Payment Default, on the earliest of (a) the date on which such Non-Payment Default is cured or waived or shall have ceased to exist or the Designated Senior Debt

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related thereto shall have been discharged or paid in full in cash or any other manner acceptable to the holders of such Designated Senior Debt, (b) 179 days after the date on which the Payment Blockage Notice with respect to such default was received by the trustee, unless the maturity of the Designated Senior Debt under the Senior Credit Facility has been accelerated and (c) the date such Payment Blockage Notice is terminated by written notice to the trustee from a representative of the holders of the Designated Senior Debt that gave such Payment Blockage Notice. During any consecutive 365-day period, the aggregate number of days in which payments due on the Notes may not be made as a result of Non-Payment Defaults on Designated Senior Debt, a “Payment Blockage Period,” shall not exceed 179 days, only one Payment Blockage Period may be commenced and there shall be a period of at least 186 consecutive days when such payments are not prohibited. No event or circumstance that creates a default under any Designated Senior Debt that (i) gives rise to the commencement of a Payment Blockage Period or (ii) exists at the commencement of or during any Payment Blockage Period shall be made the basis for the commencement of any subsequent Payment Blockage Period, whether or not within a period of 365 consecutive days, unless such default has been cured or waived for a period of not less than 90 consecutive days following the commencement of the initial Payment Blockage Period.

If the Company fails to make any payment on the Notes when due or within any applicable grace period, whether or not on account of the payment blockage provisions referred to above, such failure will constitute an Event of Default under the indenture and will enable the holders of the Notes to accelerate the maturity thereof. See “— Events of Default.”

As a result of the subordination provisions described above, in the event of liquidation or insolvency of the Company, holders of Notes may recover less ratably than unsubordinated creditors of the Company. In such circumstances, funds which would otherwise be payable to the holders of the Notes will be paid to the holders of the Senior Debt to the extent necessary to pay the Senior Debt in full in cash or any other manner acceptable to the holders of such Senior Debt, and the Company may be unable to meet its obligations fully with respect to the Notes.

The subordination provisions described above will cease to be applicable to the Notes upon any defeasance or covenant defeasance of the Notes. See “— Defeasance.”

“Senior Debt” of the Company means the principal of, premium (if any) and accrued and unpaid interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization of the Company, regardless of whether or not a claim for post-filing interest is allowed in such proceedings) on, and fees and other amounts owing in respect of the Senior Credit Facility and all other Indebtedness of the Company, whether outstanding on the date of the indenture or thereafter incurred, unless in the instrument creating or evidencing the same or pursuant to which the same is outstanding it is provided that such obligations are not superior in right of payment to the Notes; provided, however, that Senior Debt shall not include:


	(1)	any obligation of the Company to any Subsidiary of the Company;

	(2)	any liability for federal, state, local or other taxes owed or owing by the Company;

	(3)	any accounts payable or other liability to trade creditors arising in the ordinary course of business (including guarantees thereof or instruments evidencing such liabilities);

	(4)	any indebtedness or obligation of the Company, and any accrued and unpaid interest in respect thereof, that by its terms is subordinate or junior in any respect to any other Indebtedness or obligation of the Company, including any Senior Subordinated Indebtedness of the Company and any Subordinated Indebtedness of the Company;

	(5)	any obligations with respect to any Capital Stock; or

	(6)	any Indebtedness incurred in violation of the indenture.

“Guarantor Senior Debt” has a correlative meaning.

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Subsidiary Guarantees

Our obligations under the Notes are guaranteed, jointly and severally and fully and unconditionally, on a senior subordinated basis, which we refer to as the “Subsidiary Guarantees,” by the Subsidiary Guarantors. The obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are unconditional and absolute, irrespective of any invalidity, illegality, unenforceability of any Note or the indenture or any extension, compromise, waiver or release in respect of any obligation of the Company or any other Subsidiary Guarantor under any Note or the indenture, or any modification or amendment of or supplement to the indenture.

The obligations of any Subsidiary Guarantor under its Subsidiary Guarantee are subordinated, to the same extent as the obligations of the Company in respect of the Notes, to the prior payment in full of all Guarantor Senior Debt of such Subsidiary Guarantor (which will include any guarantee issued by such Subsidiary Guarantor of any Senior Debt, including Indebtedness represented by guarantees under the Senior Credit Facility) in cash or any other manner acceptable to the holders of such Guarantor Senior Debt. The obligations of each Subsidiary Guarantor are limited to the maximum amount as will result in the obligation not constituting a fraudulent conveyance or fraudulent transfer under U.S. federal or state law. See “— Subordination.”

Upon the sale or disposition (whether by merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially all of its assets) to a Person which is not the Company or a Subsidiary of the Company or the sale of a majority of the capital stock of a Paging Subsidiary or a Satellite Uplink Subsidiary to a Person which is not the Company or a Subsidiary of the Company, in each case, which sale or other disposition is otherwise in compliance with the indenture, such Subsidiary Guarantor shall be deemed released from all its obligations under its Subsidiary Guarantee; provided that any such termination shall occur only to the extent that all obligations of such Subsidiary Guarantor under all of its guarantees of, and under all of its pledges of assets or other security interests which secure, other Indebtedness of the Company shall also terminate upon such release, sale or transfer.

In addition, each Subsidiary Guarantor may consolidate with or merge into or sell its assets to the Company or another Subsidiary Guarantor without limitation. The indenture further provides that a Subsidiary Guarantor may consolidate with or merge into or sell its assets to a corporation other than the Company or another Subsidiary Guarantor (whether or not affiliated with such Subsidiary Guarantor, but subject to the provisions described in the immediately preceding paragraph), provided that (a) if the surviving person is not the Subsidiary Guarantor, the surviving person agrees to assume such Subsidiary Guarantor’s obligations under its Subsidiary Guarantee and all its obligations under the indenture and (b) such transaction does not (i) violate any covenants set forth in the indenture or (ii) result in a Default or Event of Default under the indenture immediately thereafter that is continuing.

Following consummation of the merger, Stations and its subsidiaries will become Subsidiary Guarantors pursuant to the indenture.

Optional Redemption

Optional Redemption. Except as described below, the Notes are not redeemable at our option prior to December 15, 2006. On and after such date, the Notes will be subject to redemption at our option, in whole or in part, at the redemption prices (expressed as percentages of the principal amount of the Notes) set forth below, plus accrued and unpaid interest to the date fixed for redemption, if redeemed during the twelve-month period beginning on December 15 of the years indicated below.


Year	Percentage

2006		104.625	%
2007		103.083	%
2008		101.542	%
2009 and thereafter		100.000	%

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Notwithstanding the foregoing, at any time prior to December 15, 2004, we may, at our option, use the net proceeds of one or more Public Equity Offerings to redeem up to 35% of the aggregate principal amount of the Notes originally issued, at a redemption price equal to 109.250% of the principal amount thereof, together with accrued and unpaid interest to the date fixed for redemption; provided, however, that at least $117.0 million in aggregate principal amount of the Notes remains outstanding immediately after any such redemption.

At any time prior to December 15, 2006, the Notes may be redeemed as a whole but not in part at the option of the Company, upon not less than 30 or more than 60 days’ prior notice mailed by first-class mail to each holder’s registered address, at a redemption price equal to 100% of the principal amount thereof plus the Make Whole Premium as of, and accrued but unpaid interest, if any, to, the redemption date, subject to the right of holders on the relevant record date to receive interest due on the relevant interest payment date.

“Make Whole Premium” means with respect to a Note at any redemption date, the greater of (i) 1.0% of the principal amount of such Note or (ii) the excess of (A) the present value of (1) the redemption price of such Note at December 15, 2006 (such redemption price being set forth in the table above) plus (2) all required interest payments due on such Note through December 15, 2006, computed using a discount rate equal to the Treasury Rate plus 50 basis points, over (B) the then-outstanding principal amount of such Note.

“Treasury Rate” means the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H. 15(519) which has become publicly available at least two Business Days prior to the redemption date or, if such Statistical Release is no longer published, any publicly available source or similar market data) most nearly equal to the period from the redemption date to December 15, 2006; provided, however, that if the period from the redemption date to December 15, 2006 is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, the Treasury Rate shall be obtained by linear interpolation (calculated to the nearest one-twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the redemption date to December 15, 2006 is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year shall be used.

Selection and Notice. If less than all of the Notes are to be redeemed at any time, selection of the Notes to be redeemed will be made by the trustee, on behalf of the Company, in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not listed on a securities exchange by the trustee, on behalf of the Company, on a pro rata basis, by lot or by any other method as the trustee shall deem fair and appropriate; provided that a redemption pursuant to the provisions relating to Public Equity Offerings will be on a pro rata basis. Notes redeemed in part shall only be redeemed in integral multiples of $1,000. Notices of any redemption shall be mailed by first class mail at least 30 but not more than 60 days before the redemption date to each holder of Notes to be redeemed at such holder’s registered address. If any Note is to be redeemed in part only, the notice of redemption that relates to such Note shall state the portion of the principal amount thereof to be redeemed, and the trustee shall authenticate and mail to the holder of the original Note a new Note in principal amount equal to the unredeemed portion of the original Note promptly after the original Note has been cancelled. On and after the redemption date, interest will cease to accrue on Notes or portions thereof called for redemption.

Change of Control

In the event of a Change of Control (as defined herein), the Company will make an offer to purchase all of the then outstanding Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase, in accordance with the terms set forth below, a “Change of Control Offer.”

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Within 30 days after any Change of Control, we will mail to each holder of Notes at such holder’s registered address a notice stating: (i) that a Change of Control has occurred and that such holder has the right to require the Company to purchase all or a portion (equal to $1,000 or an integral multiple thereof) of such holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid interest to the date of purchase, which we refer to as the “Change of Control Purchase Date,” which shall be a business day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed, (ii) the amount of accrued and unpaid interest as of the Change of Control Purchase Date, (iii) that any Note not tendered will continue to accrue interest, (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Change of Control Offer, any Notes accepted for payment pursuant to the Change of Control Offer shall cease to accrue interest after the Change of Control Purchase Date, (v) the procedures, consistent with the indenture, to be followed by a holder of Notes in order to accept a Change of Control Offer or to withdraw such acceptance, and (vi) such other information as may be required by the indenture and applicable laws and regulations.

On the Change of Control Purchase Date, we will (i) accept for payment all Notes or portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent the aggregate purchase price of all Notes or portions thereof accepted for payment and any accrued and unpaid interest on such Notes as of the Change of Control Purchase Date, and (iii) deliver or cause to be delivered to the trustee all Notes tendered pursuant to the Change of Control Offer. The Paying Agent shall promptly mail to each holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus any accrued and unpaid interest thereon, and the trustee shall promptly authenticate and mail to such holder of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part for any reason consistent with the indenture shall be promptly returned to the holder of such Note. On and after a Change of Control Purchase Date, interest will cease to accrue on the Notes or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. We will announce the results of the Change of Control Offer to holders of the Notes on or as soon as practicable after the Change of Control Purchase Date.

We will comply with the applicable tender offer rules, including the requirements of Rule l4e-l under the Exchange Act, and all other applicable securities laws and regulations in connection with any Change of Control Offer.

The Change of Control provision will not require us to make a Change of Control Offer upon the consummation of any transaction contemplated by clause (b) of the definition of Change of Control if the party that will own, directly or indirectly, more than 35% of the Voting Stock of the Company as a result of such transaction J. Mack Robinson, Robert S. Prather, Jr. or certain other persons or entities affiliated with or controlled by either of them. See “— Certain Definitions — Permitted Holders.” J. Mack Robinson and Robert S. Prather are directors of the Company. As a result of the definition of Permitted Holders, a concentration of control in the hands of Permitted Holders would not give rise to a situation where holders could have their Notes repurchased pursuant to a Change of Control Offer. As of June 30, 2002, Mr. Robinson was the beneficial owner of 54.6% of the outstanding Voting Stock. In addition, the Change of Control provision and the other covenants that limit the ability of the Company to incur debt may not necessarily afford holders protection in the event of a highly leveraged transaction, such as a reorganization, merger or similar transaction involving the Company that may adversely affect holders, because such transactions may not involve a concentration in voting power or beneficial ownership, or, if there were such a concentration, may not involve a concentration of the magnitude required under the definition of Change of Control.

Covenants

Limitation on Incurrence of Indebtedness. The indenture provides that the Company will not, and will not permit any of its Subsidiaries to, create, incur, assume or directly or indirectly guarantee or in any other manner become directly or indirectly liable for, or “incur,” any Indebtedness (including Acquired

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Debt) if, at the time and immediately after giving pro forma effect to such incurrence, the Debt to Operating Cash Flow Ratio of the Company and its Subsidiaries is more than 7.0 to 1.0.

The foregoing limitations will not apply to the incurrence of any of the following, which we refer to collectively as “Permitted Indebtedness:”


	(i) Indebtedness of the Company incurred under the Senior Credit Facility in an aggregate principal amount at any time outstanding not to exceed $275.0 million less (A) the aggregate amount of all principal payments made in respect of any term loans thereunder and (B) the aggregate amount of any other principal payments thereunder constituting permanent reductions of such Indebtedness pursuant to and in accordance with the covenant described under “— Covenants — Limitation on Asset Sales;”

	(ii) Indebtedness of any Subsidiary Guarantor consisting of a guarantee of Indebtedness of the Company under the Senior Credit Facility;

	(iii) Indebtedness of the Company represented by (a) the Notes issued on the Issue Date and exchange notes issued therefor and (b) Indebtedness of any Subsidiary Guarantor represented by a Subsidiary Guarantee in respect therefor or in respect of Additional Notes incurred in accordance with the indenture;

	(iv) Indebtedness owed by any Subsidiary Guarantor to the Company or to another Subsidiary Guarantor, or owed by the Company to any Subsidiary Guarantor; provided that any such Indebtedness shall be held by a Person which is either the Company or a Subsidiary Guarantor and provided, further, that an incurrence of additional Indebtedness which is not permitted under this clause (iv) shall be deemed to have occurred upon either (a) the transfer or other disposition of any such Indebtedness to a Person other than the Company or another Subsidiary Guarantor or (b) the sale, lease, transfer or other disposition of shares of Capital Stock (including by consolidation or merger) of any such Subsidiary Guarantor to a Person other than the Company or another Subsidiary Guarantor such that such Subsidiary Guarantor ceases to be a Subsidiary Guarantor;

	(v) Indebtedness of any Subsidiary Guarantor consisting of guarantees of any Indebtedness of the Company which Indebtedness of the Company has been incurred in accordance with the provisions of the indenture;

	(vi) Indebtedness arising with respect to Interest Rate Agreement Obligations incurred for the purpose of fixing or hedging interest rate risk with respect to Indebtedness (and not for speculative purposes) that is permitted by the terms of the indenture to be outstanding; provided, however, that the notional principal amount of such Interest Rate Agreement Obligation does not exceed the principal amount of the Indebtedness to which such Interest Rate Agreement Obligation relates;

	(vii) Permitted Purchase Money Indebtedness so long as the aggregate amount of all such Permitted Purchase Money Indebtedness does not exceed $20.0 million at any one time outstanding;

	(viii) any Indebtedness of the Company or a Subsidiary of the Company incurred in connection with or given in exchange for the renewal, extension, substitution, refunding, defeasance, refinancing or replacement of any Indebtedness of the Company or such Subsidiary outstanding on the Issue Date or permitted to be incurred or outstanding under the indenture in accordance with the first paragraph of this covenant or Indebtedness incurred under this clause (viii) with respect to any of the foregoing, which we refer to as “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); (b) with respect to Refinancing Indebtedness of any Indebtedness other than Senior Debt, the Refinancing Indebtedness shall have a Weighted Average

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	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; and (c) with respect to Refinancing Indebtedness of Indebtedness other than Senior Debt incurred by (1) the Company, such Refinancing Indebtedness shall rank no more senior, and shall be at least as subordinated, in right of payment to the Notes as the Indebtedness being renewed, extended, substituted, refunded, defeased, refinanced or replaced, and (2) a Subsidiary Guarantor, such Refinancing Indebtedness shall rank no more senior, and shall be at least as subordinated, in right of payment to the Subsidiary Guarantee as the Indebtedness being renewed, extended, substituted, refunded, defeased, refinanced or replaced; and

	(ix) Indebtedness of the Company and its 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 $20.0 million at any one time outstanding.

For purposes of determining compliance with this covenant:


	(1) 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) above, the Company shall, in its sole discretion, be permitted to classify such item of Indebtedness in any manner that complies with this covenant and may from time to time reclassify such items of Indebtedness in any manner that would comply with this covenant at the time of such reclassification;

	(2) 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 covenant permitting such Indebtedness;

	(3) In the event that Indebtedness meets the criteria of more than one of the types of Indebtedness described in this covenant, the Company, 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

	(4) 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 covenant.

Notwithstanding any other provision of this covenant:


	(5) The maximum amount of Indebtedness that the Company or any Subsidiary of the Company may incur pursuant to this covenant shall not be deemed to be exceeded solely as a result of fluctuations in the exchange rate of currencies; and

	(6) Indebtedness incurred pursuant to the Senior Credit Facility prior to or on the date of the indenture shall be treated as incurred pursuant to clause (i) of the first paragraph of this covenant.

Limitation on Restricted Payments. The indenture provides that the Company will not, and will not permit any of its 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 of the Company in good faith and which determination shall be conclusive and evidenced by a board resolution), (i) no Default or Event of Default (and no event that, after notice or lapse of time, or both, would become an “event of default” under the terms of any other Indebtedness of the Company or its Subsidiaries) shall have occurred and be continuing or would occur as a consequence thereof, (ii) the Company could incur at least $1.00 of additional Indebtedness pursuant to the first paragraph under “— Covenants — Limitation on Incurrence of Indebtedness” and (iii) the aggregate amount of all Restricted Payments made after the Issue Date shall not exceed the sum of (a) an amount equal to the Company’s Cumulative Operating Cash Flow less 1.4 times the Company’s Cumulative Consolidated Interest Expense, plus (b) the aggregate amount of all net cash proceeds received after the Issue Date by the Company from the issuance and sale (other than to a Subsidiary of the Company) of Capital Stock of the Company (other

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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 Company or any Subsidiary of the Company pursuant to clause (ii) of the next paragraph, 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 Company or such Subsidiary in respect of such disposition.

The foregoing provisions will not prohibit, so long as there is no Default or Event of Default continuing, the following actions, which we refer to collectively as “Permitted Payments:”


	(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 the indenture;

	(ii) the redemption, repurchase, retirement, defeasance or other acquisition of any Capital Stock or any Indebtedness of the Company in exchange for, or out of the proceeds of the sale (other than to a Subsidiary of the Company), 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 Company, of Capital Stock of the Company (other than any Disqualified Stock);

	(iii) the repurchase, redemption or other repayment of any Subordinated Debt of the Company or a Subsidiary Guarantor in exchange for, by conversion into or solely out of the proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of Subordinated Debt of the Company or such Subsidiary Guarantor with a Weighted Average Life to Maturity equal to or greater than the then remaining Weighted Average Life to Maturity of the Subordinated Debt repurchased, redeemed or repaid;

	(iv) the payment of ordinary dividends by the Company in respect of its Capital Stock in the ordinary course of business on a basis consistent with past practice in an aggregate amount not exceeding $2.5 million annually;

	(v) Restricted Investments received as consideration in connection with an Asset Sale made in compliance with the indenture;

	(vi) the making of a Restricted Investment out of the proceeds of the sale (other than to a Subsidiary of the Company) within one year prior to the making of such Restricted Investment of Capital Stock of the Company (other than any Disqualified Stock);

	(vii) 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;

	(viii) the repurchase, redemption or other acquisition or retirement for value of any Capital Stock of the Company to effect the repurchase, redemption, acquisition or retirement of Capital Stock that are held by any member or former member of the Company’s (or any Subsidiary’s) management, 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 $750,000 in any calendar year (with unused amounts in any calendar year being available to be so utilized in succeeding calendar years);

	(ix) repurchases of Capital Stock of the Company deemed to occur upon the exercise of stock options;

	(x) payments or distributions to dissenting stockholders pursuant to applicable law in connection with a consolidation, merger, or transfer of assets that complies with the provision of the indenture applicable to mergers, consolidations and transfers of all or substantially all of the property and assets of the Company; and

	(xi) other Restricted Payments not to exceed $10.0 million in the aggregate.

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In computing the amount of Restricted Payments for purposes of clause (iii) of the second preceding paragraph, Restricted Payments made under clauses (i), (iv), (vi), (viii) and (x) of the preceding paragraph shall be included and Restricted Payments made under clauses (ii), (iii), (v), (vii), (ix) and (xi) of the preceding paragraph shall not be included.

Limitation on Asset Sales. The indenture provides that the Company will not, and will not permit any of its Subsidiaries to, make any Asset Sale unless (i) the Company or such 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 of the Company in good faith, which determination shall be evidenced by a board resolution) of the assets or other property sold or 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 (other than liabilities that are by their terms subordinated to the Notes or any Subsidiary Guarantee) of the Company or such Subsidiary (as shown on the Company’s or such Subsidiary’s 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 Company or any of its Subsidiaries with respect to such liabilities.

Notwithstanding clause (ii) above, (a) all or a portion of the consideration for any such 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, (b) Asset Sales involving assets which are not television or publishing businesses, franchises or stations and having an aggregate value (as measured by the value of the consideration being paid for such assets) not in excess of $40.0 million may be made without regard to clause (ii) above, and (c) the Company 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) above; provided, that, in the case of any of (a), (b) or (c) of this sentence after giving effect to any such Asset Sale and related acquisition of assets or Voting Stock, (x) no Default or Event of Default shall have occurred or be continuing; and (y) the Net Proceeds of any such Asset Sale, if any, are applied in accordance with this covenant.

Within 360 days after any Asset Sale, the Company may elect to apply or cause to be applied the Net Proceeds from such Asset Sale to (a) permanently reduce any Senior Debt of the Company or any Guarantor Senior Debt, and/or (b) make an investment in, or acquire assets directly related to, the business of the Company and its Subsidiaries existing on the Issue Date. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt of the Company or any Guarantor Senior Debt or temporarily invest such Net Proceeds in any manner permitted by the indenture. Any Net Proceeds from an Asset Sale not applied or invested as provided in the first sentence of this paragraph within 360 days of such Asset Sale will be deemed to constitute “Excess Proceeds” on the 361st day after such Asset Sale.

As soon as practical, but in no event later than 10 business days after any date, an “Asset Sale Offer Trigger Date,” that the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company shall commence an offer to purchase the maximum principal amount of Notes that may be purchased out of all such Excess Proceeds, an “Asset Sale Offer,” at a price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. To the extent that any Excess Proceeds remain after completion of an Asset Sale Offer, the Company may use the remaining amount for general corporate purposes and such amount shall no longer constitute “Excess Proceeds.”

Within 30 days following any Asset Sale Offer Trigger Date, the Company shall mail to each holder of Notes at such holder’s registered address a notice stating: (i) that an Asset Sale Offer Trigger Date has occurred and that the Company is offering to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the date of purchase, which we refer to as the “Asset Sale

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Offer Purchase Date,” which shall be a business day, specified in such notice, that is not earlier than 30 days or later than 60 days from the date such notice is mailed, (ii) the amount of accrued and unpaid interest as of the Asset Sale Offer Purchase Date, (iii) that any Note not tendered will continue to accrue interest, (iv) that, unless the Company defaults in the payment of the purchase price for the Notes payable pursuant to the Asset Sale Offer, any Notes accepted for payment pursuant to the Asset Sale Offer shall cease to accrue interest after the Asset Sale Offer Purchase Date, (v) the procedures, consistent with the indenture, to be followed by a holder of Notes in order to accept an Asset Sale Offer or to withdraw such acceptance, and (vi) such other information as may be required by the indenture and applicable laws and regulations.

On the Asset Sale Offer Purchase Date, the Company will (i) accept for payment the maximum principal amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer that can be purchased out of Excess Proceeds from such Asset Sale, (ii) deposit with the Paying Agent the aggregate purchase price of all Notes or portions thereof accepted for payment and any accrued and unpaid interest on such Notes as of the Asset Sale Offer Purchase Date, and (iii) deliver or cause to be delivered to the trustee all Notes tendered pursuant to the Asset Sale Offer. If less than all Notes tendered pursuant to the Asset Sale Offer are accepted for payment by the Company for any reason consistent with the indenture, selection of the Notes to be purchased by the Company shall be in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or by such method as the trustee shall deem fair and appropriate; provided that Notes accepted for payment in part shall only be purchased in integral multiples of $1,000. The Paying Agent shall promptly mail to each holder of Notes or portions thereof accepted for payment an amount equal to the purchase price for such Notes plus any accrued and unpaid interest thereon, and the trustee shall promptly authenticate and mail to such holder of Notes accepted for payment in part a new Note equal in principal amount to any unpurchased portion of the Notes, and any Note not accepted for payment in whole or in part shall be promptly returned to the holder of such Note. On and after an Asset Sale Offer Purchase Date, interest will cease to accrue on the Notes or portions thereof accepted for payment, unless the Company defaults in the payment of the purchase price therefor. The Company will announce the results of the Asset Sale Offer to holders of the Notes on or as soon as practicable after the Asset Sale Offer Purchase Date.

The Company will comply with the applicable tender offer rules, including the requirements of Rule 14e-1 under the Exchange Act, and all other applicable securities laws and regulations in connection with any Asset Sale Offer.

Limitation on Liens. The indenture provides that the Company will not, and will not permit any Subsidiary Guarantor to, directly or indirectly, create, incur, assume or suffer to exist any Lien (other than Permitted Liens) on any asset 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; provided that in addition to creating Permitted Liens on its properties or assets, (i) the Company may create any Lien upon any of its properties or assets (including, but not limited to, any Capital Stock of its Subsidiaries) if the Notes are equally and ratably secured therewith, and (ii) a Subsidiary Guarantor may create any Lien upon any of its properties or assets (including, but not limited to, any Capital Stock of its Subsidiaries) if its Subsidiary Guarantee is equally and ratably secured therewith; provided, however, that if (a) the Company creates any Lien on its assets to secure any Subordinated Indebtedness of the Company, the Company shall also create a Lien to secure the Notes and the Lien securing such Subordinated Indebtedness shall be subordinated and junior to the Lien securing the Notes with the same or lesser priorities as the Subordinated Indebtedness shall have with respect to the Notes, and (b) a Subsidiary Guarantor creates any Lien on its assets to secure any Subordinated Indebtedness of such Subsidiary Guarantor, the Subsidiary Guarantor shall also create a Lien to secure the Subsidiary Guarantee and the Lien securing such Subordinated Indebtedness shall be subordinated and junior to the Lien securing the Subsidiary Guarantee of such Subsidiary Guarantor with the same or lesser priorities as the Subordinated Indebtedness shall have with respect to the Subsidiary Guarantee of such Subsidiary Guarantor.

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Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries. The indenture provides that the Company will not, and will not permit any of its Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Subsidiary of the Company to (i) pay dividends or make any other distributions to the Company or any other Subsidiary of the Company on its Capital Stock or with respect to any other interest or participation in, or measured by, its profits, or pay any Indebtedness owed to the Company or any other Subsidiary of the Company, (ii) make loans or advances to the Company or any other Subsidiary of the Company, or (iii) transfer any of its properties or assets to the Company or any other Subsidiary of the Company, which we refer to collectively as “Payment Restrictions,” except for such encumbrances or restrictions existing under or by reason of (a) the Senior Credit Facility as in effect on the Issue Date, and any amendments, restatements, renewals, replacements or refinancings thereof provided that such amendments, restatements, renewals, replacements or refinancings are no more restrictive in the aggregate with respect to such dividend and other payment restrictions than those contained in the Senior Credit Facility immediately prior to any such amendment, restatement, renewal, replacement or refinancing, (b) applicable law, (c) any instrument governing Indebtedness or Capital Stock of an Acquired Person acquired by the Company or any of its Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with such acquisition); provided that such restriction is not applicable to any Person, or the properties or assets of any Person, other than the Acquired Person, (d) customary non-assignment provisions in leases entered into in the ordinary course of business and consistent with past practices, (e) purchase money Indebtedness for property acquired in the ordinary course of business that only impose restrictions on the property so acquired, (f) an agreement for the sale or disposition of the Capital Stock or assets of such Subsidiary; provided that such restriction is only applicable to such Subsidiary or assets, as applicable, and such sale or disposition otherwise is permitted under the covenant described under “— Covenants — Limitation on Asset Sales;” and provided, further, that such restriction or encumbrance shall be effective only for a period from the execution and delivery of such agreement through a termination date not later than 270 days after such execution and delivery, and (g) Refinancing Indebtedness permitted under the indenture; provided that the restrictions contained in the agreements governing such Refinancing Indebtedness are not more restrictive in the aggregate than those contained in the agreements governing the Indebtedness being refinanced immediately prior to such refinancing.

Limitation on Transactions with Affiliates. The indenture provides that the Company will not, and will 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 Company or any beneficial owner of ten percent or more of any class of Capital Stock of the Company or any Subsidiary Guarantor unless (i) such transaction or series of transactions is on terms that are no less favorable to the Company or such Subsidiary, as the case may be, than would be available in a comparable transaction in arm’s-length dealings with an unrelated third party, and (ii) (a) with respect to any transaction or series of transactions involving aggregate payments in excess of $1.0 million, the Company delivers an officers certificate to the trustee certifying that such transaction or series of related transactions complies with clause (i) above and such transaction or series of related transactions has been approved by a majority of the members of the board of directors of the Company (and approved by a majority of the Independent Directors or, in the event there is only one Independent Director, by such Independent Director), and (b) with respect to any transaction or series of transactions involving aggregate payments in excess of $5.0 million, the Company delivers to the trustee an opinion to the effect that such transaction or series of transactions is fair to the Company or such Subsidiary from a financial point of view issued by an investment banking firm of national standing. Notwithstanding the foregoing, this provision will not apply to (i) employment agreements or compensation or employee benefit arrangements with any officer, director or employee of the Company entered into in the ordinary course of business (including customary benefits thereunder), (ii) any transaction entered into by or among the Company or any Subsidiary Guarantor and one or more Subsidiary Guarantors, and (iii) transactions pursuant to agreements existing on the Issue Date.

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Limitation on Incurrence of Senior Subordinated Indebtedness. The indenture provides that (i) the Company will not, directly or indirectly, incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to any Indebtedness of the Company and senior in any respect in right of payment to the Notes, and (ii) the Company will not, directly or indirectly, permit any Subsidiary Guarantor to incur, create, issue, assume, guarantee or otherwise become liable for any Indebtedness that is subordinated or junior in right of payment to any Indebtedness of such Subsidiary Guarantor and senior in any respect in right of payment to the Subsidiary Guarantee of such Subsidiary Guarantor.

Limitation on Issuance and Sale of Capital Stock of Subsidiaries. The indenture provides that the Company (a) will not, and will not permit any Subsidiary of the Company to, transfer, convey, sell or otherwise dispose of any shares of Capital Stock of such Subsidiary or any other Subsidiary (other than to the Company or a Subsidiary Guarantor) except that the Company and any Subsidiary may, in any single transaction, sell all, but not less than all, of the issued and outstanding Capital Stock of any subsidiary to any Person, subject to complying with the provisions of the indenture applicable to such sale and (b) will not permit any Subsidiary of the Company to issue shares of its Capital Stock (other than directors’ qualifying shares), or securities convertible into, or warrants, rights or options to subscribe for or purchase shares of, its Capital Stock to any Person other than to the Company or a Subsidiary Guarantor; provided that the Company may, and may permit a Subsidiary of the Company to, (x) issue shares of Capital Stock in a Qualified Joint Venture to a Qualified Joint Venture Partner and (y) issue a majority of the shares of Capital Stock of a Paging Subsidiary and a Satellite Uplink Subsidiary in accordance with the covenant described under “— Covenants — Limitation on Asset Sales” (provided, however, that any shares of Capital Stock issued pursuant to the foregoing clauses (x) or (y) to any Person other than the Company or a Subsidiary Guarantor shall be of the most junior class of Capital Stock of such issuing Person and shall, in no event, constitute Preferred Stock of such issuing Person).

Future Subsidiary Guarantors. The indenture provides that the Company shall cause each Subsidiary of the Company formed or acquired after the Issue Date to issue a Subsidiary Guarantee and execute and deliver an indenture supplemental to the indenture as a Subsidiary Guarantor.

Provision of Financial Statements. The indenture provides that, whether or not the Company is then subject to Section 13(a) or 15(d) of the Exchange Act, the Company will file with the Commission, so long as the Notes are outstanding, the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to such Section 13(a) or 15(d) if the Company were so subject, and such documents shall be filed with the Commission on or prior to the respective dates, which we refer to as the “Required Filing Dates,” by which the Company would have been required so to file such documents if the Company were so subject. The Company will also in any event (i) within 15 days of each Required Filing Date, (a) transmit by mail to all holders of Notes, as their names and addresses appear in the Note register, without cost to such holders and (b) file with the trustee copies of the annual reports, quarterly reports and other periodic reports which the Company would have been required to file with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act if the Company were subject to such Sections and (ii) if filing such documents by the Company with the Commission is prohibited under the Exchange Act, promptly upon written request and payment of the reasonable cost of duplication and delivery, supply copies of such documents to any prospective holder at the Company’s cost.

Additional Covenants. The indenture also contains covenants with respect to the following matters: (i) payment of principal, premium and interest; (ii) maintenance of an office or agency in the City of New York; (iii) maintenance of corporate existence; (iv) payment of taxes and other claims; (v) maintenance of properties; (vi) maintenance of insurance.

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Merger, Consolidation and Sale of Assets

The indenture provides that the Company shall not consolidate or merge with or into (whether or not the Company is the Surviving Person), 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 Surviving Person (if other than the Company) assumes all the obligations of the Company under the Notes and the indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the trustee; (iii) at the time of and immediately after such Disposition, no Default or Event of Default shall have occurred and be continuing; and (iv) the Surviving Person will (A) have Consolidated Net Worth (immediately after giving effect to the Disposition on a pro forma basis) equal to or greater than the Consolidated Net Worth of the Company immediately preceding the transaction, and (B) at the time of such Disposition and after giving pro forma effect thereto, the Surviving Person would be permitted to incur at least $1.00 of additional Indebtedness pursuant to the first paragraph of the covenant described under “— Covenants — Limitation on Incurrence of Indebtedness.”

In the event of any transaction (other than a lease) described in and complying with the conditions listed in the immediately preceding paragraph in which the Company is not the Surviving Person and the Surviving Person is to assume all the obligations of the Company under the Notes and the indenture pursuant to a supplemental indenture, such Surviving Person shall succeed to, and be substituted for, and may exercise every right and power of, the Company, and the Company would be discharged from its obligations under the indenture and the Notes; provided that solely for the purpose of calculating amounts described in clause (iii) under “— Covenants — Limitation on Restricted Payments,” any such Surviving Person shall only be deemed to have succeeded to and be substituted for the Company with respect to the period subsequent to the effective time of such transaction (and the Company (before giving effect to such transaction) shall be deemed to be the “Company” for such purposes for all prior periods).

Events of Default

The indenture provides that each of the following constitutes an Event of Default:


	(i) a default for 30 days in the payment when due of interest on any Note (whether or not prohibited by subordination provisions of the indenture);

	(ii) a default in the payment when due of principal on any Note (whether or not prohibited by the subordination provisions of the indenture), whether upon maturity, acceleration, optional or mandatory redemption, required repurchase or otherwise;

	(iii) failure to perform or comply with any covenant, agreement or warranty in the indenture (other than the defaults specified in clauses (i) and (ii) above) which failure continues for 30 days after written notice thereof has been given to the Company by the trustee or to the Company and the trustee by the holders of at least 25% in aggregate principal amount of the then outstanding Notes;

	(iv) the occurrence of one or more defaults under any agreements, indentures or instruments under which the Company or any Subsidiary of the Company then has outstanding Indebtedness in excess of $5.0 million in the aggregate and, if not already matured at its final maturity in accordance with its terms, such Indebtedness shall have been accelerated;

	(v) except as permitted by the indenture, any Subsidiary Guarantee shall for any reason cease to be, or be asserted in writing by any Subsidiary Guarantor or the Company not to be, in full force and effect and enforceable in accordance with its terms;

	(vi) one or more judgments, orders or decrees for the payment of money in excess of $5.0 million, either individually or in the aggregate shall be entered against the Company or any Subsidiary of the Company or any of their respective properties and which judgments, orders or decrees are not paid, discharged, bonded or stayed for a period of 60 days after their entry;

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	(vii) any holder or holders of at least $5.0 million in aggregate principal amount of Indebtedness of the Company or any Subsidiary of the Company after a default under such Indebtedness (a) shall notify the Company or the trustee of the intended sale or disposition of any assets of the Company or any Subsidiary of the Company with an aggregate fair market value (as determined in good faith by the Company’s board of directors, which determination shall be evidenced by a board resolution), individually or in the aggregate, of at least $5.0 million that have been pledged to or for the benefit of such holder or holders to secure such Indebtedness or (b) shall commence proceedings, or take any action (including by way of set-off), to retain in satisfaction of such Indebtedness, or to collect on, seize, dispose of or apply in satisfaction of such Indebtedness, such assets of the Company or any Subsidiary of the Company (including funds on deposit or held pursuant to lock-box and other similar arrangements);

	(viii) there shall have been the entry by a court of competent jurisdiction of (a) a decree or order for relief in respect of the Company or any Subsidiary of the Company in an involuntary case or proceeding under any applicable Bankruptcy Law or (b) a decree or order adjudging the Company or any Subsidiary of the Company bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of or in respect of the Company or any Subsidiary of the Company under any applicable federal or state law, or appointing a custodian, receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of the Company or any Subsidiary of the Company or of any substantial part of their respective properties, or ordering the winding up or liquidation of their affairs, and any such decree or order for relief shall continue to be in effect, or any such other decree or order shall be unstayed and in effect, for a period of 60 days; or

	(ix) (a) the Company or any Subsidiary of the Company commences a voluntary case or proceeding under any applicable Bankruptcy Law or any other case or proceeding to be adjudicated bankrupt or insolvent, (b) the Company or any Subsidiary of the Company consents to the entry of a decree or order for relief in respect of the Company or such Subsidiary of the Company in an involuntary case or proceeding under any applicable Bankruptcy Law or to the commencement of any bankruptcy or insolvency case or proceeding against it, (c) the Company or any Subsidiary of the Company files a petition or answer or consent seeking reorganization or relief under any applicable federal or state law, (d) the Company or any Subsidiary of the Company (x) consents to the filing of such petition or the appointment of or taking possession by, a custodian, receiver, liquidator, assignee, trustee, sequestrator or other similar official of the Company or such Subsidiary of the Company or of any substantial part of their respective property, (y) makes an assignment for the benefit of creditors or (z) admits in writing its inability to pay its debts generally as they become due or (e) the Company or any Subsidiary of the Company takes any corporate action in furtherance of any such actions in this paragraph (ix).

If any Event of Default (other than as specified in clause (viii) or (ix) of the preceding paragraph with respect to the Company or any Subsidiary Guarantor) occurs and is continuing, the trustee or the holders of at least 25% in aggregate principal amount of the then outstanding Notes may, and the trustee at the request of such holders shall, declare all the Notes to be due and payable immediately. In the case of an Event of Default arising from the events specified in clause (viii) or (ix) of the preceding paragraph with respect to the Company or any Subsidiary Guarantor, the principal of, premium, if any, and any accrued and unpaid interest on all outstanding Notes shall ipso facto become immediately due and payable without further action or notice.

Holders of the Notes may not enforce the indenture or the Notes except as provided in the indenture. The holders of a majority in aggregate principal amount of the Notes then outstanding by notice to the trustee may on behalf of the holders of all the Notes waive any existing Default or Event of Default and its consequences under the indenture except (i) a continuing Default or Event of Default in the payment of the principal of, or premium, if any, or interest on, the Notes (which may only be waived with the consent of each holder of Notes affected), or (ii) in respect of a covenant or provision which under the indenture cannot be modified or amended without the consent of each holder of Notes affected. Subject to certain limitations, holders of a majority in principal amount of the then outstanding Notes may direct the

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trustee in its exercise of any trust or power. The trustee may withhold from holders of the Notes notice of any continuing Default or Event of Default (except a Default or Event of Default relating to the payment of principal, premium or interest) if it determines that withholding notice is in their interest.

The Company is required to deliver to the trustee annually a statement regarding compliance with the indenture, and the Company is required, upon becoming aware of any Default or Event of Default, to deliver to the trustee a statement specifying such Default or Event of Default.

Defeasance

The Company may, at its option and at any time, elect to have the obligations of the Company discharged with respect to the outstanding Notes and the Subsidiary Guarantees, which we refer to as “legal defeasance.” Such legal defeasance means that the Company and the Subsidiary Guarantors shall be deemed to have paid and discharged the entire indebtedness represented by the outstanding Notes and the Subsidiary Guarantees and to have satisfied all other obligations under the Notes, the Subsidiary Guarantees and the indenture, except for (i) the rights of holders of the outstanding Notes to receive, solely from the trust fund described below, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (ii) the Company’s obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and the maintenance of an office or agency for payment and money for security payments held in trust, (iii) the rights, powers, trusts, duties and immunities of the trustee under the indenture and (iv) the defeasance provisions of the indenture. In addition, the Company may, at its option and at any time, elect to have the obligations of the Company and the Subsidiary Guarantors released with respect to certain covenants that are described in the indenture, which we refer to as “covenant defeasance,” and any omission to comply with such obligations shall not constitute a Default or an Event of Default with respect to the Notes.

In order to exercise either legal defeasance or covenant defeasance, (i) the Company shall irrevocably deposit with the trustee, as trust funds in trust for the benefit of the holders of the Notes, cash in United States dollars, U.S. Government Obligations, or a combination thereof, maturing as to principal and interest in such amounts as will be sufficient, without consideration of any reinvestment of such interest, in the opinion of a nationally recognized firm of independent public accountants or a nationally recognized investment banking firm, to pay and discharge the principal of, premium, if any, and interest on the outstanding Notes on the stated maturity of such principal or installment of principal or interest; (ii) in the case of legal defeasance, the Company shall have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that (A) the Company has received from, or there has been published by, the IRS a ruling or (B) since the date of the indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such opinion of counsel shall confirm that, the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such legal defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such legal defeasance had not occurred; (iii) in the case of covenant defeasance, the Company shall have delivered to the trustee an opinion of counsel in the United States reasonably acceptable to the trustee confirming that the holders of the Notes will not recognize income, gain or loss for federal income tax purposes as a result of such covenant defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred; (iv) no Default or Event of Default shall have occurred and be continuing on the date of such deposit or insofar as clauses (ix) and (x) under the first paragraph under “— Events of Default” are concerned, at any time during the period ending on the 91st day after the date of deposit; (v) such legal defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a Default under, the indenture or any other material agreement or instrument to which the Company is a party or by which it is bound; (vi) the Company shall have delivered to the trustee an opinion of counsel to the effect that (A) the trust funds will not be subject to any rights of holders of Senior Debt or Guarantor Senior Debt of any Subsidiary Guarantor, including, without limitation, those arising under the

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indenture, after the 91st day following the deposit and (B) after the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors’ rights generally; (vii) the Company shall have delivered to the trustee an officers’ certificate stating that the deposit was not made by the Company with the intent of preferring the holders of the Notes over the other creditors of the Company with the intent of defeating, hindering, delaying or defrauding creditors of the Company or others; (viii) no event or condition shall exist that would prevent the Company from making payments of the principal of, premium, if any, and interest on the Notes on the date of such deposit or at any time ending on the 91st day after the date of such deposit; (ix) the Company shall have delivered to the trustee an officers’ certificate and an opinion of counsel, each stating that all conditions precedent provided for relating to either the legal defeasance or the covenant defeasance, as the case may be, have been complied with; and (x) such deposit shall not violate the provisions described under “— Subordination.”

Satisfaction and Discharge

The indenture will cease to be of further effect (except as to surviving rights of registration, transfer or exchange of the Notes, as expressly provided for in the indenture) as to all outstanding Notes when (i) either (a) all the Notes theretofore authenticated and delivered (except lost, stolen or destroyed Notes which have been replaced or paid) have been delivered to the trustee for cancellation or (b) all Notes not theretofore delivered for cancellation (x) have become due and payable or (y) will become due and payable at their Stated Maturity within one year or (z) are to be called for redemption within one year under arrangements reasonably satisfactory to the trustee, for the giving of notice of redemption by the trustee in the name, and at the expense of, the Company; and the Company or any Subsidiary Guarantor has irrevocably deposited or caused to be deposited with the trustee as trust funds in trust an amount in United States dollars or direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent such obligations are backed by the full faith and credit of the United States of America), in each case, maturing prior to the date the Notes will have become due and payable, the Stated Maturity of the Notes or the relevant redemption date of the Notes, as the case may be, sufficient to pay and discharge the entire indebtedness on the Notes not theretofore delivered to the trustee for cancellation, including principal of, premium, if any, and accrued interest at maturity, Stated Maturity or redemption date; and (ii) the Company or any Subsidiary Guarantor has paid or caused to be paid all other sums payable under the indenture by the Company and any Subsidiary Guarantor; and (iii) the Company has delivered to the trustee an officers’ certificate and an opinion of counsel each stating that all conditions precedent under the indenture relating to the satisfaction and discharge of the indenture have been complied with and that such satisfaction and discharge will not result in a breach or violation of, or constitute a default under, the indenture or any other material agreement or instrument to which the Company, any Subsidiary Guarantor or any Subsidiary is a party or by which the Company, any Subsidiary Guarantor or any Subsidiary is bound.

Modifications and Amendments

Modifications and amendments of the indenture or the Notes may be made by the Company, the Subsidiary Guarantors and the trustee with the written consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Notes; provided, however, that no such modification or amendment may, without the consent of the holder of each outstanding Note affected thereby: (i) change the stated maturity of the principal of, or any installment of interest on, any Note, or reduce the principal amount thereof or the rate of interest thereon or any premium payable upon the redemption thereof, or change the coin or currency or the manner in which the principal of any Note or any premium or the interest thereon is payable, or impair the right to institute suit for the enforcement of any such payment after the stated maturity thereof (or, in the case of redemption, on or after the redemption date); (ii) extend the time for payment of interest on the Notes; (iii) alter the redemption provisions in the Notes or the indenture in a manner adverse to any holder of the Notes; (iv) amend, change or modify the obligation of the Company to (x) make and consummate a Change of Control Offer in event of a Change

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of Control or (y) make and consummate an Asset Sale Offer required pursuant to the covenant described under “— Covenants — Limitation on Asset Sales,” or modify any of the provisions or definitions with respect to the obligations of the Company referred to in clauses (x) or (y); (v) reduce the percentage in principal amount of outstanding Notes, the consent of whose holders is required for any amended or supplemental indenture or the consent of whose holders is required for any waiver of compliance with any provision of the indenture or any Default thereunder and their consequences provided for in the indenture; (vi) modify any of the provisions of the indenture relating to any amended or supplemental indentures requiring the consent of holders or relating to the waiver of past defaults or relating to the waiver of any covenant, except to increase the percentage of outstanding Notes required for such actions or to provide that any other provision of the indenture cannot be modified or waived without the consent of the holder of each Note affected thereby; (vii) except as otherwise permitted under “— Merger, Consolidation and Sale of Assets,” consent to the assignment or transfer by the Company of any of its rights and obligations under the indenture; (viii) modify any of the provisions of the indenture relating to the subordination of the Notes or the Subsidiary Guarantees in a manner adverse to the holders of the Notes; (ix) modify the ranking or priority of the Notes or any Subsidiary Guarantee; or (x) release any Subsidiary Guarantor from any of its obligations under its Subsidiary Guarantee other than in accordance with the terms of the indenture; and provided, further, that no such modification or amendment to any of the subordination provisions of the indenture or the Notes may be made without the consent of a majority in interest of the holders of Senior Debt.

Notwithstanding the foregoing, without the consent of any holder of Notes, the Company, the Subsidiary Guarantors and the trustee may amend or supplement the indenture or the Notes to (i) cure any ambiguity, defect or inconsistency, (ii) provide for uncertificated Notes in addition to or in place of certificated Notes, (iii) provide for the assumption of the Company’s obligations to the holders of the Notes in the event of any Disposition involving the Company that is permitted under the provisions of “— Merger, Consolidation and Sale of Assets” in which the Company is not the Surviving Person, (iv) make any change that would provide any additional rights or benefits to the holders of the Notes or does not adversely affect the interests of any holder, (v) comply with the requirements of the Commission in order to effect or maintain the qualification of the indenture under the Trust Indenture Act or (vi) add additional Subsidiary Guarantors.

The Trustee

In the event that the trustee becomes a creditor of the Company, the indenture contains certain limitations on the rights of the trustee to obtain payment of claims in certain cases or to realize on certain property received in respect of any such claim as security or otherwise. The trustee will be permitted to engage in other transactions; however, if it acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the Commission for permission to continue as trustee, or resign.

The holders of a majority in aggregate principal amount of the then outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee, subject to certain exceptions. The indenture provides that, in case an Event of Default has occurred and has not been cured, the trustee will be required, in the exercise of its power, to use the degree of care of a prudent man in the conduct of his own affairs. The trustee will be under no obligation to exercise any of its rights or powers under the indenture at the request of any holder of Notes, unless such holder shall have offered to the trustee indemnity satisfactory to the trustee against any loss, liability or expense.

Certain Definitions

Set forth below are certain defined terms used in the indenture. Reference is made to the indenture for the definition of all other terms used in the indenture.

“Acquired Debt” means, with respect to any specified Person, Indebtedness of any other Person, which we refer to as the “Acquired Person,” existing at the time the Acquired Person merges with or into,

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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.

“Affiliate” means, with respect to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”) of any Person means the possession, directly or indirectly, of the power to direct or cause the direction of the, management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise.

“Asset Sale” means (i) any sale, lease, conveyance or other disposition by the Company or any Subsidiary of the Company of any assets (including by way of a sale-and-leaseback) other than in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company shall not be an “Asset Sale” but instead shall be governed by the provisions of the indenture described under “— Merger, Consolidation and Sale of Assets”) or (ii) the issuance or sale of Capital Stock of any Subsidiary of the Company, in each case, whether in a single transaction or a series of related transactions, to any Person (other than to the Company or a Subsidiary Guarantor); provided that the term “Asset Sale” shall not include any disposition or dispositions during any twelve-month period of assets or property having a fair market value of legs than $300,000 in the aggregate.

“Bankruptcy Law” means Title 11, United States Bankruptcy Code of 1978, as amended, or any similar United States federal or state law relating to bankruptcy, insolvency, receivership, winding up, liquidation, reorganization or relief of debtors, or any amendment to, succession to or change in any such law.

“Business Day” means any date which in not a Legal Holiday.

“Capital Lease Obligations” of any Person means the obligations to pay rent or other amounts under a lease of (or other Indebtedness arrangements conveying the right to use) real or personal property of such Person which are required to be classified and accounted for as a capital lease or liability on the face of a balance sheet of such Person in accordance with GAAP. The amount of such obligations shall be the capitalized amount thereof in accordance with GAAP and the stated maturity thereof shall be the date of the last payment of rent or any other amount due under such lease prior to the first date upon which such lease may be terminated by the lessee without payment of a penalty.

“Capital Stock” of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) corporate stock or other equity participations, including partnership interests, whether general or limited, of such Person, including any Preferred Stock.

“Cash Equivalents” means (i) marketable direct obligations issued or guaranteed by the United States of America, or any governmental entity or agency or political subdivision thereof (provided, that the full faith and credit of the United States of America is pledged in support thereof) maturing within one year of the date of purchase; (ii) commercial paper issued by corporations, each of which shall have a consolidated net worth of at least $500.0 million, maturing within 180 days from the date of the original issue thereof, and rated “P-l” or better by Moody’s Investors Service or “A-l” or better by Standard & Poor’s Corporation or an equivalent rating or better by any other nationally recognized securities rating agency; and (iii) certificates of deposit issued or acceptances accepted by or guaranteed by any bank or trust company organized under the laws of the United States of America or any state thereof or the District of Columbia, in each case having capital, surplus and undivided profits totaling more than $500.0 million, maturing within one year of the date of purchase and (iv) any money market fund sponsored by a registered broker dealer or mutual fund distributor (including the trustee) that invests solely in the securities specified in the foregoing clauses (i), (ii) or (iii).

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“Change of Control” means the occurrence of any of the following events:


	(b) any “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), disregarding 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 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 35% of the total voting power represented by the outstanding Voting Stock of the Company; provided that the Permitted Holders “beneficially own” (as so defined) a lesser percentage of such Voting Stock than such other Person and do not have the right or ability by voting power, contract or otherwise to elect or designate for election a majority of the board of directors of the Company;

	(c) the Company 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 Company, in any such event pursuant to a transaction in which the outstanding Voting Stock of the Company is converted into or exchanged for cash, securities or other property, other than any such transaction where (x) the outstanding Voting Stock of the Company is converted into or exchanged for Voting Stock (other than Disqualified Stock) of the surviving or transferee corporation and (y) immediately after such transaction no “person” or “group” (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act), disregarding the Permitted Holders, is 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 35% of the total voting power represented by the outstanding Voting Stock of the surviving or transferee corporation;

	(d) during any consecutive two-year period, individuals who at the beginning of such period constituted board of directors of the Company (together with any new directors whose election by the board of directors of the Company or whose nomination for election by the stockholders of the Company 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 Company) cease for any reason to constitute a majority of the Board then in office; or

	(e) the Company is liquidated or dissolved or adopts a plan of liquidation.

“Consolidated Interest Expense” means, with respect to any period, the sum of (i) the interest expense of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP consistently applied, including, without limitation, (a) amortization of debt discount, (b) the net payments, if any, under interest rate contracts (including amortization of discounts) and (c) accrued interest, plus (ii) the interest component of the Capital Lease Obligations paid, accrued and/or scheduled to be paid or accrued by the Company during such period, and all capitalized interest of the Company and its Subsidiaries, in each case as determined on a consolidated basis in accordance with GAAP consistently applied.

“Consolidated Net Income” means, with respect to any period, the net income (or loss) of the Company and its Subsidiaries for such period, determined on a consolidated basis in accordance with GAAP consistently applied, adjusted, to the extent included in calculating such net income (or loss), by excluding, without duplication, (i) all extraordinary gains but not losses, (ii) the portion of net income (or loss) of the Company and its Subsidiaries allocable to interests in unconsolidated Persons, except to the extent of the amount of dividends or distributions actually paid to the Company or its Subsidiaries by such other Person during such period, (iii) net income (or loss) of any Person combined with the Company or any of its Subsidiaries on a “pooling of interests” basis attributable to any period prior to the date of combination, (iv) net gain but not losses in respect of Asset Sales, (v) the net income of any Subsidiary

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to the extent that the declaration of dividends or similar distributions by that Subsidiary of that income to the Company is not at the time permitted, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary or its stockholders, (vi) the net income of any Qualified Joint Venture in excess of the dividends and distributions paid by such Qualified Joint Venture to the Company or a Subsidiary Guarantor, or (vii) the net loss of any Qualified Joint Venture.

“Consolidated Net Worth” means, with respect to any Person on any date, the equity of the common and preferred stockholders of such Person and its Subsidiaries as of such date, determined on a consolidated basis in accordance with GAAP consistently applied.

“Cumulative Consolidated Interest Expense” means, as of any date of determination, Consolidated Interest Expense less non-cash amortization of deferred financing costs from the last day of the month immediately preceding the Issue Date to the last day of the most recently ended month prior to such date, taken as a single accounting period.

“Cumulative Operating Cash Flow” means, as of any date of determination, Operating Cash Flow from the last day of the month immediately preceding the Issue Date to the last day of the most recently ended month prior to such date, taken as a single accounting period.

“Debt To Operating Cash Flow Ratio” means, with respect to any date of determination, the ratio of (i) the aggregate principal amount of all outstanding Indebtedness of the Company and its Subsidiaries as of such date on a consolidated basis to (ii) Operating Cash Flow of the Company and its Subsidiaries on a consolidated basis for the four most recent full fiscal quarters ending on or immediately prior to such date, determined on a pro formabasis after giving pro forma effect to (a) 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 four-quarter period; (b) the incurrence, repayment or retirement of any other Indebtedness by the Company and its Subsidiaries since the first day of such four-quarter period as if such Indebtedness was incurred, repaid or retired at the beginning of such four-quarter period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility shall be computed based upon the average balance of such Indebtedness at the end of each month during such four-quarter period); (c) in the case of Acquired Debt, the related acquisition as if such acquisition had occurred at the beginning of such four-quarter period; and (d) any acquisition or disposition by the Company and its 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 four-quarter period, assuming such acquisition or disposition had been consummated on the first day of such four-quarter period. In addition, the consolidated net income of a Person with outstanding Indebtedness or Capital Stock providing for a Payment Restriction which is permitted to exist by reason of clause (c) of the covenant described under “— Covenants — Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries” shall not be taken into account in determining whether any Indebtedness is permitted to be incurred under the indenture.

“Default” means, any event that is, or after the giving of notice or passage of time or both would be, an Event of Default.

“Designated Senior Debt” means (i) any Senior Debt outstanding under the Senior Credit Facility and (ii) if no Senior Debt is outstanding under the Senior Credit Facility, any other Senior Debt of the Company permitted to be incurred under the indenture the principal amount of which is $50.0 million or more at the time of the designation of such Senior Debt as “Designated Senior Debt” by the Company in a written instrument delivered to the trustee.

“Disposition” means, with respect to any Person, any merger, consolidation or other business combination involving such Person (whether or not such Person is the Surviving Person) or the sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of such Person’s assets.

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“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 the stated maturity of the Notes.

“Exchange Act” means the Securities Exchange Act of 1934, as amended.

“Film Contracts” means contracts with suppliers that convey the right to broadcast specified films, videotape motion pictures, syndicated television programs or sports or other programming.

“GAAP” means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as have been approved by a significant segment of the accounting profession, which are in effect on the Issue Date.

“Guarantee” by any Person means any obligation, contingent or otherwise, of such Person guaranteeing any Indebtedness of any other Person, which we refer to as the “primary obligor,” in any manner, whether directly or indirectly, and including, without limitation, any obligation of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or to purchase (or to advance or supply funds for the purchase of) any security for the payment of such Indebtedness, (ii) to purchase property, securities or services for the purpose of assuring the holder of such Indebtedness of the payment of such Indebtedness, or (iii) to maintain working capital, equity capital or other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness (and “guaranteed,” “guaranteeing” and “guarantor” shall have meanings correlative to the foregoing); provided, however, that the guarantee by any Person shall not include endorsements by such Person for collection or deposit, in either case, in the ordinary course of business.

“Indebtedness” means, with respect to any Person, without duplication, and whether or not contingent, (i) all indebtedness of such Person for borrowed money or for the deferred purchase price of property or services or which is evidenced by a note, bond, debenture or similar instrument, (ii) all Capital Lease Obligations of such Person, (iii) all obligations of such Person in respect of letters of credit or bankers’ acceptances issued or created for the account of such Person, (iv) all Interest Rate Agreement Obligations of such Person, (v) all liabilities secured by any Lien on any property owned by such Person even if such Person has not assumed or otherwise become liable for the payment thereof to the extent of the lesser of (x) the amount of the Obligation so secured and (y) the fair market value of the property subject to such Lien, (vi) all obligations to purchase, redeem, retire, or otherwise acquire for value any Capital Stock of such Person, or any warrants, rights or options to acquire such Capital Stock, now or hereafter outstanding, (vii) to the extent not included in (vi), all Disqualified Stock issued by such Person, valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends thereon, and (viii) to the extent not otherwise included, any guarantee by such Person of any other Person’s indebtedness or other obligations described in clauses (i) through (vii) above. “Indebtedness” of the Company and its Subsidiaries shall not include current trade payables incurred in the ordinary course of business and payable in accordance with customary practices, and non-interest bearing installment obligations and accrued liabilities incurred in the ordinary course of business which are not more than 90 days past due. For purposes hereof, which we refer to as the “maximum fixed repurchase price” of any Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such Disqualified Stock as if such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to the indenture, and if such price is based upon, or measured by the fair market value of, such Disqualified Stock, such fair market value is to be determined in good faith by the board of directors of the issuer of such Disqualified Stock.

“Independent Director” means a director of the Company other than a director (i) who (apart from being a director of the Company or any Subsidiary) is an employee, associate or Affiliate of the Company 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.

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“Insolvency or Liquidation Proceeding” means, with respect to any Person, any liquidation, dissolution or winding up of such Person, or any bankruptcy, reorganization, insolvency, receivership or similar proceeding with respect to such Person, whether voluntary or involuntary.

“Interest Rate Agreement Obligations” means, with respect to any Person, the Obligations of such Person under (i) interest rate swap agreements, interest rate cap agreements and interest rate collar agreements, and (ii) other agreements or arrangements designed to protect such Person against fluctuations in interest rates.

“Investments” means, with respect to any Person, all investments by such Person in other Persons (including Affiliates of such Person) in the form of loans, guarantees, advances or capital contributions (excluding commission, travel and similar advances to officers and employees made in the ordinary course of business) purchases or other acquisitions for consideration of Indebtedness, Capital Stock or other securities and all other items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. “Investments” shall exclude extensions of trade credit (including extensions of credit in respect of equipment leases) by the Company and its Subsidiaries in the ordinary course of business in accordance with normal trade practices of the Company or such Subsidiary, as the case may be.

“Issue Date” means the date of original issuance of the Notes on December 21, 2001.

“Legal Holiday” means a Saturday, Sunday or other day on which banking institutions in the State of New York are authorized or required by law to close.

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law (including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in any asset and any filing of, or agreement to give, any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).

“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 (i) 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 or installment receivable or otherwise, but only as and when received) in connection with such Asset Sale, over (ii) the sum of (a) 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 (b) all fees, commissions and other expenses incurred by such Person in connection with such Asset Sale, plus (c) 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 (d) a reasonable reserve for the after-tax cost of any indemnification payments (fixed or contingent) attributable to seller’s indemnities to purchaser in respect of such Asset Sale undertaken by the Company or any of its Subsidiaries in connection with such Asset Sale plus (e) if such Person is a Subsidiary of the Company, any dividends or distributions payable to holders of minority interests in such Subsidiary from the proceeds of such Asset Sale.

“Obligations” means any principal, interest (including, without limitation, in the case of Senior Debt or Guarantor Senior Debt under the Senior Credit Facility, interest accruing on or after the filing of any petition in bankruptcy or for reorganization of the Company or a Subsidiary Guarantor, as the case may be, regardless of whether or not a claim for post-filing interest is allowed in such proceedings), penalties, fees, indemnifications, reimbursement obligations, damages and other liabilities payable under the documentation governing any Indebtedness.

“Operating Cash Flow” means, with respect to any period, the Consolidated Net Income of the Company and its Subsidiaries for such period, plus (i) extraordinary net losses and net losses realized on any sale of assets during such period, to the extent such losses were deducted in computing Consolidated Net Income, plus (ii) provision for taxes based on income or profits, to the extent such provision for taxes

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was included in computing such Consolidated Net Income, and any provision for taxes utilized in computing the net losses under clause (i) hereof, plus (iii) Consolidated Interest Expense of the Company and its Subsidiaries for such period, to the extent deducted in computing such Consolidated Net Income, plus (iv) depreciation, amortization and all other non-cash charges, to the extent such depreciation, amortization and other non-cash charges were deducted in computing such Consolidated Net Income (including amortization of goodwill and other intangibles, including Film Contracts and write-downs of Film Contracts), but excluding any such charges which represent any accrual of, or a reserve for, cash charges for a future period, minus (v) any cash payments contractually required to be made with respect to Film Contracts (to the extent not previously included in computing such Consolidated Net Income), minus (vi) non-cash items increasing Consolidated Net Income (to the extent included in computing such Consolidated Net Income).

“Paging Subsidiary” means a Subsidiary of the Company all or substantially all of whose assets consist of those used in the Company’s paging business and no other assets.

“Pari Passu Indebtedness” means any Indebtedness of the Company or a Subsidiary Guarantor which ranks part passu in right of payment with the Notes or the Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be (whether or not such Indebtedness is secured by any Lien).

“Permitted Holders” means (i) each of J. Mack Robinson and Robert S. Prather, Jr.; (ii) their spouses and lineal descendants; (iii) in the event of the incompetence or death of any of the Persons described in clauses (i) and (ii), such Person’s estate, executor, administrator, committee or other personal representative; (iv) any trusts created for the benefit of the Persons described in clause (i) or (ii); or (v) any Person controlled by any of the Persons described in clause (i), (ii), or (iv). For purposes of this definition, “control,” as used with respect to any Person, shall mean 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 agreement or otherwise.

“Permitted Investments” means (i) any Investment in the Company, any Subsidiary Guarantor or any Qualified Joint Venture; (ii) any Investments in Cash Equivalents; (iii) any Investment in a Person, an “Acquired Person,” if, as a result of such Investment, (a) the Acquired Person becomes a Subsidiary Guarantor, or (b) the Acquired Person either (1) is merged, consolidated or amalgamated with or into the Company or a Subsidiary Guarantor and the Company or such Subsidiary Guarantor is the Surviving Person, or (2) transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Subsidiary Guarantor; (iv) Investments in accounts and notes receivable acquired in the ordinary course of business; (v) Interest Rate Agreement Obligations permitted pursuant to the second paragraph of the covenant described under “— Covenants — Limitation on Incurrence of Indebtedness;” and (vi) any other Investments in an aggregate amount up to $5.0 million plus, in the case of the disposition or repayment of any such Investment made pursuant to this clause (vi) 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 Company or Subsidiary, as the case may be, in respect of such disposition.

“Permitted Liens” means (i) Liens on assets or property of the Company that secure Senior Debt of the Company, either existing on the Issue Date or which such Senior Debt is permitted to be incurred under the indenture, and Liens on assets or property of a Subsidiary Guarantor that secure Guarantor Senior Debt of such Subsidiary Guarantor, either existing on the Issue Date or which such Guarantor Senior Debt is permitted to be incurred under the indenture; (ii) Liens securing Indebtedness of a Person existing at the time that such Person is merged into or consolidated with the Company or a Subsidiary of the Company, 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; (iii) Liens on property acquired by the Company or a Subsidiary, provided that such Liens were in existence prior to the contemplation of such acquisition and do not extend to any other property; (iv) Liens in favor of the Company or any Subsidiary of the Company; (v) Liens incurred, or pledges and deposits in connection with, workers’ compensation, unemployment insurance and other social security benefits, and leases, appeal

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bonds and other obligations of like nature incurred by the Company or any Subsidiary of the Company in the ordinary course of business; (vi) Liens imposed by law, including, without limitation, mechanics’, carriers’, warehousemen’s, materialmen’s, suppliers’ and vendors’ Liens, incurred by the Company or any Subsidiary of the Company in the ordinary course of business; (vii) 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 Company has set aside on its books reserves to the extent required by GAAP; and (viii) Liens created under the indenture.

“Permitted Purchase Money Indebtedness” means any Indebtedness incurred for the acquisition of intellectual property rights, property, plant or equipment used or useful in the business of the Company.

“Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, limited liability company, trust, unincorporated organization or government or any agency or political subdivision thereof.

“Preferred Stock” as applied to the Capital Stock of any Person, means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends or distributions, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Person, over Capital Stock of any other class of such Person.

“Public Equity Offering” means an underwritten public offering of Capital Stock (other than Disqualified Stock) Of the Company subsequent to the Issue Date pursuant to an effective registration statement filed under the Securities Act, the net proceeds of which to the Company (after deducting any underwriting discounts and commissions) exceed $25.0 million.

“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, radio broadcasting, newspaper publishing, paging or satellite uplink business.

“Qualified Joint Venture Partner” means a person who is not affiliated with the Company.

“Restricted Investment” means an Investment other than a Permitted Investment.

“Restricted Payment” means (i) any dividend or other distribution declared or paid on any Capital Stock of the Company or any of its Subsidiaries (other than dividends or distributions payable solely in Capital Stock (other than Disqualified Stock) of the Company or such Subsidiary or dividends or distributions payable to the Company or any Subsidiary Guarantor); (ii) any payment to purchase, redeem or otherwise acquire or retire for value any Capital Stock of the Company or any Subsidiary of the Company or other Affiliate of the Company (other than any Capital Stock owned by the Company or any Subsidiary Guarantor); (iii) any payment to purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Indebtedness prior to the scheduled maturity thereof; or (iv) any Restricted Investment.

“Satellite Uplink Subsidiary” means a Subsidiary of the Company all or substantially all of whose assets consist of those used in the Company’s satellite uplink business and no other assets.

“Senior Credit Facility” means that certain Third Amended and Restated Loan Agreement, dated as of September 25, 2001, by and among the Company, the lenders named therein, Bank of America, N.A., as Administrative Agent, Banc of America Securities LLC and First Union Securities, Inc., as Co-Lead Arrangers and Joint Book Managers, and First Union National Bank as Syndication Agent, as the same may be amended, modified, renewed, refunded, replaced or refinanced from time to time, including (i) any related notes, letters of credit, guarantees, collateral documents, instruments and agreements executed in connection therewith, and in each case as amended, modified, renewed, refunded, replaced or refinanced from time to time, and (ii) any notes, guarantees, collateral documents, instruments and agreements executed in connection with any such amendment, modification, renewal, refunding, replacement or refinancing.

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“Stated Maturity” means, with respect to any security, the date specified in such security as the fixed date on which the final payment of principal of such security is due and payable, including pursuant to any mandatory redemption provision (but excluding any provision providing for the repurchase of such security at the option of the holder thereof upon the happening of any contingency beyond the control of the issuer unless such contingency has occurred).

“Subordinated Indebtedness” means any Indebtedness of the Company or a Subsidiary Guarantor if the instrument creating or evidencing such Indebtedness or pursuant to which such Indebtedness is outstanding expressly provides that such Indebtedness is subordinated in right of payment to the Notes or the Subsidiary Guarantee of such Subsidiary Guarantor, as the case may be.

“Subsidiary” of any Person means (i) any corporation more than 50% of the outstanding Voting Stock of which is owned or controlled, directly or indirectly, by such Person or by one or more other Subsidiaries of such Person, or by such Person and one or more other Subsidiaries thereof, or (ii) any limited partnership of which such Person or any Subsidiary of such Person is a general partner, or (iii) any other Person (other than a corporation or limited partnership) in which such Person, or one or more other Subsidiaries of such Person, or such Person and one or more other Subsidiaries thereof, directly or indirectly, has more than 50% of the outstanding partnership or similar interests or has the power, by contract or otherwise, to direct or cause the direction of the policies, management and affairs thereof.

“Subsidiary Guarantor” means (i) each Subsidiary of the Company existing on the Issue Date, (ii) each of the Company’s Subsidiaries which becomes a guarantor of the Notes in compliance with the provisions set forth under “— Covenants — Future Subsidiary Guarantors,” and (iii) each of the Company’s Subsidiaries executing a supplemental indenture in which such Subsidiary agrees to be bound by the terms of the indenture.

“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 (i) the sum of the products obtained by multiplying (a) 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 (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding aggregate principal amount of such Indebtedness.

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BOOK-ENTRY; DELIVERY AND FORM

General

The offered notes will be issued in registered, global form in minimum denominations of $1,000 and integral multiples of $1,000 in excess thereof. Notes will be issued only against payment in immediately available funds.

Notes will be represented by one or more permanent global certificates in definitive, fully registered form without interest coupons, which we refer to as the “Global Note.” The Global Note will be deposited upon issuance with the trustee as custodian for The Depository Trust Company, which we refer to as “DTC,” and registered in the name of a nominee for DTC or its nominee for credit to an account of a direct or indirect participant in DTC described below, including Morgan Guaranty Trust Company of New York, Brussels Office, as operator of the Euroclear System, which we refer to as “Euroclear,” or Citibank N.A., as operator of Clearstream Luxembourg.

Except as set forth below, the Global Note may be transferred, in whole and not in part, only to DTC or another nominee of DTC. Investors may hold their beneficial interests in the Global Note directly through DTC if they have an account with DTC or indirectly through organizations that have accounts with DTC.

Depositary Procedures

DTC is a limited-purpose trust company created to hold securities for its participating organizations, which we refer to collectively as the “Participants,” and to facilitate the clearance and settlement of transactions in those securities between Participants through electronic book-entry changes in accounts of its Participants. The Participants include securities brokers and dealers (including the underwriters), banks, trust companies, clearing corporations and certain other organizations. Access to DTC’s system is also available to other entities such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Participant, either directly or indirectly, which we refer to collectively as the “Indirect Participants.” Persons who are not Participants may beneficially own securities held by or on behalf of DTC only through the Participants or the Indirect Participants. The ownership interests and transfers of ownership interests of each beneficial owner of each security held by or on behalf of DTC are recorded on the records of the Participants and Indirect Participants.

Pursuant to procedures established by DTC:


	•	upon deposit of a Global Note, DTC will credit the accounts of Participants designated by the underwriters with portions of the principal amount of the Global Note; and

	•	ownership of such interests in a Global Note will be maintained by DTC (with respect to the Participants) or by the Participants and the Indirect Participants (with respect to other owners of beneficial interests in Global Notes).

Investors in a Global Note may hold their interests therein directly through DTC, if they are Participants in such system, or indirectly through organizations (including Euroclear and Clearstream Luxembourg) that are Participants in such system. Euroclear and Clearstream Luxembourg will hold interests in a Global Note on behalf of their participants through customers’ securities accounts in their respective names on the books of their respective depositaries, which are Morgan Guaranty Trust Company of New York, Brussels office, as operator of Euroclear, and Citibank, N.A., as operator of Clearstream Luxembourg. The depositaries, in turn, will hold interests in a Global Note in customers’ securities accounts in the depositaries’ names on the books of DTC.

All interests in a Global Note, including those held through Euroclear or Clearstream Luxembourg, will be subject to the procedures and requirements of DTC. Those interests held through Euroclear or Clearstream Luxembourg will also be subject to the procedures and requirements of these systems. The laws of some states require that certain persons take physical delivery in definitive form of securities that

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they own. Consequently, the ability to transfer beneficial interests in a Global Note to such persons will be limited to that extent. Because DTC can act only on behalf of Participants, which in turn act on behalf of Indirect Participants, the ability of a person having beneficial interests in a Global Note to pledge such interests to persons or entities that do not participate in the DTC system, or otherwise take actions in respect of such interests, may be affected by the lack of a physical certificate evidencing such interests. For certain other restrictions on the transferability of the notes, see “— Exchange of Book-Entry Notes for Certificated Notes.”

Except as described below, owners of interests in a Global Note will not have notes registered in their names, will not receive physical delivery of notes in certificated form and will not be considered the registered owners or holders thereof under the indenture for any purpose.

Payments in respect of the principal of and premium, if any, and interest on a Global Note registered in the name of DTC or its nominee will be payable by the trustee to DTC in its capacity as the registered holder under the indenture. We and the trustee will treat the persons in whose names the notes, including the Global Note, are registered as the owners thereof for the purpose of receiving such payments and for any and all other purposes whatsoever. Consequently, neither we, the trustee nor any of our agents or the trustee’s agents has or will have any responsibility or liability for:


	•	any aspect of DTC’s records or any Participant’s or Indirect Participant’s records relating to, or payments made on account of beneficial ownership interests in, a Global Note, or for maintaining, supervising or reviewing any of DTC’s records or any Participant’s or Indirect Participant’s records relating to the beneficial ownership interests in a Global Note; or

	•	any other matter relating to the actions and practices of DTC or any of its Participants or Indirect Participants.

DTC has advised us that our current practice, upon receipt of any payment in respect of securities such as the notes (including principal and interest), is to credit the accounts of the relevant Participants with the payment on the payment date, in amounts proportionate to their respective holdings in the principal amount of beneficial interests in the relevant security as shown on the records of DTC, unless DTC has reason to believe it will not receive payment on such payment date. Payments by the Participants and the Indirect Participants to the beneficial owners of notes will be governed by standing instructions and customary practices and will be the responsibility of the Participants or the Indirect Participants and will not be the responsibility of DTC, the trustee or us. Neither we nor the trustee will be liable for any delay by DTC or any of its Participants in identifying the beneficial owners of the notes, and we and the trustee may conclusively rely on and will be protected in relying on instructions from DTC or its nominee for all purposes.

Except for trades involving only Euroclear and Clearstream Luxembourg participants, interests in a Global Note are expected to be eligible to trade in DTC’s Same-Day Funds Settlement System and secondary market trading activity in such interests will therefore settle in immediately available funds, subject in all cases to the rules and procedures of DTC and its Participants.

Transfers between Participants in DTC will be effected in accordance with DTC’s procedures, and will be settled in same-day funds, and transfers between participants in Euroclear and Clearstream Luxembourg will be effected in the ordinary way in accordance with their respective rules and operating procedures.

Cross-market transfers between the Participants in DTC, on the one hand, and Euroclear or Clearstream Luxembourg participants, on the other hand, will be effected through DTC in accordance with DTC’s rules on behalf of Euroclear or Clearstream Luxembourg, as the case may be, by their depositaries. Cross-market transactions will require delivery of instructions to Euroclear or Clearstream Luxembourg, as the case may be, by the counterparty in that system in accordance with the rules and procedures and within the established deadlines (Brussels time) of that system. Euroclear or Clearstream Luxembourg, as the case may be, will, if the transaction meets its settlement requirements, deliver instructions to its respective depositaries to take action to effect final settlement on its behalf by delivering

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or receiving interests in a Global Note in DTC, and making or receiving payment in accordance with normal procedures for same-day funds settlement applicable to DTC. Euroclear and Clearstream Luxembourg participants may not deliver instructions directly to the depositaries for Euroclear or Clearstream Luxembourg.

Because of time zone differences, the securities account of a Euroclear or Clearstream Luxembourg participant purchasing an interest in a Global Note from a Participant in DTC will be credited and reported to the relevant Euroclear or Clearstream Luxembourg participant, during the securities settlement processing day (which must be a business day for Euroclear and Clearstream Luxembourg) immediately following the settlement date of DTC. DTC has advised us that cash received in Euroclear or Clearstream Luxembourg as a result of sales of interests in a Global Note by or through a Euroclear or Clearstream Luxembourg participant to a Participant in DTC will be received with value on the settlement date of DTC but will be available in the relevant Euroclear or Clearstream Luxembourg cash account only as of the business day for Euroclear or Clearstream Luxembourg following DTC’s settlement date.

DTC has advised us that it will take any action permitted to be taken by a holder of notes only at direction of one or more Participants to whose account with DTC interests in a Global Note are credited and only in respect of such portion of the aggregate principal amount of the notes as to which such Participant or Participants has or have given such direction. If there is an Event of Default under the indenture, DTC reserves the right to exchange a Global Note for notes in certificated form, and to distribute the notes to its Participants.

Although DTC, Euroclear and Clearstream Luxembourg have agreed to the foregoing procedures to facilitate transfers of interests in Global Notes among participants in DTC, Euroclear and Clearstream Luxembourg, they are under no obligation to perform or to continue to perform such procedures, and the procedures may be discontinued at any time. Neither we nor the trustee will have any responsibility for the performance by DTC, Euroclear or Clearstream Luxembourg or their respective participants or indirect participants of their respective obligations under the rules and procedures governing their operations.

Exchange of Book-Entry Notes for Certified Notes

The information in this section concerning DTC, Euroclear and Clearstream Luxembourg and their book-entry systems has been obtained from sources that we believe to be reliable, but we take no responsibility for the accuracy thereof.

A Global Note is exchangeable for notes in registered certificated form, a “Certificated Note:”


	•	if DTC (1) notifies us that it is unwilling or unable to continue as depositary for the Global Note and we fail to appoint a successor depositary or (2) has ceased to be a clearing agency registered under the Exchange Act;

	•	if we, at our option, notify the trustee in writing that we elect to cause the issuance of the notes in certificated form; or

	•	at the request of DTC, if there shall have occurred and be continuing an Event of Default under the indenture.

In all cases, Certificated Notes delivered in exchange for any Global Note or beneficial interests therein will be registered in the names, and issued in any approved denominations, requested by or on behalf of the depositary (in accordance with its customary procedures) and will bear the applicable restrictive legend unless we determine otherwise in accordance with the indenture and in compliance with applicable law.

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SUMMARY OF CERTAIN UNITED STATES TAX CONSIDERATIONS

The following summary describes the material United States federal income tax consequences, and, in the case of a holder that is a non-U.S. holder (as defined below), the United States federal estate tax consequences, of purchasing, owning and disposing of the offered notes, which we refer to in this section as the “notes.” This summary applies to you only if you are the initial holder of the notes and you acquire the notes for a price equal to the issue price of the notes. The issue price of the notes is the first price at which a substantial amount of the notes is sold other than to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers.

This summary deals only with notes held as capital assets (generally, investment property) and does not deal with holders that are subject to special tax treatment such as:


	•	dealers in securities or currencies;

	•	United States holders (as defined below) whose functional currency is not the United States dollar;

	•	persons holding notes as part of a hedge, straddle, conversion, “synthetic security” or other integrated transaction;

	•	certain United States expatriates;

	•	financial institutions;

	•	insurance companies; and

	•	entities that are tax-exempt for United States federal income tax purposes.

This summary does not discuss all of the aspects of United States federal income and estate taxation that may be relevant to you in light of your particular circumstances. In addition, this summary does not discuss any state, local or foreign tax consequences. This summary is based on United States federal income tax law, including the provisions of the Internal Revenue Code of 1986, as amended, which we refer to as the “Internal Revenue Code,” Treasury regulations, administrative rulings and judicial authority, all as in effect as of the date of this prospectus supplement. Subsequent developments in United States federal income tax law, including changes in law or differing interpretations, which may be applied retroactively, could have a material effect on the United States federal income tax consequences of purchasing, owning and disposing of notes as set forth in this summary. Before you purchase notes, you should consult your own tax advisor regarding the particular United States federal, state, local and foreign income and other tax consequences to you of acquiring, owning and disposing of the notes.

United States Holders

The following summary applies to you only if you are a United States holder (as defined below).

Definition of a United States Holder

A “United States holder” is a beneficial owner of a note or notes who or which is for United States federal income tax purposes:


	•	an individual citizen or resident of the United States;

	•	a corporation (or other entity classified as a corporation for U.S. federal tax purposes) created or organized in or under the laws of the United States or any political subdivision of the United States, including any state;

	•	an estate, the income of which is subject to United States federal income taxation regardless of the source of that income; or

	•	a trust, if, in general, a United States court is able to exercise primary supervision over the trust’s administration and one or more United States persons (within the meaning of the Internal Revenue Code) have the authority to control all of the substantial decisions of the trust.

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If a partnership holds notes, the tax treatment of a partner generally will depend upon the status of the partner and upon the activities of the partnership. If you are a partnership, or a partner in a partnership, that is considering the purchase of notes, you should consult your tax advisor regarding the particular tax consequences to you.

Payments of Interest

Interest on your notes will be taxable as ordinary interest income. In addition:


	•	if you use the cash method of accounting for United States federal income tax purposes, you will have to include the interest on your notes in your gross income at the time you receive the interest; and

	•	if you use the accrual method of accounting for United States federal income tax purposes, you will have to include the interest on your notes in your gross income at the time the interest accrues.

Sale or Other Disposition of Notes

Your tax basis in your notes generally will be the price you paid for them, subject to certain adjustments. You generally will recognize taxable gain or loss when you sell or otherwise dispose of your notes equal to the difference, if any, between:


	•	the amount realized on the sale or other disposition (less any amount attributable to accrued but unpaid interest, which will be taxable as ordinary income if not previously included in income under the rules described in “Summary of Certain United States Tax Considerations — United States Holders — Payments of Interest”); and

	•	your tax basis in the notes.

Your gain or loss generally will be capital gain or loss. This capital gain or loss will be long-term capital gain or loss if at the time of the sale or other disposition you have held the notes for more than one year. Subject to limited exceptions, capital losses cannot be used to offset ordinary income. If you are a non-corporate United States holder, your long-term capital gain generally will be subject to a maximum federal income tax rate of 20%.

Backup Withholding and Information Reporting

For each calendar year in which the notes are outstanding, we, our agents or paying agents or a broker may be required to provide the IRS with certain information, including your name, address and taxpayer identification number, the aggregate amount of principal and interest (and premium, if any) paid to you during the calendar year and the amount of tax withheld, if any. This obligation, however, does not apply to you if you are a corporation, tax-exempt organization, qualified pension and profit sharing trusts or individual retirement account.

In general, “backup withholding” may apply:


	•	to any payments made to you of principal of and interest on your note; and

	•	to payment of the proceeds of a sale or other disposition of your note before maturity,

if you are a non-corporate United States holder and fail to provide a correct taxpayer identification number or otherwise comply with applicable requirements of the backup withholding rules. Backup withholding applies at a rate not to exceed 31%.

Backup withholding is not an additional tax and may be credited against your United States federal income tax liability, provided that the required information is provided to the IRS.

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Non-U.S. Holders

The following summary applies to you if you are a beneficial owner of a note who or which is not a United States holder, as described above, a “non-U.S. holder.” An individual may, subject to exceptions, be deemed to be a resident alien, as opposed to a non-resident alien, by, among other ways, being present in the United States:


	•	on at least 31 days in the calendar year; and

	•	for an aggregate of at least 183 days during a three-year period ending in the current calendar year,

	•	counting for such purposes all of the days present in the current year, one-third of the days present in the immediately preceding year and one-sixth of the days present in the second preceding year.

Resident aliens are subject to United States federal income tax as if they were United States citizens.

United States Federal Withholding Tax

Subject to the discussion below, United States federal withholding tax will not apply to payments by us or our paying agent (in its capacity as such) of principal or interest on your notes, provided that in the case of interest:


	•	you do not, directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of our stock entitled to vote;

	•	you are not a controlled foreign corporation for United States federal income tax purposes that is related, directly or indirectly, to us through sufficient stock ownership (as provided in the Internal Revenue Code); and

	•	you provide a signed written statement on an IRS Form W-8BEN (or other applicable form), together with all appropriate attachments, certifying under penalties of perjury that you are not a United States person within the meaning of the Internal Revenue Code (provided that we do not have actual knowledge to the contrary) and providing your name and address to:


	(A)	us or our paying agent; or


	(B)	a securities clearing organization, bank or other financial institution that holds customers’ securities in the ordinary course of its trade or business and holds your notes on your behalf and that certifies to us or our paying agent under penalties of perjury that it, or the bank or financial institution between it and you, has received from you your signed, written statement and provides us or our paying agent with a copy of this statement.

The Treasury regulations provide alternative methods for satisfying the certification requirement described in this section. In addition, under the Treasury regulations:


	•	if you are a foreign partnership, the certification requirement will generally apply to your partners, and you will be required to provide certain information;

	•	if you are a foreign trust, the certification requirement will generally be applied to you or your beneficial owners depending on whether you are a “foreign complex trust,” “foreign simple trust” or “foreign grantor trust” as defined in the Treasury regulations; and

	•	look-through rules will apply for tiered partnerships, foreign simple trusts and foreign grantor trusts.

If you are a foreign partnership, a partner in a foreign partnership, a foreign trust or the beneficial owner of a foreign trust, you should consult your own tax advisor regarding your status under these Treasury regulations and the certification requirements applicable to you.

If you cannot satisfy the requirements described above, payments of interest made to you will be subject to 30% U.S. federal withholding tax unless you provide us or our paying agent with a properly executed (1) IRS Form W-8ECI (or other applicable form) stating that interest paid on your notes is not

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subject to withholding tax because it is effectively connected with your conduct of a trade or business in the United States or (2) IRS Form W-8BEN (or other applicable form) claiming an exemption from, or reduction in withholding under, an applicable tax treaty.

United States federal withholding tax generally will not apply to any gain that you realize on the sale, exchange, retirement or other disposition of your notes.


	*United States Federal Income Tax*

Except for the possible application of United States withholding tax (see “Summary of Certain United States Tax Considerations — Non-U.S. Holders — United States Federal Withholding Tax” above) and backup withholding (see “Summary of Certain United States Tax Considerations — Non-U.S. Holders — Backup Withholding and Information Reporting” below), you generally will not have to pay United States federal income tax on payments of principal of or interest on your notes, or on any gain or income realized from the sale, redemption, retirement at maturity or other disposition of your notes (provided that, in the case of proceeds representing accrued interest, the conditions described in “Summary of Certain United States Tax Considerations — Non-U.S. Holders — United States Federal Withholding Tax” are met) unless:


	•	In the case of gain, you are an individual who is present in the United States for 183 days or more during the taxable year of the sale or other disposition of your notes, and certain other conditions are met; or

	•	the interest, gain or other income is effectively connected with your conduct of a United States trade or business and, if an income tax treaty applies, is generally attributable to a United States “permanent establishment” maintained by you.

If you are engaged in a trade or business in the United States and interest, gain or any other income in respect of your notes is effectively connected with the conduct of your trade or business, and, if an income tax treaty applies, you maintain a United States “permanent establishment” to which the interest, gain or other income is attributable, you will generally be subject to United States income tax on a net basis on the interest, gain or income (although the interest will, as discussed above, be exempt from U.S. federal withholding tax if you provide the appropriate IRS form to claim the exemption).

In addition, if you are a foreign corporation, you may be subject to a branch profits tax equal to 30% of your effectively connected earnings and profits for the taxable year, as adjusted for certain items, unless a lower rate applies to you under a United States income tax treaty with your country of residence. For this purpose, you must include interest, gain or income on your notes in the earnings and profits subject to the branch tax if these amounts are effectively connected with the conduct of your United States trade or business.


	*United States Federal Estate Tax*

If you are an individual and are not a United States citizen or a resident of the United States (as specially defined for United States federal estate tax purposes) at the time of your death, your notes will generally not be subject to the United States federal estate tax, unless, at the time of your death:


	•	you directly or indirectly, actually or constructively, own 10% or more of the total combined voting power of all classes of our stock entitled to vote; or

	•	your interest on the notes is effectively connected with your conduct of a United States trade or business.

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	*Backup Withholding and Information Reporting*

Under current Treasury regulations, backup withholding and information reporting will not apply to payments made by us or our paying agent (in its capacity as such) to you if you have provided the required certification that you are a non-U.S. holder (as described in “Summary of Certain United States Tax Considerations — Non-U.S. Holders — United States Federal Withholding Tax” above) and neither we nor our paying agent has actual knowledge that you are a United States holder (as described in “Summary of Certain United States Tax Considerations — United States Holders” above). We or our paying agent may, however, report payments of interest on the notes that are made to you.

The gross proceeds from the disposition of your notes may be subject to information reporting and backup withholding. Backup withholding applies at a rate not to exceed 31%. If you sell your notes outside the United States through a non-U.S. office of a non-U.S. broker and the sales proceeds are paid to you outside the United States, the U.S. backup withholding and information reporting requirements generally will not apply to that payment. However, U.S. information reporting, but not backup withholding, will apply to a payment of sales proceeds, even if that payment is made outside the United States, if you sell your notes though a non-U.S. office of a broker that:


	•	is a United States person (as defined in the Internal Revenue Code);

	•	derives 50% or more of its gross income in specific periods from the conduct of a trade or business in the United States;

	•	is a “controlled foreign corporation” for U.S. federal income tax purposes; or

	•	is a foreign partnership, if at any time during its tax year:

	•	one or more of its partners are U.S. persons who in the aggregate hold more than 50% of the income or capital interests in the partnership; or

	•	the foreign partnership is engaged in a U.S. trade or business,

unless the broker has documentary evidence in its files that you are a non-U.S. person and certain other conditions are met or you otherwise establish an exemption. If you receive payments of the proceeds of a sale of your notes to or through a U.S. office of a broker, the payment is subject to both U.S. backup withholding and information reporting unless you provide a Form W-8BEN certifying that you are a non-U.S. person or you otherwise establish an exemption.

You should consult your own tax advisor regarding application of backup withholding in your particular circumstances and the availability of and procedure for obtaining an exemption from backup withholding under the Treasury regulations. Any amounts withheld under the backup withholding rules from a payment to you will be allowed as a refund or credit against your United States federal income tax liability, provided that the required information is furnished to the IRS.

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UNDERWRITING

Subject to the terms and conditions set forth in the underwriting agreement by and among us, the guarantors, Wachovia Securities, Inc., Banc of America Securities LLC, Deutsche Bank Securities Inc. and Allen & Company LLC, the underwriters, we have agreed to sell to the underwriters severally, and the underwriters have severally agreed to purchase from us, the principal amount of the offered notes set forth opposite their names below:


		Principal
		Amount of
Underwriters		Notes

Wachovia Securities, Inc.		$
Banc of America Securities LLC
Deutsche Bank Securities Inc.
Allen & Company LLC

	Total	$	100,000,000

The underwriters have agreed to purchase all of the offered notes referred to above, if any of those offered notes are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.

The offered notes are offered by the underwriters, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by counsel for the underwriters and other conditions. The underwriters reserve the right to withdraw, cancel or modify such offer and to reject orders in whole or in part.

Transfer Restrictions in the United Kingdom. Each underwriter has represented and agreed that (a) it has not offered or sold, and, prior to the expiration of the period of six months from the closing date for the issue of the offered notes, will not offer or sell any offered notes to persons in the United Kingdom, except to those persons whose ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or agent) for the purpose of their businesses or otherwise in circumstances which have not resulted and will not result in an offer to the public in the United Kingdom, within the meaning of the Public Offers of Securities Regulations 1995 or under the Financial Services and Markets Act 2000, (b) it only has communicated or caused to be communicated and only will communicate or cause to be communicated any invitation or inducement to engage in investment activity, within the meaning of section 21 of the Financial Services and Markets Act, received by it in connection with the issue or sale of any offered notes in circumstances, which section 21(1) of this act does not apply to us, and (c) it has complied with and will comply with all applicable provisions of the Financial Services and Markets Act with respect to anything done by it in relation to the securities in, from or otherwise involving the United Kingdom.

Commissions and Discounts. The underwriters have advised us that they propose to offer the offered notes to the public at the public offering price set forth on the cover page of this prospectus supplement and to certain dealers at such price less a concession of not more than $ per offered note, % of the principal amount of an offered note. After the completion of this offering, the public offering price and the other selling terms may be changed.

The following table shows the public offering price, underwriting discounts and commissions and proceeds, before expenses, to us, both on a per offered note basis and in total.


	Per offered note	Total

Public offering price	$	$
Underwriting discounts and commissions	$	$
Proceeds, before expenses, to us	$	$

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The expenses of this offering, not including the underwriting discounts and commissions, are estimated at $300,000 and are payable by us.

Indemnity. We have agreed to indemnify the underwriters against specified liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities.

Trading Market for the Notes. Prior to this offering, Wachovia Securities, Inc. has been making a market in the offered notes. We have been advised by the underwriters that the underwriters currently intend to continue making a market in the offered notes; the underwriters are not obligated to do so, however, and any market making may be discontinued at any time. Therefore, there can be no assurance as to whether an active trading market for the offered notes will be maintained or as to the liquidity of the trading market for the offered notes.

Over-Allotment; Stabilization. In connection with the offering, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the offered notes. Specifically, the underwriters may bid for the purchase of offered notes in the open market to stabilize the price of the offered notes. The underwriters may also over-allot this offering, creating a syndicate short position. In addition, the underwriters may bid for and purchase offered notes in market making transactions and impose penalty bids. These activities may stabilize or maintain the market price of the offered notes above market levels that might otherwise prevail. The underwriters are not required to engage in these activities, and may end these activities at any time.

Other Relationships. The underwriters and/or their affiliates have provided commercial and investment banking services to us from time to time for which they have received customary fees and expenses. The underwriters and their affiliates may, from time to time, engage in other transactions with us and perform other services for us in the ordinary course of their business. In particular, affiliates of Wachovia Securities, Inc. and Banc of America Securities LLC are lenders under our existing bank credit facility and an affiliate of Wachovia Securities, Inc. is the agent under our existing bank credit facility.

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LEGAL MATTERS

Certain legal matters with respect to the notes we are offering will be passed upon for us by Proskauer Rose LLP, New York, New York and Troutman Sanders LLP, Atlanta, Georgia. The underwriters have been represented by Cadwalader, Wickersham & Taft, New York, New York.

EXPERTS

The consolidated financial statements and schedule of Gray Television, Inc. (formerly Gray Communications Systems, Inc.) as of December 31, 2000, and for each of the two years in the period ended December 31, 2000, incorporated by reference in the prospectus supplement from Gray Television, Inc.’s Annual Report (Form 10-K) for the year ended December 31, 2001, have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon also incorporated by reference herein. Such consolidated financial statements have been incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Gray Television, Inc. as of December 31, 2001, and for the year then ended, incorporated into this prospectus supplement by reference to the Gray Television, Inc. Annual Report on Form 10-K for the year ended December 31, 2001 have been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Stations Holding Company, Inc. and subsidiaries as of December 31, 2000 and 2001, and for each of the three years in the period ended December 31, 2001 included in the accompanying prospectus have been audited by McGladrey & Pullen, LLP, independent auditors, as stated in their report appearing in this prospectus and are included in reliance upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any document we file at the SEC’s public reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549 and also at its locations in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov. Our class A common stock and class B common stock are listed on the New York Stock Exchange. Our reports, proxy statements and other information can also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.

INCORPORATION BY REFERENCE

The SEC allows us to “incorporate by reference” the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus supplement, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the following documents:


	•	our Annual Report on Form 10-K for the fiscal year ended December 31, 2001;

	•	our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2002 and June 30, 2002;

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	•	our Definitive Proxy Statement on Schedule 14A, filed on August 15, 2002;

	•	our Current Reports on Form 8-K, filed on July 17, 2002, July 30, 2002 and September 4, 2002; and

	•	any future filings that we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended.

You may request a copy of those filings, at no cost, by writing or telephoning us at the following:

Gray Television, Inc.

4370 Peachtree Road, NE

Atlanta, Georgia 30319

Attention: James C. Ryan

Telephone: (404) 504-9828

This prospectus supplement is part of a registration statement we filed with the SEC. You should rely on only the information or representations provided in this prospectus supplement and the accompanying prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus supplement is accurate as of any date other than the date on the front of the document.

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PROSPECTUS

$600,000,000

Gray Television, Inc.

Common Stock

Preferred Stock

Debt Securities

Gray Television, Inc. may offer from time to time common stock, preferred stock and debt securities separately or together. The specific terms and amounts of the securities will be fully described in supplements to this prospectus. Please read any prospectus supplements and this prospectus carefully before you invest. This prospectus may not be used to sell securities unless accompanied by a prospectus supplement.

We have two classes of common stock: class A and class B. Our class A common stock is traded on the New York Stock Exchange under the symbol “GTN.A.” Our class B common stock is traded on the New York Stock Exchange under the symbol “GTN.” On August 30, 2002, the last reported sale price for our class A common stock was $13.40 per share and the last reported sale price for our class B common stock was $11.75 per share. We also have Series C convertible preferred stock which is not publicly traded.

We have changed our name to “Gray Television, Inc.” from “Gray Communications Systems, Inc.” and we have changed our ticker symbols to “GTN.A” from “GCS” for our class A common stock and to “GTN” from “GCS.B” for our class B common stock on the New York Stock Exchange. On September 16, 2002, we intend to submit to our shareholders for approval a proposal to change the designation of our class B common stock to “Common Stock.”

Investing in our common stock, preferred stock or debt securities involves risks. See “Risk Factors” beginning on page 3.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The securities may be sold directly by us to investors, through agents designated from time to time or to or through underwriters or dealers. See “Plan of Distribution.” If any underwriters are involved in the sale of any securities in respect of which this prospectus is being delivered, the names of these underwriters and any applicable commissions or discounts will be set forth in a prospectus supplement. The net proceeds we expect to receive from a sale also will be set forth in a prospectus supplement.

The date of this prospectus is September 3, 2002

TABLE OF CONTENTS


	Page

About this Prospectus		ii
Industry, Market and Ranking Data		ii
Prospectus Summary		1
Risk Factors		3
Forward-Looking Statements		17
Use of Proceeds		18
Ratio of Earnings to Fixed Charges		18
The Merger		19
The Merger Agreement and Related Agreements		21
Information Regarding Gray		29
Selected Station and Market Information Regarding Gray and Stations		34
Business of Stations Holding Company, Inc.		48
Stations Selected Financial Data		55
Stations Management’s Discussion and Analysis of Financial Condition and Results of Operation		58
Unaudited Pro Forma Financial Data		69
Description of Certain Indebtedness		80
Description of Capital Stock		82
Description of Debt Securities		84
Plan of Distribution		92
Legal Matters		92
Experts		92
Where You Can Find More Information		93
Incorporation by Reference		93
Index to Financial Statements of Stations Holding Company, Inc.		F-1

ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-3 that we filed with the Securities and Exchange Commission, which we sometimes refer to as the “SEC,” utilizing a “shelf” registration process. Under this shelf process, we may, over the next two years, offer any combination of common stock, preferred stock or debt securities, or either common stock, preferred stock or debt securities only, described in this prospectus in one or more offerings up to a total amount of $600,000,000. This prospectus provides you with a general description of the securities we may issue and sell. Each time we use this prospectus to offer securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described in the section titled “Where You Can Find More Information.”

INDUSTRY, MARKET AND RANKING DATA

In this prospectus and the documents incorporated by reference, we rely on and refer to market information regarding the television industry from BIA Financial Network, Inc.’s MEDIA Access Pro^TM Version 3.1, updated as of July 1, 2002, which we refer to as “BIA.” We also rely on and refer to market information regarding the television industry from Nielsen Station Index, Viewers in Profile, dated May 2002, as prepared by A.C. Nielsen Company, which we refer to as “Nielsen.” Although we believe that the information obtained from third parties is reliable, we have not independently verified the accuracy and completeness of the information. To the extent this information contains forward-looking statements, readers of this prospectus are cautioned that these statements involve risks and uncertainty and that actual results may differ materially from those in these statements, similarly to that described in “Forward-Looking Statements.” All statements as to station ranking in this prospectus are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the “Selected Station and Market Information Regarding Gray and Stations” section in the tables titled “Competitive Landscape” are based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period.

PROSPECTUS SUMMARY

In this prospectus, unless otherwise indicated, the words “Gray,” “our,” “us” and “we” refer to Gray Television, Inc. (formerly known as Gray Communications Systems, Inc.) and its subsidiaries. Our discussion of the television stations that we own and operate does not include our interest in the stations owned by Sarkes Tarzian, Inc., which we refer to as “Tarzian.”

This summary highlights selected information from this document and the materials incorporated by reference and does not contain all of the information that is important to you. For a more complete understanding of this offering, we encourage you to read this entire prospectus, any prospectus supplements hereto and the documents to which we have referred you.

Our Business

We currently own and operate 13 network-affiliated television stations in 11 medium-sized markets in the Southeast, Southwest and Midwest United States. Eleven of our 13 stations are ranked first in total viewing audience and news audience, with the remaining two stations ranked second in total viewing audience and second or third in news audience. Ten of our stations are affiliated with CBS Inc., or “CBS,” and three are affiliated with National Broadcasting Company, Inc., or “NBC.”

On June 4, 2002, we executed a merger agreement with Stations Holding Company, Inc., which we refer to as “Stations,” the parent company of Benedek Broadcasting Corporation, which we refer to as “Benedek.” We plan to acquire 15 television stations from Stations. Stations is required under the merger agreement to sell its additional nine designated television stations to third parties prior to the merger. In consideration for Stations, we will pay an estimated consideration of $502.5 million, a substantial portion of which will be used to satisfy, in full, certain outstanding indebtedness of Stations in accordance with an amended plan of reorganization filed by Stations with the United States bankruptcy court in Delaware on July 9, 2002. We expect the merger, if it closes, to be completed during the fourth quarter of 2002.

We were incorporated in 1891 to publish the The Albany Herald in Albany, Georgia and entered the broadcasting industry in 1954. We have a dedicated and experienced senior management team, which has an average of over 18 years experience in the media industry.

Recent Developments

KOLO-TV, Reno, Nevada

On September 3, 2002, Smith Television Group, Inc. and Smith Television License Holdings, Inc., which we refer to collectively as “Smith,” and we executed a definitive asset purchase agreement to acquire from Smith, in a transaction which we refer to as the “Reno acquisition,” all of the assets and business of KOLO-TV, a television station in Reno, Nevada, which we refer to as the “Reno station,” for $41.5 million in cash.

We believe that the Reno station is the number one rated station in the market for news and programming. For the ten month period commencing on March 1, 2001 (the date on which Smith acquired the Reno station) and the six month period ended June 30, 2002, the Reno station’s net revenue approximated $7.8 million and $4.4 million, respectively.

The acquisition is subject to certain consents, including approval by the FCC of the assignment of the Reno station’s licenses, permits and other authorizations issued by the FCC for the operation of the Reno station. We cannot guarantee that all required consents and approvals will be obtained, or that the transaction will be consummated. However, we currently expect the transaction, if it closes, to be completed by December 31, 2002.

Our Offices and Additional Information

We are a Georgia corporation formed in 1891. Our principal offices are located at 4370 Peachtree Road, NE, Atlanta, Georgia 30319, and our telephone number is (404) 504-9828. Additional information regarding Gray is set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2002 and June 30, 2002 (which are incorporated by reference in this prospectus).

RISK FACTORS

You should carefully consider the following risk factors, as well as the other information contained in this prospectus or any supplemental prospectus hereto or incorporated herein by reference, before purchasing any of our common stock, preferred stock or debt securities.

Risks Related to Our Business

We have recorded net losses in the last three years and these losses may continue.

We have recorded net losses in the last three years. Our losses are primarily due to increased operating expenses, higher amortization and depreciation costs, increased interest expense relating to our acquisitions and, in 2001, declining advertising revenue caused, in large part, by the weaker economic environment and the cyclical decline in broadcast political revenue. Our net losses may continue for these reasons and also because of the phasing out of network compensation payments under certain of our network affiliation agreements.

We depend on advertising revenues, which have decreased recently as a result of a number of factors and also experience seasonal fluctuations.

Our main source of revenue is sales of advertising time at our television stations and advertising space within our newspapers. Our ability to sell advertising time and space depends on:


	•	the health of the economy in the areas where our stations and newspapers are located and in the nation as a whole;

	•	the popularity of our programming and newspapers;

	•	changes in the makeup of the population in the areas where our stations and newspapers are located;

	•	pricing fluctuations in local and national advertising;

	•	the activities of our competitors, including increased competition from other forms of advertising-based mediums, particularly network, cable television, direct satellite television and the Internet; and

	•	other factors that may be beyond our control.

For example, a labor dispute or other disruption at a major national advertiser, or a recession in a particular market, would make it more difficult to sell advertising time and space and could reduce our revenue.

In addition, our results are subject to seasonal fluctuations, which typically result in fourth quarter broadcast operating income being greater than first, second and third quarter broadcast operating income. This seasonality is primarily attributable to increased expenditures by advertisers in anticipation of holiday season spending and an increase in viewership during this period. Furthermore, revenues from political advertising are significantly lower in odd-numbered years.

We must purchase non-network television programming in advance but cannot predict if a particular show will be popular enough to cover its cost.

One of our most significant costs is non-network television programming. If a particular non-network program is not popular 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 non-network programming content from others, we also have little control over the costs of such programming. We usually must purchase non-network programming several years in advance, and may have to commit to purchase more than one year’s worth of non-network programming. In addition, we may replace programs that are doing 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 or otherwise cause our costs to escalate relative to revenues.

We may lose a large amount of television programming if a network terminates its affiliation with us.

Our business depends in large part on the success of our network affiliations. Each of our stations and each of Stations’ television 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 network with which the station is affiliated.

The preliminary NBC affiliation agreements we recently entered into for WJHG, WITN and WEAU expire on December 31, 2011 and Stations’ affiliation agreements for WOWT, WTAP, WMTV and WILX expire on January 1, 2012. In addition, our CBS affiliation agreements expire as follows: (1) WVLT, WKYT, WYMT and WCTV, on December 31, 2004; (2) WRDW, on March 31, 2005; and (3) KWTX, KBTX, KOLN, KGIN and KXII, on December 31, 2005. Stations’ CBS affiliation agreements expire on June 30, 2005. In addition, Stations’ affiliation agreements with ABC for KAKE, KLBY and KUPK expire on January 1, 2006 and for WHSV, WBKO and WTOK on November 1, 2004. If we do not enter into affiliation agreements to replace any expiring agreements, we may no longer be able to carry programming of the relevant network. This loss of programming would require us to obtain replacement programming, which may involve higher costs and which may not be as attractive to our target audiences. Furthermore, our concentration of CBS affiliates makes us sensitive to adverse changes in our business relationship with, and the general success of, CBS and its network programming.

We may lose a significant amount of compensation payments if affiliation agreements are renewed with lower or no compensation payments.

In exchange for every hour that a station elects to broadcast network programming, the network may pay the station a specific network compensation fee, which varies with the time of day. For the 12 months ended June 30, 2002, this network compensation comprised 6.5% of our broadcasting revenue.

Our CBS affiliation agreements for KWTX, KBTX and KXII were renegotiated during the fourth quarter of 2000 and the agreements were extended through December 31, 2005. As a result of these negotiations, network compensation for KWTX, KBTX and KXII is being phased out over 2001 and 2002. In addition, our new NBC affiliation agreement for WJHG does not provide for any network compensation payments by NBC after December 31, 2001. Furthermore, our recent extensions of the WITN and WEAU agreements through December 31, 2011 do not provide for any network compensation payments during the extended terms of those agreements, which begin after June 30, 2006 and December 31, 2005, respectively. Stations’ NBC affiliation agreements for WOWT, WMTV, WILX and WTAP were renegotiated effective as of January 1, 2002 and the agreements were extended to January 1, 2012. As a result of these negotiations compensation for WOWT, WMTV, WILX and WTAP continues, although at a reduced level through 2005. For the period from January 1, 2006 through the expiration of the contract on January 1, 2012 the agreements do not provide for any network compensation payments. Stations’ ABC affiliation agreements for WBKO, WHSV and WTOK expire on November 1, 2004 and provide for compensation that decreases throughout the term of the contract and reduces to zero by the expiration date of the contract.

As evidenced by these negotiations, we may not be able to enter into new affiliation agreements that provide us with as much compensation from the networks as our present agreements.

We operate in a highly competitive environment and competition from other media entities may cause our advertising sales to decrease or our costs to increase.

We face significant competitive pressures from the following:


	*Television Industry.* Competition in the television industry exists on several levels: competition for audience; competition for programming, including news; and competition for advertisers. Additional factors that are material to a television station’s competitive position include signal coverage and assigned frequency.

	Audience. Stations compete for audience based on program popularity, which has a direct effect on advertising rates. A substantial portion of the daily programming on each of our stations is supplied by the network affiliate. During those periods, the stations are totally dependent upon the performance of the network programs to attract viewers. There can be no assurance that this programming will achieve or maintain satisfactory viewership levels in the future. Non-network time periods are programmed by the station with a combination of self-produced news, public affairs and other entertainment programming, including news and syndicated programs purchased for cash, cash and barter, or barter only, and involve significant costs.

	In addition, the development of methods of television transmission of video programming other than over-the-air broadcasting and, in particular, cable television have significantly altered competition for audiences in the television industry. These other transmission methods can increase competition for a broadcasting station by bringing into its market distant broadcasting signals not otherwise available to the station’s audience and also by serving as a distribution system for non-broadcasting programming.

	Technological innovation and the resulting proliferation of programming alternatives, such as home entertainment systems, “wireless cable” services, satellite master antenna television systems, low power television stations, television translator stations, direct broadcast satellite, video distribution services, pay-per-view and the Internet, have fractionalized television viewing audiences and have subjected free over-the-air television broadcast stations to new types of competition.

	Programming. Competition for programming involves negotiating with national program distributors or syndicators that sell first-run and rerun packages of programming. Each station competes against the broadcast station competitors in its market for exclusive access to off-network reruns, such as Seinfeld, and first-run product, such as Entertainment Tonight. 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. Competition exists for exclusive news stories and features as well.

	Advertising. Advertising rates are based upon the size of the market in which the station operates, a station’s overall ratings, a program’s popularity among the viewers that an advertiser wishes to attract, the number of advertisers competing for the available time, the demographic makeup of the market served by the station, the availability of alternative advertising media in the market area, aggressive and knowledgeable sales forces and 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 for advertising revenues with other television stations in their respective markets. The stations also compete for advertising revenues with other media, such as newspapers, radio stations, magazines, outdoor advertising, transit advertising, yellow page directories, direct mail, Internet and local cable systems. Competition for advertising dollars in the broadcasting industry occurs primarily within individual markets. Technological advances and developments made by other media entities may result in increased competition and decreased advertising revenue.

	Deregulation. Recent changes in law have also increased competition. The Telecommunications Act of 1996, the “Telecommunications Act,” created greater flexibility and removed some limits on station ownership. The prices for stations have risen as a result. Telephone, cable and some other content providers are also free to provide video services in competition with us. The Federal


	Communications Commission, “FCC,” is actively reviewing its ownership rules and further deregulation could lead to industry consolidation that could pose new competitive challenges in the markets in which we operate.

	Future Technology Under Development. Cable providers and direct broadcast satellite companies are developing new techniques that allow them to transmit more channels on their existing equipment. These so-called “video compression techniques” will reduce the cost of creating channels, and may lead to the division of the television industry into ever more specialized niche markets. Video compression is available to us as well, but competitors who target programming to such sharply defined markets may gain an advantage over us for television advertising revenues. Lowering the cost of creating channels may also encourage new competitors to enter our markets and compete with us for advertising revenue.

	*Newspaper Industry.* Our newspapers compete for advertisers with a number of other media outlets, including magazines, Internet, radio and television, as well as other newspapers, which also compete for readers with our publications. One of our newspaper competitors is significantly larger than us and operates in two of our newspaper markets. New technological media for the delivery of news and information, such as the Internet, have fragmented historical newspaper audiences and subjected newspaper companies to new types of competition.

	*Paging Industry.* The paging industry is highly competitive. Companies in the industry compete on the basis of price, coverage area offered to subscribers, available services offered in addition to basic numeric or tone paging, transmission quality, system reliability and customer service.

	Our primary competitors include those paging companies that provide wireless service in the same geographic areas in which we operate. We experience competition from one or more competitors in all locations in which we operate. Some of our competitors have greater financial and other resources than we have.

	Our paging services also compete with other wireless communications services such as cellular service. The typical customer uses paging as a low-cost wireless communications alternative either on a stand-alone basis or in conjunction with cellular services. However, future technological developments in the wireless communications industry and enhancements of current technology could create new products and services, such as personal communications services and mobile satellite services, which are competitive with the paging services we currently offer. Recent and proposed regulatory changes by the FCC are aimed at encouraging these technological developments and new services and promoting competition. There can be no assurance that our paging business would not be adversely affected by these technological developments or regulatory changes.

The phased introduction of digital advanced television will increase our capital and operating costs and may expose us to increased competition.

The FCC has adopted rules and regulations that require television stations to implement digital advanced television service, including high definition, in the United States. Under current regulations, all commercial television stations in the United States were required to start broadcasting in digital format by May 1, 2002 and must abandon the present analog format by 2006, although the FCC may extend these dates. As of May 1, 2002, four of our stations and one of the television stations that we intend to acquire in the merger were broadcasting in digital format. Our remaining nine stations and the remaining 14 television stations that we intend to acquire in the merger have been granted six-month extensions to the May 2002 deadline. The extensions will need to be renewed if the stations are not broadcasting in digital format by the time they expire. These extension renewals may not be granted. The stations that do not begin broadcasting in digital format by their extended deadlines could be subject to fines. If the stations do not eventually begin broadcasting in digital format, the stations could lose their digital allocation and be required to cease broadcasting at the end of the transition period when the analog spectrum is reclaimed.

There is considerable uncertainty about the final form of the FCC digital regulations. Even so, we believe that these new developments may have the following effects on us:


	Signal Quality Issues. Certain industry tests have indicated that the digital standard mandated currently is unable to provide for reliable reception of a digital advanced television signal through a simple indoor antenna. It also appears likely that additional interference will occur to both analog and digital advanced television stations as new digital advanced television broadcast stations are constructed. We are unable to assess at this time the magnitude of such interference or the efficacy of possible remedies.

	Because of this possible reception quality and coverage issue, we may be forced to rely on cable television or other alternative means of transmission to deliver our digital signals to all of the viewers we are able to reach with our current analog signals. While the FCC ruled that cable companies are required to carry the signals of digital-only television stations, the agency has tentatively concluded, subject to additional inquiry, that cable companies should not be required to carry both the analog and digital signals of stations during the transition period when stations will be broadcasting in both modes. If the FCC does not require cable companies to carry both analog and digital signals, cable customers in our broadcast markets may not receive our digital signal, which could negatively impact our business.

	Capital and Operating Costs. We will incur substantial costs to replace equipment in our stations in order to provide digital advanced television. Even with the flexible operating requirements, our stations will also incur increased utilities costs as a result of converting to digital operations. We cannot be certain we will be able to increase revenues to offset these additional costs.

	Conversion and Programming Costs. We expect to incur approximately $31.7 million in costs, of which we have incurred $13.1 million through June 30, 2002, to convert our stations from the current analog format to digital format. However, our aggregate costs may be higher than this estimate. 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 make up for the conversion costs and additional programming expenses. Also, multiple channels programmed by other stations could increase competition in our markets. Stations expects to incur approximately $11.3 million in costs, of which it already has incurred $5.6 million through June 30, 2002, to convert the stations that we plan to acquire in the merger from the current analog format to digital format.

Certain directors and officers may be subject to potential conflicts.

J. Mack Robinson, President, Chief Executive Officer and a director of Gray, is Chairman of the Board of Bull Run Corporation, our principal stockholder, “Bull Run,” and the beneficial owner of 24.9% of Bull Run’s common stock. Robert S. Prather, Jr., Executive Vice President-Acquisitions and a director of Gray, is President, Chief Executive Officer and a director of Bull Run and the beneficial owner of 8.7% of Bull Run’s common stock. Hilton H. Howell, Jr., Executive Vice President and a director of Gray, is Vice President, Secretary and a director of Bull Run. Mr. Howell also is the son-in-law of J. Mack Robinson and Harriett J. Robinson, both members of our board of directors. Accordingly, each of these individuals may be subject to conflicts of interest in connection with, for example, the negotiation of agreements or the provision of services between us and Bull Run. Each of these individuals has other duties and responsibilities with Bull Run, or other businesses, that may conflict with the time that might otherwise be devoted to his duties with us. A minority of our directors are independent.

Bull Run and certain of our directors and executive officers hold substantial equity in us and may use this influence in ways that are not consistent with the interests of other security holders.

Bull Run and the executive officers and directors mentioned above, and their affiliates, hold or have the right to vote in the aggregate 49.9% in voting power of our currently outstanding common stock. Furthermore, if all options and warrants that are currently outstanding were exercised and all of their Series C preferred stock, which we refer to as “Series C,” was converted into class B common stock

(although this conversion currently is not permitted under the terms of the Series C), their voting power would increase to 56.0%. Accordingly, these persons may have substantial influence on us in ways that might not be consistent with the interests of other security holders. These persons may also have significant influence and control over the outcome of any matters submitted to our shareholders for approval.

Pending litigation could adversely affect our ownership interest in Sarkes Tarzian, Inc.

On December 3, 2001, we acquired 301,119 shares of the outstanding common stock of Tarzian from Bull Run for $10.0 million plus $3.2 million of related costs which had previously been capitalized. Bull Run had previously acquired these shares from the Estate of Mary Tarzian. Subsequent to Bull Run’s acquisition of these shares, Tarzian filed a complaint against Bull Run and the representative of the Estate claiming that Tarzian had a binding and enforceable contract to purchase these shares from the Estate prior to Bull Run’s acquisition. Tarzian requested judgment to enforce its alleged contract. Although the action has since been dismissed without prejudice against Bull Run, the litigation between Tarzian and the Estate is ongoing. If Tarzian were to prevail in that litigation, that could ultimately lead to litigation against us, which might involve a claim for rescission of the acquisition of the Tarzian shares from the Estate and/or a claim for damages. The stock purchase agreement with the Estate provides that if a court of competent jurisdiction awards title to the Tarzian shares to a person or entity other than the purchaser, the stock purchase agreement will be rescinded. In that event, the Estate will be required to pay for our benefit, as successor in interest to the purchaser, the full $10.0 million purchase price paid to the Estate, plus interest.

Our success depends on our senior management.

Our success depends to a significant extent on the efforts of our senior management. As a result, if any of these individuals were to leave, we could face substantial difficulty in hiring and retaining qualified successors and could experience a loss in productivity while any successors gain the necessary experience.

A deficiency has been asserted by the Internal Revenue Service for 1996.

In connection with an audit of our 1996 and 1998 federal income tax returns, the Internal Revenue Service has asserted a deficiency in income taxes of $12.1 million, plus related interest and penalties. The asserted deficiency relates principally to our acquisition in 1996 of certain assets of First American Media, Inc. If the IRS is successful in its claims, we would be required to account for the 1996 acquisition transaction as a stock purchase instead of an asset purchase which would significantly lower the tax basis in the assets acquired. On January 18, 2002, we filed a petition in the United States Tax Court to contest this deficiency, and we believe that we have a meritorious position with respect to the issues related to the deficiency. We cannot be certain when, and if, this matter will be resolved in our favor, and if it is not, we could incur negative consequences in future years.

We have a material amount of intangible assets, and if we are required to write-down intangible assets to comply with new accounting standards, it would reduce our net income, which in turn could materially and adversely affect our results of operations and the trading prices of our common stock.

Our intangible assets principally include FCC licenses, network affiliations and goodwill. In July 2001, the Financial Accounting Standards Board issued Statement No. 142, “Goodwill and Other Intangible Assets,” which generally is effective for us from January 1, 2002. The regulation requires, among other things, the discontinuance of the amortization of goodwill and FCC licenses and network affiliations, and the introduction of annual impairment testing in its place. In addition, the standard includes provisions for the reclassification under limited circumstances of certain existing recognized intangibles as goodwill, reassessment of the useful lives of existing recognized intangibles, reclassification of identifiable intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing potential future impairments of goodwill. The regulation also requires us to complete a transitional goodwill impairment test six months from the date of adoption. Potential writedown of intangible assets in

compliance with these new accounting standards may reduce our net income in the future, which in turn could materially and adversely affect our results of operations and the trading prices of our common stock.

Because a significant portion of our assets are intangible, they may have little value upon a liquidation.

Our assets consist primarily of intangible assets, including affiliation agreements with television networks such as NBC and CBS and FCC licenses, the value of which will depend significantly upon the success of our business and the financial prospects of the television broadcasting and paging industries in general. If we default on our indebtedness, or if we are liquidated, the value of these assets may not be sufficient to satisfy our obligations to our creditors and debtholders, including the holders of the debt securities that we may offer hereby, and to enable us to make any distribution to the holders of shares of our common stock or preferred stock. Furthermore, if our FCC licenses are not renewed, it could materially and adversely affect our results of operations and the trading prices of our common stock.

We may be unable to identify or integrate acquisitions successfully or on commercially acceptable terms.

We have made a number of acquisitions and in the future may make additional acquisitions. We cannot assure you that we will be able to identify suitable acquisition candidates in the future. Even if we do identify suitable candidates, we cannot assure you that we will be able to make acquisitions on commercially acceptable terms. The failure to acquire suitable candidates, or the consummation of a future acquisition, including the Stations acquisition and the Reno acquisition, at a price or on other terms that prove to be unfavorable, could adversely affect our business and results of operations.

In order to integrate successfully these future acquisitions, including the Stations acquisition and the Reno acquisition, into our business, we will need to coordinate the management and administrative functions and sales, marketing and development efforts of each company. Combining companies presents a number of challenges, including integrating the management of companies that may have different approaches to sales and service, and the integration of a number of geographically separated facilities. In addition, integrating acquisitions, including the Stations acquisition and the Reno acquisition, requires substantial management time and attention, which may distract management from our day-to-day business, and could disrupt our ongoing business and increase our expenses. If we cannot successfully integrate our future acquisitions, including the Stations acquisition and the Reno acquisition, our business and results of operations could be adversely affected.

We may need to incur debt or issue equity securities to pay for any future acquisitions and to pay for increased capital expenditures following any acquisitions, and will require such financing in connection with the Stations acquisition. However, debt or equity financing may not be available in sufficient amounts or on terms acceptable to us, or at all, and equity financing could be dilutive to our shareholders.

We may not be able to complete the merger or the Reno acquisition.

Consummation of the merger is dependent upon, among other things, the bankruptcy court approving Stations’ plan of reorganization and such confirmation order becoming a final bankruptcy court order, the FCC approving the transactions contemplated by the merger agreement and our ability to obtain financing for the acquisition. For these or other reasons, the merger may not be consummated. Consummation of the Reno acquisition is dependent upon, among other things, approval by the FCC of the assignment of the Reno station’s licenses, permits and other authorizations issued by the FCC for the operation of the Reno station. For these reasons, the Reno acquisition may not be consummated.

If we consummate the Stations acquisition, the risks related to our business likely will intensify.

If the merger is consummated, we will expand our broadcast operations from 13 stations in 11 markets to 28 stations serving 24 television markets. In addition, we intend to increase our indebtedness, through the issuance of additional debt securities and the amendment of our existing credit facility, in order to consummate the acquisition. Accordingly, if we consummate the Stations acquisition, the risks

related to our broadcasting segment, the related regulatory environment and our indebtedness likely will intensify.

Failure to complete the merger could negatively impact our operating results.

If the merger is not consummated because of a material default by us under the merger agreement, and Stations is not in material default under the merger agreement, then Stations may draw on the letter of credit that we have provided and receive shares of our class B common stock that we have placed in escrow. The aggregate proceeds to Stations from drawing on the letter of credit and from the escrow shares would total $25.0 million. If we are unable to raise sufficient financing, we would not be able to complete the merger. In addition, costs related to the merger, such as legal and accounting fees, must be paid even if the merger is not completed. Therefore, if we do not consummate the merger, our operating results will be negatively affected.

Risks Related to Our Stock

The price of our common stock has experienced substantial volatility and may continue to do so in the future.

There has been significant volatility in the market prices for publicly traded shares of media companies, including ours.

In 2001, the price of our class A common stock fluctuated from a high of $19.05 to a low of $12.20. In addition, for the first two quarters of 2002, the price of our class A common stock fluctuated from a high of $18.10 to a low of $12.90. On August 30, 2002, our class A common stock closed at a price of $13.40 per share.

In 2001, the price of our class B common stock fluctuated from a high of $17.65 to a low of $9.60. In addition, for the first two quarters of 2002, the price of our class B common stock fluctuated from a high of $14.55 to a low of $10.24. On August 30, 2002, our class B common stock closed at a price of $11.75 per share.

The prices of our common stock may not remain at or exceed current levels. In the event that we issue preferred stock and it is publicly traded, our preferred stock may also experience substantial volatility. The following factors may have an adverse impact on the market prices of our stock:


	•	market conditions for media stocks, and particularly, broadcasting stocks;

	•	market conditions generally;

	•	governmental regulation;

	•	communications legislation;

	•	fluctuations in our operating results; and

	•	announcements of technical or product developments by our competitors.

There can be no assurance as to the liquidity of our common stock or preferred stock.

Currently our common stock is traded on the New York Stock Exchange. There can be no assurance as to the future liquidity of the market for our common stock. Any preferred stock that we may offer would be a new issue of securities for which there currently is no public market. There can be no assurance that an active market for our preferred stock would develop or as to the liquidity of any such market.

Purchasers of our common stock or preferred stock may experience immediate and substantial dilution of their investment.

In the event that common stock or preferred stock is offered pursuant to this prospectus and the registration statement of which this prospectus is a part, the public offering price of our common stock or preferred stock may be substantially higher than its book value immediately after the applicable offering. As a result, if you were to purchase shares of our common stock or preferred stock in the offering under such circumstances, you most likely would incur immediate and substantial dilution in the net tangible book value of the shares purchased from the public offering price.

In the event of a liquidation of our company, holders of our common stock and preferred stock may not receive a distribution of assets.

Our common stock ranks junior to our preferred stock and our debt as to dividends and distribution of assets upon liquidation. As a result, in the event of a liquidation of our company, holders of our common stock would receive distributions only after distributions are made in full to holders of our preferred stock and our debt. In addition, in the event of a liquidation, holders of our debt will be entitled to receive amounts owed to them prior to any distributions to holders of our preferred stock. There can be no assurance that we would have enough assets to make distributions to holders of our stock in a liquidation.

Risks Related to Our Existing Indebtedness and Debt Securities

Our indebtedness could materially and adversely affect our business and prevent us from fulfilling our obligations under our debt securities.

We are highly leveraged and have significant fixed debt service obligations in addition to our operating expenses. Our indebtedness could have significant adverse effects on our business. For example, it could:


	•	increase our vulnerability to general adverse economic and industry conditions or a downturn in our business;

	•	reduce the availability of our cash flow to fund working capital, capital expenditures and other general business purposes;

	•	limit our flexibility in planning for, or reacting to, changes in our industries, making us more vulnerable to economic downturns and limiting our ability to withstand competitive pressure;

	•	place us at a competitive disadvantage compared to our competitors that have less debt; and

	•	limit our ability to borrow additional funds.

If our indebtedness affects our operations in these ways, our business, financial condition and results of operations could suffer, making it more difficult for us to satisfy our obligations under our debt securities. Furthermore, our amended and restated senior secured credit facility, dated as of September 25, 2001, which we refer to as the “senior secured credit facility,” and the indenture governing our $180.0 million 9 1/4% senior subordinated notes due 2011, which we refer to as the “2001 notes,” and our 9 1/4% senior subordinated notes due 2011, which we refer to as the “exchange notes,” to be issued in exchange for the 2001 notes, permit, and the indenture related to the debt securities that we may offer hereby may permit, us to incur substantial amounts of additional debt in specified circumstances. If we incur additional debt in the future, the related risks could intensify.

Restrictions under our senior secured credit facility limit our flexibility.

Our senior secured credit facility prevents us from taking certain actions and requires us to meet certain tests. These limitations and tests include the following:


	•	limitations on liens;

	•	limitations on additional debt;

	•	limitations on dividends and distributions;

	•	limitations on management and consulting fees;

	•	limitations on stock repurchases;

	•	limitations on transactions with affiliates;

	•	limitations on guarantees;

	•	limitations on asset sales;

	•	limitations on sale-leaseback transactions;

	•	limitations on acquisitions;

	•	limitations on changes in our business;

	•	limitations on mergers and other corporate reorganizations;

	•	limitations on loans, investments and advances, including investments in joint ventures and foreign subsidiaries; and

	•	financial ratio and condition tests.

Servicing our debt will require a significant amount of cash, and our ability to generate sufficient cash depends on many factors, some of which are beyond our control.

We depend on the cash flow of our subsidiaries to satisfy our obligations, including our obligations under our debt securities.

Our operations are conducted through our direct and indirect wholly-owned subsidiaries, which may guarantee our debt securities that we may offer hereby, jointly and severally, fully and unconditionally. As a holding company, we own no significant assets other than our equity in our subsidiaries, and we are dependent upon the cash flow of our subsidiaries to meet our obligations. Accordingly, our ability to make

interest and principal payments when due to holders of our debt securities and our ability to purchase our debt securities upon a change of control will be dependent upon the receipt of sufficient funds from our subsidiaries, which may be restricted by the terms of any senior indebtedness of our subsidiaries, including the terms of existing and future guarantees of our indebtedness given by our subsidiaries. There can be no assurance that the funds received from our subsidiaries will be adequate to allow us to make payments on our debt securities. As a result, our debt securities and any subsidiary guarantees effectively will be subordinated to all senior indebtedness and other liabilities and commitments of our subsidiaries.

Your right to receive payment on our debt securities and under any related guarantees may be junior to all of our and the guarantors’ senior debt.

All indebtedness under our senior secured credit facility is secured by substantially all of our assets, as well as the assets of our subsidiaries. Additionally, our debt securities and any related guarantees may be subordinated to the claims of the lenders under our senior secured credit facility.

In the event that we or a guarantor is declared bankrupt, becomes insolvent or is liquidated or reorganized, any debt that ranks ahead of our debt securities and the related guarantees will be entitled to be paid in full in cash or cash equivalents or in any other manner acceptable to holders of senior debt from our assets or the assets of the guarantor, as applicable, before any payment may be made with respect to our debt securities or under the related guarantees. In any of these events, we cannot assure you that we would have sufficient assets to pay amounts due on our debt securities. As a result, holders of our debt securities may receive less, proportionally, than the holders of debt that is senior to our debt securities and the related guarantees. The subordination provisions of the indenture related to any subordinated debt securities that we may offer hereby will provide that we can make no payment to holders of our debt securities during the continuance of payment defaults on our senior debt, and payments to holders of our debt securities may be suspended for a period of up to 179 days if a nonpayment default exists under our senior debt. See “Description of Debt Securities — Subordinated Debt Securities” for additional information.

As of June 30, 2002, we and our subsidiaries had senior indebtedness of $200.0 million funded under our senior secured credit facility. We have unused availability of $37.5 million under our senior secured credit facility after giving effect to the $12.5 million undrawn letter of credit. In addition, our senior secured credit facility and the indenture governing our 2001 notes and our exchange notes permit, and the indenture related to the debt securities that we may offer hereby may permit, subject to specified limitations, the incurrence of additional indebtedness, which may be senior indebtedness. If we incur such additional indebtedness, the risks described above could intensify.

Covenant restrictions under our indentures may limit our ability to operate our business.

The indenture governing our 2001 notes and our exchange notes contains, and the indenture related to the debt securities that we may offer hereby may contain, covenants that restrict our ability and the guarantors’ ability to finance future operations or capital needs or to engage in other business activities.

In addition, the indenture governing our 2001 notes and our exchange notes restricts, and the indenture related to the debt securities that we may offer hereby may restrict, among other things, our ability and the guarantors’ ability to:


	•	incur additional indebtedness;

	•	make specified restricted payments;

	•	make specified asset sales;

	•	incur liens;

	•	engage in intra-company transactions, such as the payment of dividends and the making of loans or advances;


	•	engage in transactions with affiliates;

	•	issue and sell capital stock of our subsidiaries; and

	•	engage in a merger, consolidation or sale of substantial assets.

We cannot assure you that we will meet the covenants in the indentures or that the holders of our debt securities that are party to the indentures will waive any failure to meet these covenants. A breach of any of these covenants would result in a default under the indentures, and may in turn result in a default under our senior secured credit facility. If an event of default occurs under our senior secured credit facility and continues beyond any applicable cure period, the lenders could elect to declare all amounts outstanding thereunder, together with accrued interest, to be immediately due and payable. If our indebtedness were to be accelerated, there can be no assurance that we would be able to pay it. Such acceleration would have a material adverse effect on our financial condition. See “Description of Debt Securities” for additional information.

Any guarantees of our debt securities may not be enforceable because of fraudulent conveyance laws.

We are a holding company with no direct operations and no significant assets other than the stock of our subsidiaries. We will depend on funds from our subsidiaries to meet our obligations, including cash interest payments on our debt securities. If a court voids any guarantees of our debt securities, the right of holders of our debt securities to participate in any distribution of the assets of any of our subsidiaries upon the liquidation, reorganization or insolvency of a subsidiary will be subject to the prior claims of that subsidiary’s creditors.

Our subsidiaries’ guarantees may be subject to review under U.S. federal bankruptcy laws or relevant state fraudulent conveyance laws if a bankruptcy case or lawsuit is commenced by or on behalf of the guarantors’ unpaid creditors. Although laws differ among various jurisdictions, in general, under fraudulent conveyance laws a court could subordinate or avoid a guarantee if it is found that:


	•	the debt under a guarantee was incurred with the actual intent to hinder, delay or defraud creditors; or

	•	a guarantor did not receive reasonably equivalent value or fair consideration for its guarantee and a guarantor:


	•	was insolvent or was rendered insolvent because of its guarantee;

	•	was engaged, or about to engage, in a business or transaction for which its remaining assets constituted unreasonably small capital; or

	•	intended to incur, or believed that we or it would incur, debts beyond its ability to pay upon maturity (as all of the foregoing terms are defined in or interpreted under the relevant fraudulent transfer or conveyance statutes).


	•	the sum of its debts, including contingent liabilities, is greater than its assets, at fair valuation; or

	•	the present fair saleable value of its assets is less than the amount required to pay the probable liability on its total existing debts and liabilities, including contingent liabilities, as they become absolute and matured.

We anticipate that, at the time the guarantors initially incur the debt represented by the guarantees, the guarantors will not be insolvent or rendered insolvent by the incurrence of the debt, lacking sufficient

capital to run their businesses effectively or unable to pay obligations on the guarantees as they mature or become due.

If a guarantee is voided as a fraudulent conveyance or found to be unenforceable for any other reason, you will not have a claim against that particular guarantor and you will be a creditor of only guarantors whose obligations were not set aside or found to be unenforceable.

We may not be able to finance change of control payments required by our debt facilities.

If we were to experience a change of control, the indenture related to our 2001 notes and our exchange notes would require us to offer to purchase all of our 2001 notes and our exchange notes then outstanding at 101% of their principal amount, plus accrued interest to the date of purchase. Any new debt securities that we may offer under this prospectus may subject us to a similar requirement. If a change of control were to occur, we cannot assure you that we would have sufficient funds to purchase our debt securities. The purchase of our debt securities may require additional third-party financing and we cannot assure you that we would be able to obtain that financing on favorable terms or at all.

In addition, our senior secured credit facility restricts our ability to purchase our debt securities. Furthermore, similar change of control events will result in an event of default under our senior secured credit facility and could cause the acceleration of our debt under that facility. The inability to repay that debt, if accelerated, and to purchase all of the tendered notes in the event of a change of control, would constitute an event of default under the indenture governing our 2001 notes and our exchange notes and may constitute an event of default under the indenture governing any debt securities we may offer hereby.

We may enter into transactions, including acquisitions, refinancings or recapitalizations, or highly leveraged transactions, that would not constitute a change of control under our senior secured credit facility, the indenture governing our 2001 notes and our exchange notes and any indenture governing new debt securities that we may issue. Any of these transactions may result in an increase in our debt or otherwise affect our capital structure, harm our credit ratings or have a material adverse effect on holders of our debt securities, our common stock and our preferred stock.

Guarantors of our debt securities may be released under certain circumstances.

Any guarantee of a guarantor may be released if we sell, exchange or transfer the stock of that guarantor or substantially all of its assets to a non-affiliate and the guarantor no longer guarantees any of our other debt. The indenture related to the debt securities that we may offer hereby also may permit us to sell a majority interest and retain a minority interest in a subsidiary engaged in our paging or satellite business and not require that subsidiary to remain as a guarantor of our debt securities.

Risks Related to Legal and Regulatory Matters

Certain regulatory agencies and the bankruptcy court must approve the merger and could delay or refuse to approve the merger.

We and Stations must obtain approvals or consents to the merger from certain federal regulatory commissions, including the FCC, and the United States bankruptcy court in Delaware. These agencies and the bankruptcy court may seek to impose conditions on us or Stations before giving their approval or consent, and meeting those conditions could have an adverse effect on our business and/or financial condition. In addition, a delay in obtaining the requisite regulatory and bankruptcy court approvals will delay the completion of the merger. We cannot be certain that we and Stations will obtain the required regulatory and bankruptcy court approvals, or obtain them within the time frame contemplated in the merger agreement.

Federal regulation of the broadcasting industry limits our operating flexibility.

The FCC regulates our business, just as it does all other companies in the broadcasting industry. We must ask the FCC’s approval whenever we need a new license, seek to renew or assign a license, purchase a new station or transfer the control of one of our subsidiaries that holds a license. Our FCC licenses are critical to our operations; our broadcasting segment cannot operate without them. We cannot be certain that the FCC will renew these licenses in the future or approve new acquisitions.

Federal legislation and FCC rules have changed significantly in recent years and can be expected to continue to change. These changes may limit our ability to conduct our business in ways that we believe would be advantageous and therefore may affect our operating results.

The FCC’s 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 FCC’s 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, our ability to expand through acquisitions of additional stations in markets where we presently are operating is constrained by those rules. Under current FCC cross-ownership rules, we also are not allowed to own and operate a television station and a newspaper in the same market.

Our paging operations are subject to federal regulation.

Our paging operations, which we acquired in September 1996, are subject to regulation by the FCC under the Communications Act. The FCC has granted us licenses to use the radio frequencies necessary to conduct our paging operations.

The FCC paging licenses granted to us are for varying terms of up to 10 years, at the end of which renewal applications must be approved by the FCC. We hold various FCC radio licenses which are used in connection with our paging operations. Paging licenses will expire during calendar year 2009. Licensees in the paging services normally enjoy a license renewal expectancy and the vast majority of license renewal applications are granted in the normal course. However, we cannot be certain that any of our licenses will be free of competing applications or will be renewed by the FCC. Furthermore, the FCC has the authority to restrict the operations of licensed facilities or to revoke or modify licenses. We cannot be certain that our licenses will not be revoked or modified involuntarily in the future.

Pursuant to Congressional mandate, the FCC has adopted rules regarding the award of license authorizations by competitive bidding. Pursuant to those rules, the FCC may award licenses for new or existing services by auction, as done with the 800 MHz band. The FCC began awarding geographic area and paging licenses by auction in February 2000. We cannot be certain that we will be able to procure additional spectrum or expand our existing paging network into new service areas, which would require us to make significant auction payments.

Campaign finance reform legislation could limit political advertising, upon which we rely heavily.

In March 2002, Congress enacted the Bipartisan Campaign Reform Act of 2002, which prohibits advocacy groups from using soft money to broadcast advertisements that identify a federal candidate within 60 days of an election and bans soft money contributions at the national party level. This legislation and other recent proposals for campaign finance reform could have an adverse effect on us by decreasing advertising revenue in connection with political campaigns.

FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this prospectus, the words “believes,” “expects,” “anticipates,” “estimates” and similar words and expressions are generally intended to identify forward-looking statements. Statements that describe our future strategic plans, goals or objectives, including our plans, goals and objectives with respect to our merger with Stations, are also forward-looking statements. Readers of this prospectus are cautioned that any forward-looking statements, including those regarding the intent, belief or current expectations of our management or us, 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 in the forward-looking statements as a result of various factors including, but not limited to:


	•	the factors described in “Risk Factors” beginning on page 3 of this prospectus;

	•	general economic conditions in the markets in which we and Stations operate;

	•	competitive pressures in the markets in which we and Stations operate;

	•	the effect of future legislation or regulatory changes on our operations;

	•	high debt levels; and

	•	other factors described from time to time in our filings with the Securities and Exchange Commission.

The forward-looking statements included in this prospectus are made only as of the date hereof. We undertake no obligation to update these forward-looking statements to reflect subsequent events or circumstances.

USE OF PROCEEDS

Unless otherwise indicated in a prospectus supplement, the net proceeds from the sale of securities offered by this prospectus are expected to be used for general corporate purposes, including capital expenditures, to meet working capital needs, to refinance our senior debt, to finance one or more acquisitions, including the Stations acquisition, or all or a combination of the above. We will file a prospectus supplement that will contain additional information about the use of the net proceeds from the sale of securities offered hereby.

RATIO OF EARNINGS TO FIXED CHARGES


																For the
																Six Months
	For the Year Ended December 31,															Ended
																June 30,
	1997			1998			1999			2000			2001			2002


	(Dollars in thousands)
Ratio of earnings to combined fixed charges and preferred dividends		NA	(a)		3.0	x		NA	(a)		NA	(a)		NA	(a)		NA(a	)
Deficiency of earnings to cover combined fixed charges and preferred dividends(b)	$	(3,066	)		NA		$	(9,906	)	$	(11,982	)	$	(20,097	)	$	(2,816	)


(a)		The ratio would be less than one and therefore is not shown.

(b)		Earnings consist of loss from continuing operations before tax benefit plus fixed charges less capitalized interest. Fixed charges consist of interest expense, amortization of debt issuance costs and that portion of rental expense we believe is representative of interest.

THE MERGER

This section of the registration statement and prospectus describes certain material aspects of the proposed merger. This summary does not contain all of the information that is important to you. You should carefully read the entire registration statement, this prospectus and the other documents to which we refer you, including the merger agreement, for a more complete understanding of the merger.

The Other Parties

Stations is the parent company of Benedek. Stations’ principal executive offices are located at 2895 Greenpoint Parkway, Hoffman Estates, Illinois 60195, telephone number (847) 585-3450. Gray MidAmerica Television, Inc., which we refer to as “Gray MidAmerica Television,” is our newly-formed wholly-owned subsidiary, formed solely for the purpose of effecting the merger.

Our Reasons for the Merger

Our business strategy includes continued acquisitions of companies whose businesses are complementary to ours. We believe that Stations is an excellent strategic fit and that the acquisition of Stations will create significant benefits, including:


	•	the acquisition will create a stronger company and will diversify the geographic range of our television stations, broadening substantially our market presence in the television broadcasting market;

	•	the acquisition gives us access to additional operating cash flow for the purposes of funding debt service, as well as future acquisitions and investments;

	•	the acquisition presents an opportunity to increase revenue share and audience share;

	•	the acquisition presents an opportunity for cross-promotion and cross-selling; and

	•	the acquisition strengthens our management teams and local news operations.

Bankruptcy Court and Regulatory Filings and Approvals

Bankruptcy Court. Stations has filed a voluntary petition under Chapter 11 of the federal bankruptcy code. Consequently, the merger is subject to the bankruptcy court’s approval of Stations’ amended plan of reorganization, and all of Stations’ obligations under the merger agreement are subject to the approval of the bankruptcy court. Stations filed the required information and materials with the bankruptcy court on July 1, 2002 and an amended plan of reorganization on July 9, 2002. On August 12, 2002, the bankruptcy court issued an order approving Stations’ disclosure statement and scheduling a hearing to approve ballots for voting on the amended and restated plan of reorganization. A confirmation hearing has been scheduled for September 25, 2002.

Federal Communications Commission. The merger is subject to approval by the FCC. Stations and its subsidiaries and we and our subsidiaries filed with the FCC the necessary application with respect to the change of control on June 10, 2002.

Antitrust. The merger is subject to the requirements of the Hart-Scott Rodino Antitrust Improvements Act of 1976, which provides that certain transactions may not be consummated until required information and materials have been furnished to the Department of Justice and the Federal Trade Commission, which we sometimes refer to as the “FTC,” and certain waiting periods have expired or been terminated. Stations and we filed the required information and materials with the Department of Justice and the FTC on June 20, 2002. Early termination of the statutory waiting period under the Hart-Scott Rodino Antitrust Improvements Act of 1976 was granted on July 1, 2002.

The Department of Justice and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the merger. At any time before or after the effective time, either the Department of Justice or the FTC could take such action under the antitrust laws as it deems necessary or desirable in

the public interest, or certain other persons could take action under the antitrust laws, including seeking to enjoin the merger.

Sale of Certain Designated Benedek Stations Prior to the Merger

Accounting Treatment

The merger will be accounted for as a purchase for financial accounting purposes in accordance with accounting principles generally accepted in the United States. For purposes of preparing our consolidated financial statements, we will establish a new accounting basis for Stations’ assets and liabilities based upon their fair values, the merger consideration and the costs of the merger. Any excess of cost over the fair value of the net assets of Stations will be recorded as goodwill and other intangible assets. A final determination of the intangible asset values and required purchase accounting adjustments, including the allocation of the purchase price to the assets acquired and liabilities assumed based on their respective fair values, has not yet been made. We will determine the fair value of Stations’ assets and liabilities and will make appropriate purchase accounting adjustments, including adjustments to the amortization period of the intangible assets, upon completion of that determination.

THE MERGER AGREEMENT AND RELATED AGREEMENTS

This section of the registration statement and prospectus describes the material terms of the Agreement and Plan of Merger, dated as of June 4, 2002, among Stations, Gray MidAmerica Television and us and related agreements, including the Lock Up, Voting and Consent Agreements that Stations and we entered into with certain stockholders and creditors of Stations, an agreement regarding benefits to be provided to members of the Benedek family following consummation of the merger and an amendment to K. James Yager’s employment agreement. Copies of the merger agreement and lock up agreements are attached as exhibits to the registration statement. You are urged to read the merger agreement in its entirety for a more complete description of the merger because it is the principal legal document that governs the merger.

The Merger

Subject to the terms and conditions of the merger agreement, we will acquire Stations through the merger of Gray MidAmerica Television with and into Stations. Stations will be the surviving corporation in the merger.

Effective Time

The merger will be consummated when a certificate of merger, that we will file with the State of Delaware, becomes effective. The merger agreement provides that the parties will use their reasonable efforts to cause the effective time to occur on the seventh business day after the satisfaction or waiver of all the conditions to the merger. See “The Merger Agreement and Related Agreements — Conditions to the Merger.” However, the effective time may not occur prior to October 1, 2002.

The merger agreement further provides that we may, on one occasion, delay the effective time for up to 120 days if any of the following occurs: (1) any general suspension of trading in equity securities in the United States securities or financial markets for more than two consecutive trading days; (2) a declaration of a banking moratorium or any suspension of payments in respect of banks by federal or state authorities in the United States; (3) commencement of a war, armed hostilities or other national or international calamity directly involving the United States; (4) any limitation by any governmental authority on the extension of credit by banks or other lending institutions in the United States; or (5) if any of the foregoing exists on the date the merger agreement is signed, a material acceleration or worsening thereof.

Merger Consideration and Conversion of Gray MidAmerica Television and Stations’ Stock

At the effective time of the merger, the outstanding shares of Stations 11.5% Senior Exchangeable Preferred Stock, which we refer to as the “senior preferred stock,” and Junior Discount Preferred Stock, which we refer to as the “junior preferred stock,” will be converted into the right to receive a cash payment. No cash consideration will be paid to holders of outstanding shares of Stations class A common stock and class B common stock. The stock of Gray MidAmerica Television and Stations will be converted as described below:

Gray MidAmerica Television common stock. Each share of Gray MidAmerica Television common stock issued and outstanding immediately prior to the effective time will be converted into one share of Stations class B common stock.

Stations senior preferred stock. Each share of Stations senior preferred stock (excluding shares held by Stations or any of its subsidiaries, other than in a fiduciary capacity) issued and outstanding immediately prior to the effective time will be converted into the right to receive the senior preferred stock purchase price, equal to the quotient obtained by dividing (1) $500,000,000, minus (A) the amount outstanding at the effective time under Stations debt instruments plus accrued interest thereon through the effective time, determined in accordance with Stations’ plan of reorganization, plus or minus (B) working capital adjustments and adjustments relating to amounts incurred by Stations and its subsidiaries with

respect to the conversion of their television stations to digital broadcasting by (2) 100,000 (the number of outstanding shares of Stations’ senior preferred stock at the effective time).

Stations junior preferred stock. Each share of Stations junior preferred stock (excluding shares held by Stations or any of the Stations subsidiaries, other than in a fiduciary capacity) issued and outstanding immediately prior to the effective time will be converted into the right to receive a cash payment equal to the quotient obtained by dividing (1) $2,500,000 by (2) 450,000 (the number of outstanding shares of Stations junior preferred stock at the effective time).

Stations class A common stock and class B common stock. Each share of Stations class A common stock and class B common stock and any options or warrants to acquire such shares issued and outstanding immediately prior to the effective time will be cancelled. We will not pay any cash consideration for such securities.

The Letter of Credit and the Escrow Shares

When the merger agreement was signed, we delivered to Stations a standby letter of credit in the amount of $12.5 million and deposited with an escrow agent 885,269 shares of our class B common stock. These escrow shares had an aggregate value of $12.5 million, based on the average price of our class B common stock for the 20 consecutive trading days on the New York Stock Exchange ending on June 2, 2002. The escrow shares are being held by the escrow agent in accordance with the terms of an escrow agreement that we executed on June 4, 2002. We will maintain the letter of credit in effect, and the escrow shares will remain in escrow, until the earlier of the effective time or 10 business days after the termination of the merger agreement. If the letter of credit or any replacement letter of credit expires before either of the dates described in the previous sentence, we will renew the letter of credit or obtain a replacement letter of credit, which we will deliver to Stations at least five business days before such expiration.

If the merger is not consummated because of a material default by us, and Stations has not materially defaulted due to a breach of any of its representations or warranties or any of its covenants or agreements under the merger agreement, then Stations may draw on the letter of credit and instruct the escrow agent to deliver to it the escrow shares pursuant to the escrow agreement. We have an obligation to deliver a letter of credit and escrow shares totaling $25.0 million, except that we may, in our sole discretion, replace some or all of the escrow shares with a cash payment, so long as any such cash payment is a whole number multiple of $500,000. Under specified circumstances, if Stations is entitled to receive the escrow shares and the value of the escrow shares decreases to below $12.5 million at the time Stations sells them, we may be required to pay to Stations the amount of such decrease. Likewise, if the value of the escrow shares increases, Stations may be required to pay to us the amount of such increase. At the effective time and subject to the conditions in the merger agreement and the escrow agreement, the letter of credit and the escrow shares will be returned to us.

Registration of the Escrow Shares

The escrow shares have not been registered under the Securities Act or any other applicable securities laws, and therefore are restricted securities. If the merger agreement is terminated and the escrow shares are delivered by the escrow agent to Stations, we are required to:


	•	file with the SEC a registration statement with respect to the resale or distribution of the escrow shares by Stations and/or an affiliate of Stations, within 30 days after such termination;

	•	use our best efforts to cause the registration statement to be declared effective at the earliest practicable time;

	•	keep the registration statement effective and current until the earlier of six months following the effectiveness of the registration statement or the date that all of the escrow shares covered by the registration statement have been sold or distributed;


	•	cause the escrow shares to be listed promptly with the New York Stock Exchange; and

	•	indemnify, to the extent permitted by law, each person selling or distributing securities under this registration statement, and related parties, against all losses caused by any material misstatement or omission by us in the registration statement or any violation by us of the Securities Act, the Exchange Act, any state securities laws or any rules or regulations of the New York Stock Exchange.

Conditions to the Merger

The parties’ obligations to consummate the merger and related transactions generally are subject to the satisfaction or waiver of the following conditions:


	•	the bankruptcy court approving the order confirming Stations’ plan of reorganization and such confirmation order becoming a final bankruptcy court order;

	•	the FCC approving the transactions contemplated by the merger agreement, without any condition or qualification materially adverse to us or our subsidiaries or Stations or its subsidiaries, or materially adverse to our acquisition of control of Stations and its subsidiaries;

	•	all regulatory waiting periods applicable to the merger agreement and the related transactions expiring or terminating;

	•	no order being in effect enjoining, restraining or prohibiting the consummation of the merger and related transactions and no action or proceeding having been instituted by any regulatory authority seeking any such order that would reasonably be expected to have a material adverse effect on us or on Stations; and

	•	the transactions related to the Chelsey purchase agreement being consummated, unless the failure to consummate such transactions is the result of either the wrongful refusal of Chelsey to consummate such transactions or the election by Chelsey not to consummate the transactions because Benedek failed to satisfy certain conditions set forth in the Chelsey purchase agreement. If the transactions contemplated by the Chelsey purchase agreement are not consummated as a result of FCC action or inaction, Stations and we each agree to use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, everything reasonably necessary, proper or advisable under applicable laws to consummate and make effective the transactions contemplated by the merger agreement and the Chelsey purchase agreement at the earliest practicable date.

Our obligations to consummate the merger and related transactions are subject to the satisfaction or waiver of the following additional conditions:


	•	the representations and warranties made by Stations in the merger agreement being, subject to limited exceptions, correct and complete in all material respects at the effective time;

	•	each and all of the agreements and covenants of Stations and each of its subsidiaries under the merger agreement and related agreements being performed and complied with in all material respects prior to the effective time;

	•	our receiving from Stations customary officer certificates and board of directors resolutions relating to the transactions contemplated by the merger agreement;

	•	our receiving a legal opinion of FCC counsel to Stations;

	•	Stations returning to us the letter of credit;

	•	the FCC issuing a final FCC order approving the transfer of control of Benedek’s television licenses to us;


	•	Stations obtaining and delivering to us consents or waivers relating to the transactions contemplated by the merger agreement, as required by its network affiliation agreements; and

	•	no litigation being pending or threatened involving Stations or any its subsidiaries that would have, or reasonably be expected to have, a material adverse effect on Stations or its subsidiaries or their respective businesses or assets.

The obligations of Stations to consummate the merger and related transactions are subject to the satisfaction or waiver of the following additional conditions:


	•	the representations and warranties made by us and Gray MidAmerica Television in the merger agreement being, subject to limited exceptions, correct and complete in all material respects at the effective time;

	•	each of our and Gray MidAmerica Television’s agreements and covenants under the merger agreement and related agreements being performed and complied with in all material respects prior to the effective time; and

	•	Stations receiving from us and Gray MidAmerica Television customary officer certificates and board of directors resolutions relating to the transactions contemplated by the merger agreement.

Once the conditions to the merger have been satisfied or waived, we are required by the merger agreement to consummate the merger within seven days.

Representations and Warranties

In the merger agreement, Stations makes customary representations and warranties about itself and its business, including representations and warranties about:


	•	organization, good standing and corporate power;

	•	authorization and enforceability of the merger agreement;

	•	capitalization and subsidiaries;

	•	financial statements and tax matters; and

	•	absence of undisclosed liabilities or material adverse changes.

In addition, Stations makes numerous representations and warranties with respect to its assets, real property, intellectual property, computer software and databases, accounts receivable, insurance, bonds, letters of credit and guarantees, compliance with law, environmental matters, litigation and claims, benefit plans, contracts, labor matters, brokers and finders, interested transactions, officers, directors and bank accounts and the absence of any material misstatement or omission by it in the merger agreement.

We and Gray MidAmerica Television, jointly and severally, also make customary representations and warranties in the merger agreement about ourselves and our business, including representations and warranties regarding organization, good standing and corporate power, authorization and enforceability of the merger agreement, brokers and finders, litigation, and the absence of any material misstatement or omission by us and Gray MidAmerica Television. We also make representations with respect to our qualification under the Communications Act to enter into and consummate the transactions contemplated by the merger agreement, our filings with the SEC and our issuance of the escrow shares.

Mutual Covenants of Gray and Stations

Subject to limited exceptions and except for the sale of the excluded stations by Benedek to Chelsey, from June 4, 2002 until the closing of the merger or the termination of the merger agreement, Stations and we will, and will cause each of our respective subsidiaries, to:


	•	operate our respective businesses only in the usual, regular, and ordinary course;

	•	use commercially reasonable efforts to preserve intact our respective business organizations and assets and maintain our respective rights and franchises; and

	•	take no action that would materially adversely affect the ability of any party to (1) obtain any consents required for the transactions contemplated in the merger agreement, or (2) perform its covenants and agreements under the merger agreement in all material respects and to consummate the merger and to satisfy the conditions to closing set forth in the merger agreement. However, the covenant described in clause (2) above will not prohibit us or any of our subsidiaries from discontinuing or disposing of any of our assets or businesses, or, provided that we do not materially adversely affect our ability to obtain an FCC order approving the transactions contemplated by the merger agreement, from acquiring or agreeing to acquire any other person or their assets if such action is, in our judgment, desirable in the conduct of our business or our subsidiaries’ business.

Additional Covenants. The merger agreement also contains other covenants made by us and Stations, including a covenant to file all necessary FCC applications for approval of the transactions contemplated by the merger agreement and a covenant to use reasonable efforts to take all actions and to do all things necessary, proper or advisable to consummate the merger as promptly as practicable but not before October 1, 2002.

Covenants of Stations

The merger agreement contains numerous covenants of Stations that are customary for this type of transaction. Among other things, subject to limited exceptions, Stations and its subsidiaries will not do or agree to do any of the following without our prior written consent, which we will not withhold unreasonably:


	•	amend the organizational documents of Stations or of any of its subsidiaries;

	•	incur, guarantee or otherwise become responsible for any new debt obligation or other obligation for borrowed money (other than indebtedness of Stations or any of its subsidiaries to Stations or any of its subsidiaries) or enter into or extend any capital leases, in excess of an aggregate of $500,000 for Stations and its subsidiaries on a consolidated basis;

	•	acquire, sell or encumber any securities or assets of Stations or any of its subsidiaries, or declare or pay any dividend or make any other distribution in respect of any such securities;

	•	increase the compensation or benefits of the employees or officers of Stations or any or its subsidiaries;

	•	voluntarily accelerate the vesting of any stock options or other stock-based compensation or employee benefits;

	•	adopt any new employee benefit plan or program of Stations or any of its subsidiaries or make any material change in or to any existing employee benefit plans or programs of Stations or any of its subsidiaries;

	•	make any significant change in any accounting methods, principles, or practices or systems of internal accounting controls, except as may be necessary to conform to changes in regulatory accounting requirements or generally accepted accounting principles;

	•	settle any material litigation other than in accordance with past practice or to the extent it is covered by insurance;


	•	except in the ordinary course of business consistent with past practices, enter into or terminate any material contract or make any material change in any contract;

	•	fail to promptly notify us of any inquiry, investigation, or proceeding related to any of Stations’ television stations that is initiated by the FCC; and

	•	request the bankruptcy court to take any action or to grant any approval to any action or matter that is in any way inconsistent with the merger agreement.

Indemnification

For a period of six years after the effective time of the merger, we will indemnify the pre-merger directors, officers, employees and agents of Stations and its subsidiaries against all liabilities arising out of acts or omissions occurring at or prior to the effective time arising out of their service as directors, officers, employees or agents of Stations, any of its subsidiaries or, at Stations’ or any of its subsidiaries’ request, another entity, to the fullest extent permitted under Delaware law, by Stations’ or its subsidiaries’ certificates of incorporation and bylaws and by any applicable indemnification agreements.

Termination of the Merger Agreement

The merger agreement generally may be terminated at any time prior to the effective time by the mutual consent of Gray and Stations or by us or Stations:


	•	if the terminating party is not then in material breach of any of its representations or warranties or any of its covenants contained in the merger agreement, in the event of the inaccuracy of any representation or warranty of the non-terminating party contained in the merger agreement which would reasonably be expected to have or result in a material adverse effect on the non-terminating party and cannot be or has not been cured within 30 days after written notice of such inaccuracy is given to the non-terminating party;

	•	if the terminating party is not then in material breach of any of its representations or warranties or any of its covenants contained in the merger agreement, in the event of a material breach by the non-terminating party of any covenant or agreement contained in the merger agreement that cannot be or has not been cured within 30 days after written notice of such breach is given to the non-terminating party, except that we may not cure any breach of our obligation to pay the merger consideration;

	•	if the merger is not consummated by March 31, 2003, in each case only if the failure to consummate the transactions contemplated by the merger agreement on or before such date is not caused by any material breach of the merger agreement by the terminating party, except that the March 31, 2003 termination date automatically will be extended by one day for each day that the closing does not occur because, subject to certain exceptions, the transactions contemplated by the Chelsey purchase agreement are not consummated; or

	•	if it is reasonably anticipated that any of the conditions precedent to the obligations of the terminating party to consummate the merger, other than the condition that, subject to certain exceptions, the transactions contemplated by the Chelsey purchase agreement are consummated, cannot be satisfied or fulfilled by March 31, 2003 and such failure was not the fault of the terminating party.

Effects of Termination

If the merger agreement is terminated, as described above, it will become void and have no effect. However, certain provisions of the merger agreement will survive termination, including provisions relating to the letter of credit and the escrow shares, confidentiality and expenses. In addition, in the event that the merger agreement is terminated by us or by Stations in connection with any material breach of any representation or warranty or any covenant or other agreement of the other party contained in the merger agreement or because the merger is not consummated prior to the applicable termination date, the

breaching party will remain liable for any uncured breach of a representation, warranty, covenant or agreement giving rise to such termination.

If the closing does not occur due to a material default by us, and Stations has not materially defaulted due to a breach of any of its representations or warranties or any of its covenants or agreements under the merger agreement, then Stations may draw on the letter of credit and instruct the escrow agent to deliver to it the escrow shares pursuant to the escrow agreement. The aggregate proceeds of the drawing on the letter of credit and the escrow shares will total $25.0 million, but we may replace some or all of the escrow shares with a cash payment so long as any such cash payment is a whole number multiple of $500,000.

If the closing does not occur due to the non-fulfillment of any of the conditions precedent to each party’s obligation to consummate the merger, and we are not in material default in the performance of any of our representations or warranties or any of our covenants or agreements under the merger agreement, Stations will not be entitled to the letter of credit or the escrow shares and, after termination of the merger agreement, the letter of credit and the escrow shares will be returned to us.

Waivers

Prior to or at the effective time, we and Stations may waive any material default in the performance of any term of the merger agreement by the other party or any of its subsidiaries, waive or extend the time for the compliance or fulfillment by the other party and its subsidiaries of any and all of their obligations under the merger agreement, and waive any or all of the conditions precedent to the obligations of the other party and its subsidiaries under the merger agreement. However, neither we nor Stations may waive any condition which, if not satisfied, would result in the material violation of any law.

Fees and Expenses

Generally, regardless of whether the merger is consummated, Stations will be responsible for all expenses and fees incurred by it and its subsidiaries in connection with the merger and we will be responsible for all expenses and costs incurred by us in connection with the merger. However, we will pay all the fees related to the filings with the FTC. Also, Stations and we will each pay one-half of the processing fees related to the filing with the FCC of applications regarding the transfer of control of Benedek’s television licenses to us.

Lock Up Agreements

On June 4, 2002, in connection with the transactions contemplated by the merger agreement, Stations and we entered into the lock up agreements with certain stockholders and creditors of Stations, whom we refer to as the “consenting stockholders and creditors.” Under these lock up agreements, the consenting stockholders and creditors agreed to, among other things, support and vote their shares in favor of a Stations bankruptcy plan that will give effect to the transactions contemplated by the merger agreement. Stations has received executed lock up agreements from holders of 97.9% of the outstanding senior preferred stock, 98.8% of the outstanding junior preferred stock, 100% of the outstanding class B common stock, and 94.6% of the outstanding aggregate principal amount of the senior subordinated discount notes.

In addition, consenting stockholders that hold Stations senior preferred stock have agreed to pay to us, if Stations receives an offer from a third party to purchase more than 50% of Stations’ outstanding senior preferred stock and such offer is approved by the bankruptcy court, a termination fee of $15.0 million. The liability of each consenting stockholder that holds Stations senior preferred stock is limited to an amount determined by multiplying $15.0 million by a fraction, the numerator of which is the number of shares of senior preferred stock owned by such consenting stockholder and the denominator of which is the number of shares of Stations senior preferred stock owned by all consenting stockholders.

The United States trustee in the Stations bankruptcy proceeding has asserted that the lock up agreements contravene the federal bankruptcy code and cannot be enforced against a party if it chooses

not to vote for the Stations bankruptcy plan. The bankruptcy court has not ruled with respect to the U.S. trustee’s assertions, but Stations believes that the lock up agreements are enforceable under applicable law.

Benedek Family Benefits Agreement

On May 29, 2002, in connection with the transactions contemplated by the merger agreement, we entered into a letter agreement with A. Richard Benedek, Chairman of the Board and Chief Executive Officer of Stations, Laura Benedek, Richard Benedek’s wife, and Stephen D. Benedek, a Vice President of Stations and Richard Benedek’s son, in which we agreed to provide to them, following consummation of the merger, certain health and welfare benefits, use of office space in New York City until no later than August 31, 2005, and severance benefits of up to $275,000. In addition, we are forgiving certain indebtedness owed by Richard Benedek to Stations. Upon the closing of the merger, we will cease the use of the name “Benedek Broadcasting,” the “Benedek.com” URL and the name “Benedek Interactive Media.” The right to use the “Benedek Broadcasting” name will be conveyed, at no cost, to Richard Benedek and the right to use the “Benedek.com” URL and the name “Benedek Interactive Media” will be conveyed, at no cost, to Stephen Benedek.

K. James Yager Employment Agreement

On June 4, 2002, Benedek and K. James Yager, Benedek’s President and Chief Operating Officer, entered into a second amendment to K. James Yager’s employment agreement, which will become effective only upon consummation of the merger. In addition, we entered into a letter agreement with K. James Yager relating to this amendment.

K. James Yager’s employment agreement is for a term of four years commencing on January 1, 2001 and ending on December 31, 2004, the “expiration date.” K. James Yager’s base salary is $630,000 for 2001 and $680,000 for 2002 and thereafter increases to a per annum rate not less than 105% of his base salary during the preceding year. K. James Yager is eligible to receive a bonus in respect of each fiscal year during the term of the agreement in such amount as Benedek may determine. The agreement also entitles K. James Yager to specified fringe benefits and to participation in employee benefit plans generally available to Benedek’s executives. In addition, Benedek has agreed to pay to K. James Yager the amount necessary, on an after-tax basis, to discharge all amounts, including accrued interest, owed by him to Benedek under his $555,000 promissory note.

If Benedek terminates K. James Yager’s employment without cause, or if K. James Yager terminates his employment by reason of a “constructive discharge,” which includes the assignment to K. James Yager of duties or reporting responsibilities inconsistent in any material respect with his status, title, position or duties or any breach by Benedek of his employment agreement, K. James Yager will be entitled to receive his base salary, and to participate, at no cost to him, in all employee benefits, through the expiration date and his non-competition obligations will be terminated. In our letter agreement with K. James Yager, we agreed that our failure to employ him as President and Chief Operating Officer of our broadcast division or subsidiary within 12 months after the consummation of the merger would constitute a constructive discharge, entitling him to the above benefits.

Our letter agreement with K. James Yager also provides that, after consummation of the merger, we will grant to him nonqualified options to purchase shares of our class B common stock pursuant to the terms of our long term incentive plan. The number of shares subject to the option award will be determined by our board of directors, and the exercise price of the option shares will be the market price of our class B common stock at the time the award is granted. The options will vest ratably over the term of K. James Yager’s employment agreement, with vesting to be accelerated in the event of a constructive discharge.

Bull Run Advisory Fee

For advisory services rendered by Bull Run in connection with the merger, we advanced to Bull Run an advisory fee of $5.0 million on June 10, 2002. This advisory fee must be repaid to us if the merger is not completed.

INFORMATION REGARDING GRAY

Selected Historical Consolidated Financial Data

Set forth below is our selected historical consolidated financial data. The financial data for, and as of the end of, each of the years in the five-year period ended December 31, 2001 was derived from the audited consolidated financial statements included in our Annual Reports on Form 10-K and from other information in the Annual Reports. The financial data for, and as of the six month periods ended June 30, 2002 and 2001 was derived from our unaudited accounting records and have been prepared on the same basis as the audited consolidated financial statements and, in the opinion of our management, include all normal and recurring adjustments and accruals necessary for a fair presentation of such information. More comprehensive financial information is included in the Annual Reports and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2002 and June 30, 2002. The financial information that follows is qualified in its entirety by reference to, and should be read in conjunction with, the Annual Reports, the Quarterly Reports and all of the financial statements and related notes contained in the Annual Reports and the Quarterly Reports.



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(Dollars in thousands except per share data)
Statements of Operations Data:
Revenues
	Broadcast (less agency commissions)	$	72,300		$	91,007		$	97,015		$	120,640		$	106,430		$	52,575		$	55,006
	Publishing		24,536			29,330			37,808			41,499			41,189			19,927			21,216
	Paging		6,712			8,553			9,130			9,074			8,725			4,405			4,083

Total revenues			103,548			128,890			143,953			171,213			156,344			76,907			80,305

Operating expenses
	Broadcast, publishing and paging		65,771			82,783			93,994			105,314			104,025			50,846			50,149
	Corporate and administrative		2,528			3,063			3,448			3,594			3,615			1,829			2,116
	Depreciation and amortization		14,519			18,117			24,451			31,207			30,824			15,696			7,433

Total operating expenses			82,818			103,963			121,893			140,115			138,464			68,371			59,698

Operating income			20,730			24,927			22,060			31,098			17,880			8,536			20,607
Gain on disposition of television stations			—			72,646			—			—			—			—			—
Valuation adjustments of goodwill and other assets			—			(2,074	)		—			—			—			—			—
Appreciation (depreciation) in value of derivative, net			—			—			—			—			(1,581	)		(961	)		730
Miscellaneous income (expense), net			(31	)		(242	)		336			780			194			98			97

Income (loss) before interest expense, income taxes, extraordinary charge and cumulative effect of accounting change			20,699			95,257			22,396			31,878			16,493			7,673			21,434
Interest expense			21,861			25,454			31,021			39,957			35,783			18,167			16,866

Income (loss) before income taxes, extraordinary charge and cumulative effect of accounting change			(1,162	)		69,803			(8,625	)		(8,079	)		(19,290	)		(10,494	)		4,568
Income tax expense (benefit)			240			28,144			(2,310	)		(1,867	)		(5,972	)		(3,232	)		1,616

Net income (loss) before extraordinary charge and cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		2,952
Extraordinary charge on extinguishment of debt			—			—			—			—			—			—			(7,318	)

Net income (loss) before cumulative effect of accounting change			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		(4,366	)
Cumulative effect of accounting change, net			—			—			—			—			—			—			(30,592	)

Net income (loss)			(1,402	)		41,659			(6,315	)		(6,212	)		(13,318	)		(7,262	)		(34,958	)
Preferred dividends			1,410			1,318			1,010			1,012			616			308			803
Non-cash preferred dividends associated with preferred stock redemption			—			3,360			—			2,160			—			—			3,969

Net income (loss) available to common stockholders		$	(2,812	)	$	36,981		$	(7,325	)	$	(9,384	)	$	(13,934	)	$	(7,570	)	$	(39,730	)



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(b)			1999(c)			2000			2001			2001			2002


		(Dollars in thousands except per share data)
Basic earnings per common share(d):
	Net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	3.10		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)
	Extraordinary charge on extinguishment of debt, net		—			—			—			—			—			—			(0.47	)
	Cumulative effect of accounting change, net		—			—			—			—			—			—			(1.95	)

	Net income (loss) available to common stockholders	$	(0.24	)	$	3.10		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(2.54	)

Diluted earnings per common share(d):
	Net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	2.98		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)
	Extraordinary charge on extinguishment of debt, net		—			—			—			—			—			—			(0.47	)
	Cumulative effect of accounting change, net		—			—			—			—			—			—			(1.95	)

	Net income (loss) available to common stockholders	$	(0.24	)	$	2.98		$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(2.54	)

Other Data:
Media cash flow(e)		$	38,061		$	46,624		$	50,944		$	66,247		$	53,074		$	26,411		$	30,520
Media cash flow margin(e)			36.8	%		36.2	%		35.4	%		38.7	%		33.9	%		34.3	%		38.0	%
Operating cash flow(f)		$	35,533		$	43,561		$	47,496		$	62,653		$	49,459		$	24,582		$	28,404
Operating cash flow margin(f)			34.3	%		33.8	%		33.0	%		36.6	%		31.6	%		32.0	%		35.4	%
Cash flows provided by (used in):
	Operating activities	$	9,744		$	20,074		$	20,842		$	22,765		$	16,823		$	8,268		$	3,355
	Investing activities		(57,498	)		(55,299	)		(126,780	)		(8,276	)		(186,165	)		(2,679	)		154,741
	Financing activities		49,071			34,744			105,839			(14,061	)		167,685			(6,109	)		(143,184	)
Capital expenditures			10,372			9,271			11,712			5,702			7,593			2,597			8,133
Cash dividends per common share(g)			0.05			0.06			0.08			0.08			0.08			0.04			0.04
Ratio of total debt to operating cash flow			6.4	x		6.2	x		8.0	x		6.0	x		8.0	x(h)		6.2	x(i)		7.1	x(i)
Ratio of operating cash flow to interest expense			1.6			1.7			1.5			1.6			1.4			1.5	(i)		1.6	(i)

Balance Sheet Data (at end of period):
Cash and cash equivalents		$	2,367		$	1,887		$	1,787		$	2,215		$	169,115	(h)	$	1,695		$	15,470
Total intangible assets, net			263,425			376,015			526,434			511,616			497,311			504,458			457,633
Total assets			345,051			468,974			658,157			636,772			794,337	(h)		616,870			595,911
Long-term debt (including current portion)			227,076			270,655			381,702			374,887			551,444	(h)		368,557			378,878
Preferred stock			11,111			7,371			7,371			4,637			4,637			4,637			39,233
Total stockholders’ equity			92,295			126,703			168,188			155,961			142,196			148,765			98,288


(a)		Reflects the operating results of our acquisition of substantially all of the assets of WITN-TV and our acquisition of all of the outstanding common stock of GulfLink Communications, Inc. as of their respective acquisition dates, August 1, 1997 and April 24, 1997.

(b)		Reflects the operating results of our acquisition of all of the outstanding capital stock of Busse Broadcasting Corporation and our related acquisition of the assets of WEAU-TV in exchange for the assets of WALB-TV as of July 31, 1998, the closing date of the respective transactions. See Note B to our audited consolidated financial statements incorporated by reference in this prospectus.

(c)		Reflects the operating results of our acquisition of all of the outstanding capital stock of KWTX Broadcasting Company and Brazos Broadcasting Company, as well as the assets of KXII Broadcasters Ltd., completed on October 1, 1999, and our acquisition of substantially all of the assets of The Goshen News from News Printing Company, Inc. and its affiliates, completed on March 1, 1999, as of their respective acquisition dates. See Note B to our audited consolidated financial statements incorporated by reference in this prospectus.

(d)		On August 20, 1998, our board of directors declared a 50% stock dividend, payable on September 30, 1998, to stockholders of record of our class A common stock and class B common stock on September 16, 1998. This stock dividend effected a three-for-two stock split. All applicable share and per share data have been adjusted to give effect to the stock split.


(e)		Media cash flow is defined as operating income, plus depreciation and amortization (including amortization of program broadcast rights), non-cash compensation and corporate overhead, less payments for program broadcast obligations. Media cash flow margin is defined as media cash flow divided by revenues.

(f)		Operating cash flow is defined as media cash flow less corporate overhead. Operating cash flow margin is defined as operating cash flow divided by revenues.

		We have included media cash flow, operating cash flow and certain related calculations because such data is commonly used as a measure of performance for media companies and is also used by investors to measure a company’s ability to service debt. Media cash flow, operating cash flow and certain related calculations are not, and should not, be used as an indicator or alternative to operating income, net income or cash flow as reflected in our consolidated financial statements. Media cash flow, operating cash flow and certain related calculations are not measures of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles.

(g)		Cash dividends were $0.08 per common share for all five annual periods and $0.04 per common share for the six month periods; however, the amounts for 1997 and 1998 have been adjusted for the three-for-two stock split in 1998, which is discussed in Note (d) above.

(h)		On December 21, 2001, we deposited $168.6 million with the trustee of our 10 5/8% Senior Subordinated Notes due 2006 to redeem those notes, including payment of principal, the applicable premium costs and accrued interest through the redemption date of January 22, 2002. Total assets include the $168.6 million reflected as restricted cash for redemption of long-term debt and long-term debt (including current portion) includes the related $155.2 million of our 10 5/8% notes that were extinguished on January 22, 2002. The ratio of total debt to operating cash flow of 8.0x is calculated on a pro forma basis, which excludes the $155.2 million of our 10 5/8% notes. If the $155.2 million of our 10 5/8% notes were included in the total debt amount used to calculate the ratio of total debt to operating cash flow, the ratio would be 11.1x.

(i)		Represents ratios for the 12 months ended June 30, 2001 and 2002.

(j)		The following table presents the transitional disclosures regarding the adoption of SFAS No. 142:



															Six Months Ended
	Year Ended December 31,														June 30,

	1997(a)			1998(b)		1999(c)			2000			2001			2001			2002


	(Dollars in thousands except per share data)
Reported net income (loss) before extraordinary charge and cumulative effect of accounting	$	(1,402	)	$	41,659	$	(6,315	)	$	(6,212	)	$	(13,318	)	$	(7,262	)	$	2,952
Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		4,175			5,697		8,499			11,022			11,033			5,516			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	2,773		$	47,356	$	2,184		$	4,810		$	(2,285	)	$	(1,746	)	$	2,952

Basic earnings per common share(d):
Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.24	)	$	3.10	$	(0.57	)	$	(0.61	)	$	(0.89	)	$	(0.49	)	$	(0.12	)
Add back: amortization of goodwill and intangible assets with indefinite lives, net or tax		0.35			0.48		0.66			0.71			0.71			0.36			—

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.11		$	3.58	$	0.09		$	0.10		$	(0.18	)	$	(0.13	)	$	(0.12	)

Diluted earnings per common share(d):
Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.11		$	3.44	$	0.09		$	0.10		$	(0.18	)	$	(0.13	)	$	(0.12	)

Business, Management and Other Information

Information relating to our business, principal shareholders, directors and officers, executive compensation and share ownership, related party transactions, financial statements and other related matters, as set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 and our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2002 and June 30, 2002, is incorporated herein by reference. If you would like to receive a copy of such documents you may contact us at our address or telephone number indicated under “Where You Can Find More Information.”

Operating & Growth Strategy


	•	*Focus on Local News and Programming to Maintain a Strong Local Franchise.* We currently operate 13 network affiliated television stations serving 11 markets, with 12 of our 13 stations ranked first or second in local news. After completion of the merger with Stations, we will operate 28 network affiliated television stations serving 24 markets, with 24 of our 28 stations ranked first or second in local news. We endeavor to make each of our television stations a highly recognizable, local brand through the depth, quality and focus of its local news, programming and community involvement. We believe that providing the leading source for local news and programming in our markets enables us to strengthen audience loyalty and increase viewership among attractive demographic audiences. As a result, we believe that the strength of our local franchises enables us to maximize advertising revenues from local, regional and national accounts. We believe that our commitment to local news, programming and community involvement is essential to our ability to serve each of the communities in which we operate and provides us with a strong competitive advantage.

	•	*Continue to Develop Innovative Local Sales and Targeted Marketing Initiatives.* We employ an experienced, high-quality local sales force at each station to increase advertising revenue by leveraging our local brand. In 2001, approximately 59% of our net television advertising revenue was generated from our local advertisers and pro forma for the proposed merger with Stations, approximately 60% of our net television advertising revenue would have been generated from our local advertisers. Additionally, our net revenue from local television advertisers represented approximately 67% of the combined total of our local and national net advertising revenues and, pro forma for the proposed merger with Stations, approximately 68% of the combined total of our local and national net advertising revenues would have been generated from local television advertisers. Our goal is to develop customized advertising campaigns for our customers, which directly target their desired audience and address their long-term advertising objectives. We believe that a focused, tailored advertising solution is very attractive to local advertisers, who have historically been a more stable source of revenue than national advertisers. In addition to focusing on expanding our relationships with existing advertisers, we seek to identify and create new relationships with local, regional and national customers in our markets. Each station’s sales personnel are trained to understand local advertisers’ needs and are required to meet performance standards with respect to client activity, including new customer identification.

	•	*Capitalize on Leading Network Brands in Markets with Limited Competition.* Currently, ten of our stations are affiliated with CBS and three are affiliated with NBC, representing approximately 81% and 19% of our total television revenue in 2001, respectively. Following the completion of the merger, we will have a broad and diverse portfolio of 28 affiliated television stations located in 24 markets, of which 15 are affiliated with CBS, seven are affiliated with NBC and six are affiliated with ABC, representing approximately 56%, 29% and 15% of our total pro forma net television revenue in 2001, respectively. Additionally, we will be the largest independent owner of CBS affiliated stations. Our network affiliations provide our television stations with top-rated programming, which complements and enhances our leading local brand. We believe that our markets are


		less competitive than larger DMAs. Of our 24 markets, 16 markets are served by four TV stations or fewer, and seven markets are served by three or fewer television stations. Our markets also typically have fewer radio stations than larger DMAs.

	•	*Pursue Strategic Acquisitions to Expand and Enhance Our Regional Clusters.* We have acquired and integrated successfully 12 of our 13 television stations since 1993, and have signed a definitive agreement to acquire an additional 15 television stations from Stations. After giving effect to the proposed merger, our television stations will be located in several distinct regions throughout the United States, with significant presence in the Southeast, Midwest, Texas and Great Lakes regions, diminishing potential adverse effects on our business caused by specific regional economic fluctuations. We believe that we are well positioned to participate in further consolidation of our industry, including opportunities that may arise as a result of future regulatory changes. For example, a number of the FCC’s most restrictive ownership regulations, including newspaper-television cross ownership and television duopoly rules, are currently under review and could be relaxed in the future, providing us with further attractive growth opportunities. In pursuing future acquisitions, we intend to focus on network affiliated television stations in medium-sized markets that offer superior growth. Specifically, we pursue television stations proximate to our existing clusters, as evidenced by the proposed merger with Stations in which five of the 15 television stations we intend to acquire are adjacent to markets in which we currently own and operate television stations. Additionally, we focus on acquiring television stations where we can successfully implement our operating strategies to establish leading local news, increase revenue and audience share, develop relevant regional content and reduce costs.

	•	*Attract and Retain High-Quality Management.* We believe that high-quality management at both the corporate and station level is critical to the successful implementation of our strategy. We use equity incentives to attract and retain station general managers with proven track records. Members of our senior management team have extensive experience in operating, managing and acquiring television stations, and include: J. Mack Robinson, President and Chief Executive Officer; Robert Prather, Executive Vice President- Acquisitions; James Ryan, Vice President and Chief Financial Officer; and after the proposed merger, K. James Yager, currently the President of Benedek. Additionally, our station managers have an average of over 21 years of industry experience with individual industry experience ranging from 11 to 32 years.

	•	*Maintain Strict Financial Planning and Cost Controls.* We employ a comprehensive ongoing strategic planning and budgeting process that enables us to continually identify and implement cost savings at each station, and is designed to increase our media cash flow. We believe that owning and operating 28 television stations will enable us to achieve economies of scale and reduce expenses for syndicated programming, capital equipment and vendor services. Furthermore, we believe that the synergies generated through geographic clustering, further enhanced by the Stations acquisition and the realization of technological and automation efficiencies, will enable us to achieve additional cost savings in the near future.

	•	*Increase Advertising Revenue and Circulation at Our Newspaper Publishing Operations.* We seek to increase advertising revenues and circulation at each of our four newspapers by creating a highly recognizable local brand by focusing on the depth and quality of our coverage of local news, sports and lifestyles and through community involvement. We are able to differentiate our publications from larger competitors and build reader loyalty by becoming the primary source for local news and advertising information within each of our target markets. We also sponsor community events with the objective of strengthening our community relationships. We employ an experienced local sales force to increase advertising revenue by leveraging our local brand. Through our ongoing strategic planning and budgeting process, we continually identify and implement cost savings at each newspaper to increase our media cash flow. In 2001, publishing represented approximately 16% of our total pro forma net revenue. Our newspaper strategy is led by senior managers and publishers who have an average of over 32 years of experience in the newspaper business with individual experience ranging from 20 to 40 years. Our publishing operations are led by Thomas J. Stultz, Vice President and President — Publishing.

SELECTED STATION AND MARKET INFORMATION REGARDING GRAY AND STATIONS

Gray Television Stations Pro Forma Following the Merger

The following is a list of all our stations pro forma following the merger. In markets where we have satellite stations and stations that serve distant communities, the figures have been combined.


													FCC					Station				In Market
									Network Affiliation				License		Station			News		Commercial		Share of			Television
	DMA						Analog						Renewal		Rank in			Rank In		Stations in		Household			Households(a)
	Rank(a)		Market		Station		Channel		Network		Expiration		Date		DMA(b)			DMA(c)		DMA(d)		Viewing(b)			(in thousands)

*		62		Knoxville, TN		WVLT		8		CBS		12/31/04		8/1/05		2 (tied	)		3		5		22	%		478
		65	Wichita- Hutchinson, KS			KAKE		10		ABC		1/1/06		6/1/06		3			3		4		21	%		453
				(Colby, KS)		KLBY(e)		4		ABC		1/1/06		6/1/06
				(Garden City, KS)		KUPK(e)		13		ABC		1/1/06		6/1/06
*		66		Lexington, KY		WKYT		27		CBS		12/31/04		8/1/05		1			1		5		35	%		436
*		Note (f)		Hazard, KY		WYMT		57		CBS		12/31/04		8/1/05		1			1				39	%		169
		75		Omaha, NE		WOWT		6		NBC		1/1/12		6/1/06		1			1		5		36	%		386
		85		Madison, WI		WMTV		15		NBC		1/1/12		12/1/05		2			2		4		30	%		339
		91		Colorado Springs, CO		KKTV		10		CBS		6/30/05		4/1/06		1			1		5		33	%		306
*		94		Waco-Temple- Bryan, TX		KWTX		10		CBS		12/31/05		8/1/06		1			1		6		42	%		299
*				(Bryan, TX)		KBTX(g)		3		CBS		12/31/05		8/1/06		1			1
*		102	Lincoln-Hastings- Kearney, NE			KOLN		10		CBS		12/31/05		6/1/06		1			1		5		54	%		269
*				(Grand Island, NE)		KGIN(h)		11		CBS		12/31/05		6/1/06
*		106	Greenville- New Bern- Washington, NC			WITN		7		NBC		12/31/11		12/1/04		2			2		4		30	%		251
		111		Lansing, MI		WILX		10		NBC		1/1/12		10/1/05		1			1		4		39	%		238
*		113	Tallahassee, FL- Thomasville, GA			WCTV		6		CBS		12/31/04		4/1/05		1			1		5		57	%		237
*		114		Augusta, GA		WRDW		12		CBS		3/31/05		4/1/05		1			1		4		35	%		234
*		127	La Crosse- Eau Claire, WI			WEAU		13		NBC		12/31/11		12/1/05		1			1		4		39	%		198
		132		Rockford, IL		WIFR		23		CBS		6/30/05		12/1/05		2			1		4		32	%		176
		137	Wausau- Rhinelander, WI			WSAW		7		CBS		6/30/05		12/1/05		1			2		4		42	%		169
		138		Topeka, KS		WIBW		13		CBS		6/30/05		6/1/06		1			1		4		49	%		166
*		159		Panama City, FL		WJHG		7		NBC		12/31/11		2/1/05		1			1		3		50	%		121
*		160		Sherman, TX- Ada, OK		KXII		12		CBS		12/31/05		8/1/06		1			1		2		74	%		119
		172		Dothan, AL		WTVY		4		CBS		6/30/05		4/1/05		1			1		3		69	%		95
		178		Harrisonburg, VA		WHSV		3		ABC		11/1/04		10/1/04		1			1		1		97	%		84
		181		Bowling Green, KY		WBKO		13		ABC		11/1/04		8/1/05		1			1		2		83	%		81
		185		Meridian, MS		WTOK		11		ABC		11/1/04		6/1/05		1			1		3		66	%		70
		186		Parkersburg, WV		WTAP		15		NBC		1/1/12		10/1/05		1			1		1		96	%		63

																										5,437

(Approximately 5% of all

US television households)


	*	Denotes a television station currently owned by Gray.


(a)		Based on data published by Nielsen.

(b)		Based on Nielsen data for the May 2002 rating period, Sunday to Saturday, 6 a.m. – 2 a.m.

(c)		Based on our review of the Nielsen data for the May 2002 rating period during various news hours.

(d)		Based on stations that BIA has reported at one share or more in three of the four most recent rating periods.

(e)		KLBY and KUPK are satellite stations of KAKE under FCC rules.

(f)		Special 16 county trading area defined by Nielsen and is part of the Lexington, KY DMA.

(g)		KBTX is a satellite station of KWTX under FCC rules.

(h)		KGIN is a satellite station of KOLN under FCC rules.

Our Markets

Below is a brief description of the market for each of our stations. All statements as to station ranking in this prospectus are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the tables titled “Competitive Landscape,” is based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period. The news ranking information is based on our management’s review of the Nielsen Station Index, Viewers in Profile, dated May 2002. As NBC affiliate stations broadcasted the Olympic games during February 2002, their ratings for this period reflect a higher than normal viewership. “CAGR” refers to compound annual growth rate and “EBI” refers to effective buying income. EBI statistics reflect data for 2000 and 2005. In the “Competitive Landscape” tables below, we have included only stations that BIA has reported at one share or more in three of the four most recent rating periods.

Knoxville, Tennessee

WVLT, a CBS affiliate, was acquired by us in September 1996 and began operations in 1988. It is the second ranked station, with the third ranked news program, in the Knoxville, Tennessee market. The Knoxville area is a center for education, manufacturing, healthcare and tourism. The University of Tennessee’s main campus with approximately 26,000 students is located within the city of Knoxville. Leading manufacturing employers in the area include: Lockheed Martin Energy Systems, Inc., DeRoyal Industries, Aluminum Company of North America, Phillips Consumer Electronics North America Corp., Clayton Homes and Sea Ray Boats, Inc.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		1,208		1,277		1.12	%
Retail Sales	$	17,255	$	22,109		5.08
EBI		19,317		25,203		5.46
Gross Market Revenue		68,700		77,600		2.47
Average Household Income		40.3		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WBIR-TV

NBC

VHF

Gannett Company, Inc.

WVLT-TV

CBS

VHF

Gray Communications Systems, Inc.

WATE-TV

ABC

VHF

Young Broadcasting Inc.

WTNZ

FOX

UHF

Raycom Media, Inc.

WBXX-TV

UHF

Acme Communications, Inc.

Lexington and Hazard, Kentucky

WKYT, a CBS affiliate, was acquired by us in September 1994 and began operations in 1957. It is ranked first in total viewers and in news programming in the Lexington, Kentucky market. The Lexington area is a regional hub for shopping, business, healthcare, education, and cultural activities. Major employers in the Lexington area include Toyota Motor Corp., Lexmark International, Inc., ALLTEL Corporation, Square D Company, Ashland, Inc., the University of Kentucky and International Business Machines Corporation. Eight hospitals are located in Lexington, reinforcing Lexington’s position as a regional medical center. The University of Kentucky’s main campus with approximately 25,000 students is located in Lexington. Frankfort, the capital of Kentucky is located within WKYT’s service area. WYMT, WKYT’s sister station is located in the Lexington DMA. In addition, the Lexington market is adjacent to the Bowling Green, Kentucky market where we intend to acquire WBKO in the merger.

WYMT, a CBS affiliate, was acquired by us in September 1994 and began operations in 1985. It is ranked first in total viewers and in news programming in the Hazard, Kentucky market, a special 16 county trading area defined by Nielsen. The mountain region of eastern and southeastern Kentucky where Hazard is located is on the outer edges of four separate markets: Bristol-Kingsport-Johnson City, Charleston-Huntington, Knoxville and Lexington. Prior to the start of WYMT’s operations in 1985, mountain residents relied primarily on satellite dishes and cable television carrying distant signals for their television entertainment and news. WYMT is the only commercial television station in this 16-county trading area and we generally consider it to be a distinct television market even though WYMT is technically included in the Lexington market. WYMT is the sister station of WKYT and shares many resources and simulcasts some local programming with WKYT. The trading area’s economy is primarily centered around coal and related industries, such as natural gas and oil.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		1,153		1,210		0.97	%
Retail Sales	$	13,381	$	15,738		3.30
EBI		17,241		22,236		5.22
Gross Market Revenue		55,300		67,600		4.10
Average Household Income		39.2		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WKYT-TV

CBS

UHF

Gray Communications Systems, Inc.

WLEX-TV

NBC

UHF

Evening Post Publishing Company

WTVQ-TV

ABC

UHF

Media General Broadcast Group

WDKY-TV

FOX

UHF

Sinclair Broadcast Group, Inc.

WYMT-TV

CBS

UHF

Gray Communications Systems, Inc.

Waco-Temple-Bryan, Texas

KWTX and KBTX, both CBS affiliates, were acquired by us in October 1999 and began operations in 1955 and 1957, respectively. They collectively are ranked first in total viewers and in news programming in the Waco-Temple-Bryan, Texas market. KBTX is a “satellite” station under FCC rules and is used to enhance our ability to effectively serve the entire market. Waco, Temple, Killeen, Bryan and College Station are the primary economic centers of the region. College Station, Texas is the home of Texas A&M University with approximately 45,000 students and Baylor University is located in Waco, Texas with approximately 13,000 students. The Waco-Temple-Bryan economy centers on education, medical services and U.S. military installations. Leading employers in the area include: Texas A&M University, Raytheon, Baylor University, St. Joseph’s Regional Medical Center, Killeen ISD, Scott and White Hospital and the U.S. Army base at Fort Hood, Texas.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		843		869		0.61	%
Retail Sales	$	9,433	$	11,698		4.40
EBI		11,824		14,508		4.18
Gross Market Revenue		29,500		36,400		4.29
Average Household Income		39.2		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

KWTX-TV & KBTX-TV

CBS

VHF

Gray Communications Systems, Inc.

KCEN-TV

NBC

VHF

Channel 6, Inc.

KWKT & KYLE

FOX

UHF

Communications Corp of America

KXXV & KRHD-LP

ABC, WB

UHF

Drewry Communications Group

KAKW

UNI

UHF

Univision Communications, Inc.

—

Lincoln-Hastings-Kearney, Nebraska

KOLN and KGIN, both CBS affiliates, were acquired by us in July 1998 and began operations in 1953 and 1961, respectively. They are ranked first in total viewers and in news programming in the Lincoln-Hastings-Kearney, Nebraska market. KGIN is a “satellite” station under FCC rules and is used to enhance our ability to serve the entire market effectively. The city of Lincoln is the primary economic center of the region, the capital of Nebraska and home to the University of Nebraska with approximately 23,000 students. The Lincoln-Hastings-Kearney economy centers around state government, education, medical services and agriculture. Leading employers in the area include: the State of Nebraska, the University of Nebraska, Gallup Inc., the Lincoln Public School System and several area hospitals. The Lincoln market is adjacent to the Omaha, Nebraska market where we intend to acquire WOWT in the merger.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		684		696		0.35	%
Retail Sales	$	7,766	$	8,680		2.25
EBI		12,081		15,140		4.62
Gross Market Revenue		21,200		25,900		4.09
Average Household Income		44.6		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

KOLN & KGIN

CBS

VHF

Gray Communications Systems, Inc.

KHGI-TV

ABC

VHF

Pappas Telecasting Companies

KLKN & KLKE

ABC

VHF

Citadel Communications Company, Ltd.

KHAS-TV

NBC

VHF

Greater Nebraska Television, Inc.

KTVG

FOX

UHF

Hill Broadcasting Company, Inc.

Greenville-New Bern-Washington, North Carolina

WITN, an NBC affiliate, was acquired by us in August 1997 and began operations in 1955. Based on the February and May 2002 ratings, WITN is currently tied for the first position in total viewers and in news programming in the Greenville-New Bern-Washington, North Carolina market. Greenville, North Carolina is the primary economic center of the region and home to East Carolina University with approximately 19,000 students. The Greenville-New Bern-Washington economy centers around education, manufacturing and agriculture. Leading employers in the area include: Pitt County Memorial Hospital, NADEP (Naval Rework Facility), East Carolina University, Catalytica Pharmaceuticals, Inc., PCS Phosphate, Rubber Maid Cleaning Products, Inc. and Weyerhaeuser Co.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		705		731		0.73	%
Retail Sales	$	7,271	$	8,116		2.22
EBI		10,060		12,647		4.68
Gross Market Revenue		29,200		36,400		4.51
Average Household Income		40.0		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WNCT-TV

CBS

VHF

Media General Broadcast Group

WITN-TV

NBC

VHF

Gray Communications Systems, Inc.

WCTI

ABC

VHF

Lamco Communications Incorporated

WFXI & WYDO

FOX

VHF

GOCOM Holdings LLC

Tallahassee, Florida-Thomasville, Georgia

WCTV, a CBS affiliate, was acquired by us in September 1996 and began operations in 1955. It is ranked first in total viewers and in news programming in the Tallahassee, Florida - Thomasville, Georgia market. The Tallahassee-Thomasville economy centers around state and local government as well as state and local universities which include Florida State University with approximately 33,000 students, Florida A&M University with approximately 12,000 students, Tallahassee Community College, Thomas College and Valdosta State University. Florida State University and Florida A&M University each have their main campus located within the city of Tallahassee.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		649		678		0.88	%
Retail Sales	$	7,217	$	8,880		4.23
EBI		9,439		11,780		4.53
Gross Market Revenue		23,900		30,500		5.00
Average Household Income		39.4		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WCTV

CBS

VHF

Gray Communications Systems, Inc.

WTWC-TV

NBC

UHF

Sinclair Broadcast Group, Inc.

WTXL-TV

ABC

UHF

Media Venture Management, Inc.

WTLH

FOX

UHF

Pegasus Communications Corporation

Augusta, Georgia

WRDW, a CBS affiliate, was acquired by us in January 1997 and began operations in 1954. It is ranked first in total viewers and in news programming in the Augusta, Georgia market. The Augusta, Georgia area is one of Georgia’s major metropolitan/regional centers, with a particular emphasis on health services, manufacturing and the military. The federal government employs military and civilian personnel at the Department of Energy’s Savannah River Site, a nuclear processing plant, and Fort Gordon, a U.S. Army military installation. Augusta has eight large hospitals, which collectively employ approximately

20,000 and reinforce Augusta’s status as a regional healthcare center. Augusta is also home to the Masters Golf Tournament, which has been broadcast by CBS for 46 years.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		644		661		0.52	%
Retail Sales	$	6,736	$	7,902		3.24
EBI		8,668		10,153		3.21
Gross Market Revenue		30,000		36,200		3.83
Average Household Income		36.8		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WRDW-TV

CBS

VHF

Gray Communications Systems, Inc.

WJBF

ABC

VHF

Media General Broadcast Group

WAGT

NBC

UHF

Schurz Communications, Inc.

WFXG

FOX

UHF

Fisher Broadcasting Company

La Crosse-Eau Claire, Wisconsin

WEAU, an NBC affiliate, was acquired by us in July 1998 and began operations in 1953. It is the first ranked station in total viewers and in news programming in the La Crosse-Eau Claire, Wisconsin market. The La Crosse and Eau Claire economy centers around medical services, agriculture, education and retail business. The University of Wisconsin maintains an 11,000-student campus in Eau Claire. Leading employers include Menard, Inc., the University of Wisconsin at Eau Claire and several area hospitals. The La Crosse-Eau Claire market is adjacent to both the Madison, Wisconsin market where we intend to acquire WMTV in the merger and the Wausau-Rhinelander, Wisconsin market where we intend to acquire WSAW in the merger.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		530		541		0.41	%
Retail Sales	$	7,160	$	8,793		4.19
EBI		7,779		9,415		3.89
Gross Market Revenue		22,800		30,200		5.78
Average Household Income		39.1		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WEAU-TV

NBC

VHF

Gray Communications Systems, Inc.

WKBT

CBS

VHF

Morgan Murphy Stations

WXOW-TV & WQOW-TV

ABC

UHF

Quincy Newspapers, Inc.

WLAX & WEUX

FOX

UHF

Grant Media, Inc.

Panama City, Florida

WJHG, an NBC affiliate, was acquired by us in 1960 and began operations in 1953. It is the first ranked station in total viewers and in news programming in the Panama City, Florida market. It has a

secondary affiliation agreement with United Paramount Network, “UPN.” The Panama City economy centers around tourism, military bases, manufacturing, education and financial services. Panama City is the county seat and principal city of Bay County. Leading employers in the area include: Tyndall Air Force Base, the U.S. Navy Coastal Systems Station, Sallie Mae Servicing Corp., Stone Container Corporation, Arizona Chemical Corporation and Gulf Coast Community College. The Panama City market is adjacent to the Dothan, Alabama market where we intend to acquire WTVY, a CBS affiliate, in the merger.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		324		346		1.32	%
Retail Sales	$	3,508	$	4,265		3.99
EBI		4,525		5,792		5.06
Gross Market Revenue		12,300		14,900		3.91
Average Household Income		37.4		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WJHG-TV

NBC, UPN

VHF

Gray Communications Systems, Inc.

WMBB

ABC

VHF

Media General Broadcast Group

WPGX

FOX

UHF

Waitt Broadcasting, Inc.

Sherman, Texas-Ada, Oklahoma

KXII, a CBS affiliate, was acquired by us in October 1999 and began operations in 1956. It is ranked first in total viewers and in news programming in the Sherman, Texas-Ada, Oklahoma market. The Sherman, Texas-Ada, Oklahoma economy centers around medical services, manufacturing and distribution services. Leading employers include Michelin, MEMC Southwest, Globitech, Raytheon, CIGNA, Johnson & Johnson and Texas Instruments.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		310		322		0.76	%
Retail Sales	$	3,815	$	4,806		4.73
EBI		4,265		5,383		4.77
Gross Market Revenue		7,700		9,200		3.62
Average Household Income		35.4		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

KXII

CBS

VHF

Gray Communications Systems, Inc.

KTEN

NBC

VHF

Lockwood Broadcasting, Inc.

Stations’ Markets

Below is a brief description of the market for each of the stations that we intend to acquire in the merger. All statements as to station ranking in this prospectus are based on Nielsen data for the 6:00 a.m. to 2:00 a.m. Sunday through Saturday time period, except that data in the tables titled “Competitive Landscape” is based on BIA data for the 9:00 a.m. to midnight Sunday through Saturday time period. The news ranking information is based on our management’s review of the Nielsen Station Index, Viewers in Profile, dated May 2002. As NBC affiliate stations broadcasted the Olympic games, during February 2002, their ratings for this period reflect a higher-than-normal viewership. “CAGR” refers to compound annual growth rate and “EBI” refers to effective buying income. EBI statistics reflect data for 2000 and 2005. In the “Competitive Landscape” tables below, we have included only stations that BIA has reported at one share or more in three of the four most recent rating periods.

Wichita-Hutchinson, Kansas

KAKE, KLBY and KUPK, all ABC affiliates, began operations in 1953. They collectively are ranked third in total viewers and in news programming in the Wichita-Hutchinson, Kansas market. KLBY and KUPK are “satellite” stations under FCC rules and are used to enhance Stations’ ability to effectively serve the entire market. The area is well known for its involvement in the aviation industry, with the top three companies in the region, Boeing Company, Cessna Aircraft Company and Raytheon Aircraft Company representing that industry. The Wichita area also serves as a regional banking and medical center, as well as home to the McConnell Air Force Base. Other leading employers in the region are Wichita Public Schools and the State of Kansas. Wichita is also the home to Wichita State University, which has an enrollment of 14,000 students.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		1,175		1,212		0.62	%
Retail Sales	$	15,293	$	18,877		4.30
EBI		19,659		23,850		3.94
Gross Market Revenue		57,200		71,200		4.48
Average Household Income		43.0		NA

Competitive Landscape



					Share Summary
					9AM to Midnight
		VHF or
Station	Network	UHF		Owner	May-02		Feb-02		Nov-01		Jul-01

KWCH-TV, KBSD-TV, KBSH-TV & KBSL-TV	CBS		VHF	Media General Broadcast Group		18		15		18		17
KSNW, KSNC, KSNG & KSNK	NBC		VHF	Emmis Communications Corp.		16		22		15		14
KAKE-TV, KLBY & KUPK-TV	ABC		VHF	Stations Holding Company, Inc.		10		8		11		10
KSAS-TV, KAAS-TV & KBDK	FOX		UHF	Clear Channel Television, Inc.		4		6		6		4
KSCC	UPN		UHF	Mercury Broadcasting Company, Inc.		2		2		2		2
KWCV	WB		UHF	Banks Broadcasting, Inc.		2		2		2		—

Omaha, Nebraska

WOWT, an NBC affiliate, began operations in 1949. It is ranked first in total viewers and second in news programming in the Omaha, Nebraska market. The Omaha DMA is home to five Fortune 100 companies, the U.S. Strategic Command Headquarters at Offutt Air Force Base, the University of Nebraska Medical Center and Creighton Medical Center. The University of Nebraska-Omaha has an enrollment of nearly 14,000, and Creighton University has an enrollment of 6,300. Major employers in the area include: the United States military, Union Pacific Railroad, ConAgra, Omaha Public Schools and

First Data Resources. The Omaha market is adjacent to the Lincoln, Nebraska market where we own and operate television stations KOLN and KGIN.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		1,008		1,048		0.78	%
Retail Sales	$	13,687	$	16,275		3.52
EBI		20,452		27,141		5.82
Gross Market Revenue		62,100		72,200		3.06
Average Household Income		52.9		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WOWT

NBC

VHF

Stations Holding Company, Inc.

KETV

ABC

VHF

Hearst-Argyle Television, Inc.

KMTV

CBS

VHF

Emmis Communications Corp.

KPTM

FOX

UHF

Pappas Telecasting Companies

KXVO

UHF

Mitts Telecasting Company

Madison, Wisconsin

WMTV, an NBC affiliate, began operations in 1953. It is the first ranked station, with the second ranked news program, in the Madison, Wisconsin market. The Madison area hosts the international headquarters for American Family Insurance, Oscar Meyer, Ray-O-Vac and Lands End. In addition to being the state capital, the University of Wisconsin has a major campus in Madison and has an enrollment of over 41,000 students. Major employers in the area are: University of Wisconsin Hospital and Clinics, General Motors Corporation, American Family Insurance, Meritor Health and Wisconsin Physicians Insurance Corporation. The Madison market is adjacent to the Wausau-Rhinelander market and La Crosse-Eau Claire, Wisconsin market where we own and operate television station WEAU.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		874		920		1.03	%
Retail Sales	$	15,394	$	19,812		5.18
EBI		16,101		20,418		4.87
Gross Market Revenue		47,200		57,700		4.10
Average Household Income		47.3		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WISC-TV

CBS

VHF

Morgan Murphy Stations

WMTV

NBC

UHF

Stations Holding Company, Inc.

WKOW

ABC

UHF

Quincy Newspapers, Inc.

WMSN-TV

FOX

UHF

Sinclair Broadcast Group, Inc.

Colorado Springs, Colorado

KKTV, a CBS affiliate, began operations in 1952. It is ranked first in total viewers and in news programming in the Colorado Springs, Colorado market. The Colorado Springs market is home to five major military installations: the Air Force Academy, Peterson Air Force Base, Fort Carson Army Base, Cheyenne Mountain Complex (NORAD), and Shriever Air Force Base. Major employers in the area in addition to the United States military include: The City of Colorado Springs, WorldCom, Inc., Intel Corporation and various non-profit organizations.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		799		870		1.72	%
Retail Sales	$	10,439	$	13,172		4.76
EBI		12,591		16,149		5.10
Gross Market Revenue		42,300		49,700		3.28
Average Household Income		41.3		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

KKTV

CBS

VHF

Stations Holding Company, Inc.

KOAA-TV

NBC

VHF

Evening Post Publishing Company

KRDO-TV

ABC

VHF

Pikes Peak Broadcasting Company, Inc.

KXRM

FOX

UHF

Raycom Media, Inc.

KXTU-LP

UPN

UHF

Raycom Media, Inc.

Lansing, Michigan

WILX, an NBC affiliate, began operations in 1957. It is ranked first in total viewers and in news programming in the Lansing, Michigan market. Lansing, the state capital, derives much of its economic base from state agencies, the automotive sector, and the Michigan State University which has over 43,000 students. Some of the top employers in the region include: the State of Michigan, Michigan State University, General Motors Corporation, Sparrow Health Systems and Meijer Grocery Stores.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		655		669		0.42	%
Retail Sales	$	7,561	$	8,408		2.15
EBI		10,823		12,728		3.30
Gross Market Revenue		31,900		39,700		4.47
Average Household Income		45.1		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WLNS

CBS

VHF

Young Broadcasting Inc.

WILX-TV

NBC

VHF

Stations Holding Company, Inc.

WSYM-TV

FOX

UHF

Journal Broadcast Group, Inc.

WLAJ

ABC

UHF

Freedom Communications, Inc.

Rockford, Illinois

WIFR, a CBS affiliate, began operations in 1965. It is ranked first in total viewers and in news programming in the Rockford, Illinois market. Currently, Rockford’s economy is based on the fastener business, as well as the manufacturing of machine parts and aerospace parts. Rockford is emerging as a growing regional education center, having the well respected, small liberal arts school Rockford College in its vicinity. Major employers in the region include: United Parcel Service, Rockford School District, Rockford Health Systems, DaimlerChrysler Corporation, Swedish American Health Systems and Hamilton Sundstrand Corporation.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		460		472		0.52	%
Retail Sales	$	5,341	$	5,965		2.23
EBI		8,178		9,590		3.24
Gross Market Revenue		26,600		33,100		4.47
Average Household Income		46.3		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WREX-TV

NBC

VHF

Quincy Newspapers, Inc.

WIFR

CBS

UHF

Stations Holding Company, Inc.

WTVO

ABC

UHF

Young Broadcasting Inc.

WQRF-TV

FOX

UHF

Quorum Broadcasting Company

Wausau-Rhinelander, Wisconsin

WSAW, a CBS affiliate, began operations in 1954. It is ranked first in total viewers and in news programming in the Wausau-Rhinelander, Wisconsin market. In addition to being a regional medical center, Wausau and the surrounding communities are known as a major capital of paper products and insurance. The University of Wisconsin-Stevens Point has over 10,000 students and is located in the DMA. Major employers in the region include: Wausau Insurance, Marshfield Clinics, Wausau Hospital, Wausau-Mosinee Paper Corporation and the City of Wausau. The Wausau-Rhinelander market is adjacent to the Madison, Wisconsin market and the La Crosse-Eau Claire, Wisconsin market where we own and operate television station WEAU.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		444		456		0.53	%
Retail Sales	$	6,323	$	7,707		4.04
EBI		6,984		8,558		4.15
Gross Market Revenue		18,100		22,000		3.98
Average Household Income		41.4		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WSAW-TV

CBS

VHF

Stations Holding Company, Inc.

WAOW-TV & WYOW

ABC

VHF

Quincy Newspapers, Inc.

WJFW-TV

NBC

VHF

Rockfleet Broadcasting, Inc.

WFXS

FOX

UHF

Davis Television, LLC

Topeka, Kansas

WIBW, a CBS affiliate, began operations in 1953. It is ranked first in total viewers and in news programming in the Topeka, Kansas market. The Topeka DMA has an agricultural base which is augmented by production and manufacturing. In addition to being the state capital, Topeka is home to Forbes Air Force Base, Kansas State University with an enrollment of 22,400 and Washburn University with an enrollment of 6,300 students. Major employers in the area include: Goodyear Tire and Rubber Corporation, Payless ShoeSource, Blue Cross Blue Shield of Kansas and Burlington Northern Santa Fe Railroad.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		443		442		(0.05	)%
Retail Sales	$	5,537	$	6,723		3.96
EBI		6,708		7,631		2.61
Gross Market Revenue		16,200		19,900		4.20
Average Household Income		39.8		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WIBW

CBS

VHF

Stations Holding Company, Inc.

KSNT

NBC

UHF

Emmis Communications Corp.

KTKA-TV

ABC

UHF

Brechner Management Company

KTMJ-CA

FOX, UPN

VHF

Montgomery Communications, Inc.

Dothan, Alabama

WTVY, a CBS affiliate, began operations in 1954. It is ranked first in total viewers and in news programming in the Dothan, Alabama market. Dothan serves as the regional economic, retail, and medical center. It houses Ft. Rucker Army Base, the Southeast Alabama Medical Center, and serves as an important agricultural center. Major employers in the area include: Southeast Alabama Medical Center, Collins Signs, Dothan and Houston Counties School System, Perdue Farms, Inc. and Flowers Hospital. The Dothan market is adjacent to the Panama City, Florida market where we own and operate WJHG.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		246		249		0.24	%
Retail Sales	$	2,963	$	3,288		2.10
EBI		3,481		4,187		3.76
Gross Market Revenue		11,900		14,500		4.03
Average Household Income		36.6		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WTVY

CBS

VHF

Stations Holding Company, Inc.

WDHN

ABC

UHF

Morris Multimedia, Inc.

WDFX-TV

FOX

UHF

Waitt Broadcasting, Inc.

Harrisonburg, Virginia

WHSV, an ABC affiliate, began operations in 1953. It is the only commercial television station broadcasting in the Harrisonburg, Virginia market and is ranked first in total viewers and in news programming. The Harrisonburg market derives much of its economic base from poultry products, book manufacturing and the pharmaceutical industry. James Madison University, with an enrollment of over 16,000, is located in the DMA. Major employers in the area include: James Madison University, Pilgrims Pride, Cargill, Rockingham Memorial Hospital and R.R. Donnelley & Sons Company.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		228		236		0.69	%
Retail Sales	$	2,953	$	3,512		3.53
EBI		3,493		4,174		3.63
Gross Market Revenue		9,800		11,800		3.78
Average Household Income		40.7		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WHSV-TV

ABC

VHF

Stations Holding Company, Inc.

Bowling Green, Kentucky

WBKO, an ABC affiliate, began operations in 1962. It is ranked first in total viewers and in news programming in the Bowling Green, Kentucky market. Bowling Green is located approximately 65 miles outside of Nashville, Tennessee and benefits from its proximity to this major city. Bowling Green is home to Western Kentucky University which has an enrollment of almost 15,000 students. Some of the major employers in the region include: Commonwealth Health Corp., Warren County Board of Education, Western Kentucky University, General Motors Corvette Plant and DESA International. The Bowling Green market is adjacent to the Lexington, Kentucky market where we own and operate WKYT and WYMT.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		209		220		1.03	%
Retail Sales	$	2,475	$	2,865		2.97
EBI		3,039		4,006		5.68
Gross Market Revenue		7,500		8,800		3.25
Average Household Income		37.5		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WBKO

ABC

VHF

Stations Holding Company, Inc.

WNKY

NBC

UHF

Northwest Broadcasting, L.P.

Meridian, Mississippi

WTOK, an ABC affiliate, began operations in 1953. It is ranked first in total viewers and in news programming in the Meridian, Mississippi market. Meridian Naval Air Station is located in the DMA of Meridian, which also is a regional medical and economic center. Major industries in the area include tourism, timber processing, paper products and electronics manufacturing. Top employers in the area include: Peavey Electronics, Mississippi Band of Choctaw Indians, Meridian Naval Air Station, Jeff Anderson Regional Medical Center and the Meridian School System.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		189		190		0.11	%
Retail Sales	$	1,883	$	2,245		3.58
EBI		2,469		3,048		4.30
Gross Market Revenue		7,900		9,800		4.40
Average Household Income		34.7		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WTOK-TV

ABC

VHF

Stations Holding Company, Inc.

WMDN

CBS

UHF

Spain, Frank & Family

WGBC

NBC

UHF

Global Communications, Inc.

Parkersburg, West Virginia

WTAP, an NBC affiliate, began operations in 1953. It is the only commercial television station broadcasting in the Parkersburg, West Virginia market and is ranked first in total viewers and in news programming. The Parkersburg DMA is a major chemical and petroleum center, with such employers as Dupont, Eramet, General Electric Company, Chevron, Globe Metallurgical and Krayton. Other significant employers include Coldwater Creek Clothiers and Ames Hardware. The Parkersburg DMA also plays host to Marietta College with an enrollment of nearly 23,500.

Market Overview


	2001		2006		CAGR


	(In Thousands)
DMA Population		159		157		(0.25	)%
Retail Sales	$	1,911	$	2,025		1.17
EBI		2,539		3,051		3.74
Gross Market Revenue		5,600		6,600		3.34
Average Household Income		39.9		NA

Competitive Landscape

Share Summary

9AM to Midnight

VHF or

Station

Network

UHF

Owner

May-02

Feb-02

Nov-01

Jul-01

WTAP-TV

NBC

UHF

Stations Holding Company, Inc.

BUSINESS OF STATIONS HOLDING COMPANY, INC.

Overview of Stations

We plan to acquire in the merger 15 of Stations’ television stations. These television stations are geographically diverse and serve small to medium-sized markets in 11 states. Five of the stations are affiliated with CBS, six are affiliated with ABC, and four are affiliated with NBC. All of the data included in this section relates solely to the stations that we plan to acquire in the merger.

The stations are located in DMAs ranked in size from 65 to 186 out of the 210 DMAs surveyed by Nielsen. The broadcast signals for these stations that we intend to acquire in the merger reach 2.6 million television households, representing 2.5% of all television households in the United States. Stations believes that broadcast television stations in small to medium-sized markets offer an opportunity to generate attractive and stable broadcasting cash flow due to limited competition from:


	•	other television stations for viewers;

	•	other media soliciting advertising expenditures; and

	•	other television stations purchasing syndicated programming.

Stations operates in markets that typically have stable employment and a diverse base of employers. Stations generally targets markets that have population centers that share common community interests and are receptive to local programming. Stations’ local programming and news content coupled with its network affiliations provide each of its stations with an established audience and reputation for news, sports and entertainment programming.

Stations’ senior management team, led by K. James Yager, President and Chief Operating Officer, has extensive experience in acquiring and improving the operations of television stations. In addition, Stations’ stations are supported by a team of senior vice presidents who directly oversee the day-to-day operations of the business. Louis S. Wall and Christopher H. Cornelius manage seven and six of the stations, respectively. These executives have an average of 22 years of experience operating and managing broadcast television stations.

Stations selectively purchases first run and off-network syndicated programming designed to reach specific demographic groups attractive to advertisers. Currently, Stations broadcasts on many of its stations the five most highly-rated syndicated programs. These programs and the number of stations on which they are broadcast are:


	•	“Wheel of Fortune” on nine of its stations;

	•	“Jeopardy” on seven of its stations;

	•	“Seinfeld” on seven of its stations; and

	•	“Entertainment Tonight” on seven of its stations.

Additionally, Stations broadcasts other highly-rated first run and off-network syndicated programs on its stations including:


	•	“Judge Judy;”

	•	“The Oprah Winfrey Show;”

	•	“Everybody Loves Raymond;”

	•	“Live! with Regis and Kelly;” and

	•	“Frasier.”

Stations seeks to acquire syndicated programs that:


	•	have wide audience appeal;

	•	are available on a cost-effective basis for limited licensing periods;

	•	allow scheduling flexibility;

	•	complement each station’s overall programming mix; and

	•	counter competitive programming.

Stations has been able to purchase syndicated programming at attractive rates because of the limited competition from other television broadcasters for such programming in its markets. As a result, Stations’ cash program expense as a percentage of net revenues for its stations was 4.4% in 1999, 4.7% in 2000 and 5.5% in 2001. In comparison, according to the 2001 Television Financial Report published by the National Association of Broadcasters, the percentage of net revenues spent for programming by all network affiliated stations was 8.8% in 1999 and 8.2% in 2000.

Background

Stations was incorporated under the laws of the State of Delaware on April 10, 1996. Stations’ corporate name was changed to “Stations Holding Company, Inc.” from “Benedek Communications Corporation” effective February 1, 2002. Benedek was incorporated under the laws of the State of Delaware on January 22, 1979. The principal executive offices of Stations are located at 2895 Greenspoint Parkway, Suite 250, Hoffman Estates, Illinois 60195. The telephone number at the executive offices is (847) 585-3450.

Network Affiliation of Stations’ Television Stations

Each of the television stations we are acquiring is affiliated with either CBS, ABC or NBC. Each affiliation agreement provides the station with the right to broadcast all programs transmitted by the network. In return, the network has the right to sell a substantial majority of the advertising time during network programming. In exchange for every hour that a station elects to broadcast network programming, CBS, ABC and NBC have historically paid the station a specified fee. This fee varies with the time of day. Typically, prime-time programming generates the highest hourly rates. Fees are subject to increase or decrease by the network during the term of an affiliation agreement, with provisions for advance notices and the right of termination by the station in the event of a reduction of rates.

During 1999, each of the major networks publicly indicated that it was reviewing the economic and other terms under which it provides programming to network affiliates like our stations. Proposed changes that have been publicly discussed include:


	•	reducing the period of exclusivity with respect to popular programming;

	•	changing the amount and placement of advertising time made available for sale by affiliates during network programming; and

	•	requiring affiliates to share part of the costs of producing sports or special programming.

These changes may be implemented during the term of existing affiliation agreements or upon their renewal. Additionally, the major networks have proposed reducing or eliminating the cash payments paid by networks to affiliates at the time of renewal of existing affiliation agreements.

Stations’ NBC affiliation agreements for WOWT, WMTV, WILX and WTAP were renegotiated effective as of January 1, 2002 and the agreements were extended to January 1, 2012. As a result of these negotiations compensation for WOWT, WMTV, WILX and WTAP continues although at a reduced level through 2005. For the period from January 1, 2006 through the expiration of the contract on January 1, 2012, the agreements do not provide for any network compensation payments.

Stations’ ABC affiliation agreements for WBKO, WHSV and WTOK expire on November 1, 2004 and provide for compensation that decreases throughout the term of the contract and reduces to zero by the expiration date of the contract.

In response to declining revenues, some networks have suggested that they may search for alternative methods of distribution for their programming, such as cable channels.

Advertising Sales

Television station revenues are derived primarily from local, regional and national advertising. Stations seeks to manage its spot inventory efficiently to maximize advertising rates. Advertising rates are based upon numerous factors including:


	•	a program’s popularity among the audience;

	•	the number of advertisers competing for the available time allotted to commercials;

	•	the size and demographic make-up of the audience; and

	•	the availability of alternative advertising media in the market area.

In March 2000, Stations restructured the organization of its local sales departments to place a greater emphasis on local and regional advertising sales. Stations shifted certain local advertising accounts to national representatives to better reflect the actual source of revenues. As a result of the restructuring and its new philosophy, period-to-period comparisons of trends in Stations’ local/regional and national sales will be difficult for you to make.

Local Sales. Approximately 60% of Stations’ gross revenues in 2001 came from local and regional advertisers. Local and regional advertising is sold primarily by each station’s professional sales staff. Typical local and regional advertisers include:


	•	automobile dealerships;

	•	restaurants;

	•	retailers;

	•	communications companies;

	•	grocery chains;

	•	soft drink bottlers;

	•	health and medical services; and

	•	state lotteries.

Stations seeks to establish long term relationships with local advertisers by selling its advertising time through dedicated local sales teams. Stations’ goal is to provide local customers the opportunity to communicate their longer term advertising goals so it can develop strategic advertising campaigns for them. In addition to increasing revenues from existing advertisers, Stations seeks to identify new sources of local advertising revenues. In particular, Stations seeks potential advertisers who have not previously advertised on broadcast television, but whose businesses would benefit from the identity of Stations’ local news and programming. Stations’ sales personnel are required to meet minimum weekly and monthly performance standards with respect to client activity, including new customer identification. Stations also offers commercial production services at each of its stations.

National Sales. Approximately 31% of Stations’ gross revenues in 2001 came from national advertisers. Typical national advertisers include:


	•	automobile manufacturers;

	•	consumer goods manufacturers;


	•	communications companies;

	•	fast food franchisers;

	•	national retailers; and

	•	direct marketers.

National advertising time is sold through representative agencies retained by Stations. Two of the television stations we are acquiring are represented by Petry Television, Inc., ten are represented by Katz Television Sales, and one is represented by Blair Television. These stations’ national sales coordinators actively assist their national sales representatives to induce national advertisers to increase their national spot expenditures designated to our markets.

Political Sales. Political advertising revenues are a significant factor in Stations business during election years. Local and regional elections, which can include gubernatorial, U.S. senatorial and congressional races, generally occur every even numbered year. National presidential elections occur every four years. In 2000 and 1998, Stations had political advertising revenues of $13.3 million and $8.6 million, respectively, at its stations we are acquiring pursuant to the merger representing approximately 10% and 7% of such stations’ gross revenues during such years.

Implementation of the Cable Act of 1992

The Cable Television Consumer Protection and Competition Act of 1992, the “Cable Act,” was enacted on October 5, 1992. The Cable Act:


	•	imposes cable rate regulation;

	•	establishes cable ownership limitations;

	•	regulates the relationships between cable operators and their program suppliers;

	•	regulates signal carriage and retransmission consent; and

	•	regulates numerous other aspects of the cable television business.

Stations has entered into agreements for its stations with substantially all of the cable system operators that carry our stations’ signals. All of these agreements grant such cable system operators consent to retransmit Stations’ broadcast signals. These retransmission arrangements do not represent a significant source of revenues for Stations. Stations expects to be able to renew its current retransmission agreements when such agreements expire. However, there can be no assurance that such renewals will be obtained.

Digital Operations

The FCC had required that all of the stations owned by Stations commence digital operations by May 1, 2002. Stations has incurred $5.6 million in capital expenditures through June 30, 2002 towards its digital conversion of the stations we are acquiring as a result of the merger, and it anticipates incurring additional capital expenditures of $5.7 million in the balance of 2002 and thereafter with respect to such stations. In order to accommodate the conversion to digital and maintain our historical capital expenditure levels, Stations has reduced its plans for the other non-essential capital expenditures in 2002. Stations anticipates that such expenditures will be paid for through cash generated from operations.

One of the stations owned by Stations, WMTV in Madison, Wisconsin, had commenced digital operations by May 1, 2002. The FCC had implemented a process to allow broadcast companies to request an extension of time to complete the build-out to digital. On March 4, 2002, Stations filed extension requests with respect to its stations that have not been converted to digital. Stations was granted extensions covering the period May 1, 2002 through various dates in November 2002. We cannot assure you that Stations will be able to complete the construction of all of its DTV stations by the applicable FCC deadlines. If Stations is unable to meet applicable build-out deadlines or obtain additional extensions,

Stations may be subject to FCC sanctions, including the loss of the authorization to construct the DTV station.

Employees

As of June 30, 2002, Stations had 867 full-time employees at the stations we are acquiring as a result of the merger. Approximately 175 of such employees located at three of such stations are represented by labor unions under collective bargaining agreements. The collective bargaining agreements expire at various times from June 2003 through December 2003. At WIFR-TV, Rockford, Illinois, 23 employees have certified a union and negotiations for a collective bargaining agreement are scheduled to occur shortly. There are no unionized employees at the other stations we are acquiring as a result of the merger. Stations believes that its relationship with all of its employees, including those represented by labor unions, is satisfactory.

Properties

The principal executive offices of Stations are located in leased premises in Hoffman Estates, Illinois. Stations also has executive offices in New York City.

The types of properties required to support the television stations that we plan to acquire as a result of the merger include offices, studios, and tower and transmitter sites. A station’s studio and office are generally located in business districts while tower and transmitter sites are generally located so as to provide maximum signal coverage to each market. The following table contains certain information describing the general character of the properties we plan to acquire.

Approximate

Owned or

Size

Height (ft.)/

Station, Market Area and Use

Leased

(sq. ft.)(a)

Power

Lease expiration date

Wichita-Hutchinson, Kansas KAKE-TV

Office and Studio

Owned

46,762

—

Tower/ Transmitter Site

Owned

2,176

1,000/316 kw

—

Colby, Kansas KLBY-TV

Office and Studio

Leased

2,850

—

04/2004

Tower/ Transmitter Site

Leased

1,000

768/100 kw

04/2007

Garden City, Kansas KUPK-TV

Office and Studio

Owned

1,831

—

Tower/ Transmitter Site

Owned

4,655

880/224 kw

—

Omaha, Nebraska WOWT-TV

Office and Studio

Owned

58,829

—

Tower/ Transmitter Site

Owned

2,500

1,342/100 kw

—

Madison, Wisconsin WMTV-TV

Office and Studio

Owned

(b)

16,485

(c)

—

Tower/ Transmitter Site

Owned

(b)

1,040/955 kw

—

Colorado Springs-Pueblo, Colorado KKTV

Office and Studio

Owned

(b)

30,465

—

Tower/ Transmitter Site

Leased

800

350/234 kw

02/2059

Lansing, Michigan WILX-TV

Office and Studio

Owned

(b)

13,700

—

Tower/ Transmitter Site

Leased

5,000

994/309 kw

10/2003

Approximate

Owned or

Size

Height (ft.)/

Station, Market Area and Use

Leased

(sq. ft.)(a)

Power

Lease expiration date

Rockford, Illinois WIFR-TV

Office and Studio

Owned

(b)

13,500

(c)

—

Tower/ Transmitter Site

Owned

(b)

674/562 kw

—

Wausau-Rhinelander, Wisconsin WSAW-TV

Office and Studio

Owned

(b)

24,400

—

Tower/ Transmitter Site

Leased

(d)

432

650/316 kw

08/2017

Topeka, Kansas WIBW-TV

Office and Studio

Owned

(b)

19,800

—

Tower/ Transmitter Site

Leased

2,338

1,249/316 kw

02/2062

Dothan, Alabama and Panama City, Florida WTVY-TV

Office and Studio

Leased

20,440

—

12/2003

Tower/ Transmitter Site

Owned

(b)

2,500

1,880/100 kw

—

Harrisonburg, Virginia WHSV-TV

Office and Studio

Leased

(b)

18,000

—

04/2018(e)

Tower/ Transmitter Site

Leased

2,016

337/8.32 kw

12/2001(f)

Bowling Green, Kentucky WBKO-TV

Office and Studio

Owned

(b)

17,598

—

Tower/ Transmitter Site

Owned

(b)

1,175

603/316 kw

—

Meridian, Mississippi WTOK-TV

Office and Studio

Owned

(b)

13,188

—

Tower/ Transmitter Site

Owned

(b)

1,504

316/316 kw

—

Parkersburg, West Virginia WTAP-TV

Office and Studio

Owned

17,500

—

Tower/ Transmitter Site

Owned

(b)

3,600

439/208 kw

—


(a)		Approximate size is for building space only and does not include the land on which the facilities are located.

(b)		Stations has mortgaged its interest in this property to the collateral agent under its credit facility, which mortgage will be released at the time of the merger.

(c)		The tower/transmitter is located at and included within the size of the office and studio premises.

(d)		Stations leases this space with Shockley Communications Corporation and the Wisconsin Educational Communications Board from the State of Wisconsin Department of Natural Resources.

(e)		Stations has an option to purchase this property during the term of the lease. The purchase price is subject to adjustment depending upon the date the option is exercised. If Stations had exercised the option on December 31, 2001, the purchase price would have been approximately $1.4 million.

(f)		The United States Department of Agriculture Forest Service granted us a Special Use Permit to occupy this land. Stations has applied for and is currently awaiting renewal of this permit.

Legal Proceedings

On March 22, 2002, Stations filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Benedek and its subsidiaries are not party to the bankruptcy action. On July 9, 2002, Stations filed its amended plan of reorganization and related disclosure statement with respect to its bankruptcy case for approval by the court. The amended plan of reorganization contemplates completion of the merger of Gray MidAmerica Television with and into Stations. On August 12, 2002, the bankruptcy court issued an order approving Stations’ disclosure statement and scheduling a hearing to approve ballots

for voting on the amended and restated plan of reorganization. A confirmation hearing has been scheduled for September 25, 2002. In conjunction with the execution of the merger agreement, Stations and Gray entered into Lock up, Voting and Consent Agreements with certain stockholders and creditors of Stations. Under the lock up, voting and consent agreements, these stockholders and creditors agreed to, among other things, support and vote their shares or interests, as applicable, in favor of Stations’ amended plan of reorganization that will give effect to the transactions contemplated by the merger agreement. As of the date of this prospectus, lock up, voting and consent agreements have been received from holders of 97.9% of the outstanding Stations senior preferred stock, 98.8% of the outstanding Stations junior preferred stock, 100% of the outstanding Stations class B common stock and 94.6% of the outstanding Stations senior notes.

Stations is currently and from time to time involved in litigation incidental to the conduct of its business. Stations is not currently a party to any such lawsuit or proceeding that, in its opinion, is likely to have a material adverse effect on us.

STATIONS SELECTED FINANCIAL DATA

The table below sets forth selected consolidated financial data of Stations for the five years ended December 31, 2001 and the six month periods ended June 30, 2001 and 2002. The selected consolidated financial data for the years ended December 31, 1999, 2000 and 2001 have been derived from Stations’ audited consolidated financial statements included elsewhere in this prospectus. The data for the six month periods ended June 30, 2001 and 2002 are unaudited, but have been prepared on the same basis as the audited financial statements. In Stations’ opinion, they reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly Stations’ results of operations for the periods then ended and its financial position as of such dates. Operating results for the six month period ended June 30, 2002 are not necessarily indicative of the results that may be expected in the future. The selected consolidated financial data should be read in conjunction with the consolidated financial statements and notes included elsewhere in this prospectus and “Stations Management’s Discussion and Analysis of Financial Condition and Results of Operations.”



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(a)			1999(b)			2000(b)			2001			2001			2002


		(Dollars in thousands, except share and per share data)
Statement of Operations Data:
Net revenues(c)		$	84,392		$	94,525		$	99,432		$	116,687		$	107,561		$	52,028		$	54,641
Operating expenses:
	Station operating expenses		48,891			52,446			55,154			63,935			64,007			32,883			32,942
	Depreciation and amortization		21,794			20,660			17,442			19,711			21,901			10,933			12,353

Station operating income			13,707			21,419			26,836			33,041			21,653			8,212			9,346
	Corporate expenses		3,787			4,643			4,510			5,590			5,946			3,123			3,104

			9,920			16,776			22,326			27,451			15,707			5,089			6,242
Gain on sale of stations, net(d)			—			—			6,403			61,406			—			—			—

	Operating income		9,920			16,776			28,729			88,857			15,707			5,089			6,242

Financial expenses, net:
Interest expense, net(e):
	Cash interest, net		(23,358	)		(21,943	)		(20,701	)		(23,000	)		(33,191	)		(12,692	)		(20,727	)
	Other interest		(19,374	)		(17,043	)		(19,040	)		(20,943	)		(10,011	)		(7,797	)		(384	)

			(42,732	)		(38,986	)		(39,741	)		(43,943	)		(43,202	)		(20,489	)		(21,111	)

Reorganization items			—			—			—			—			—			—			(1,091	)
Income (loss) before income tax benefit and extraordinary item			(32,812	)		(22,210	)		(11,012	)		44,914			(27,495	)		(15,400	)		(15,960	)
Income tax benefit (expense)			11,243			7,646			(406	)		(29,199	)		10,165			5,613			6,100

Income (loss) from continuing operations			(21,569	)		(14,564	)		(11,418	)		15,715			(17,330	)		(9,787	)		(9,860	)
(Loss) from discontinued operations			(2,741	)		(2,061	)		(4,359	)		(881	)		(28,085	)		(2,148	)		(24,376	)

Income (loss) before extraordinary item			(24,310	)		(16,625	)		(15,777	)		14,834			(45,415	)		(11,935	)		(34,236	)
Extraordinary item(f)			—			—			(12,510	)		942			—			—			—

Net income (loss)			(24,310	)		(16,625	)		(28,287	)		15,776			(45,415	)		(11,935	)		(34,236	)
Preferred stock dividends and accretion			(19,037	)		(30,855	)		(18,987	)		(23,933	)		(31,186	)		(15,102	)		(16,020	)

Net (loss) applicable to common stock		$	(43,347	)	$	(47,480	)	$	(47,274	)	$	(8,157	)	$	(76,601	)	$	(27,037	)	$	(50,256	)

Basic and diluted (loss) per common share(g):
	(Loss) from continuing operations	$	(5.78	)	$	(6.14	)	$	(4.11	)	$	(1.11	)	$	(6.56	)	$	(3.36	)	$	(3.50	)
	(Loss) from discontinued operations		(0.39	)		(0.28	)		(0.59	)		(0.12	)		(3.79	)		(0.29	)		(3.29	)
	Extraordinary item		—			—			(1.69	)		0.13			—			—			—

	(Loss) per common share	$	(6.17	)	$	(6.42	)	$	(6.39	)	$	(1.10	)	$	(10.35	)	$	(3.65	)	$	(6.79	)

Weighted-average common shares outstanding			7,030,000			7,400,000			7,400,000			7,400,000			7,400,000			7,400,000			7,400,000



																	Six Months Ended
		Year Ended December 31,															June 30,

		1997(a)			1998(a)			1999(b)			2000(b)			2001			2001			2002


		(Dollars in thousands, except share and per share data)
Other Financial Data:
Broadcast cash flow(h)		$	35,678		$	42,333		$	44,681		$	53,220		$	43,934		$	19,198		$	21,377
Broadcast cash flow margin(i)			42.3%			44.8%			44.9%			45.6%			40.8%			36.9%			39.1%
Operating cash flow(j)		$	31,891		$	37,690		$	40,171		$	47,630			37,988		$	16,075		$	18,273
Operating cash flow margin(k)			37.8%			39.9%			40.4%			40.8%			35.3%			30.9%			33.4%
Cash flow provided by (used in):
	Operating activities	$	8,471		$	20,016		$	19,302		$	26,209		$	15,244		$	9,224		$	12,686
	Investing activities		(6,282	)		(6,582	)		(28,291	)		(11,259	)		(10,835	)		(5,749	)		13,193
	Financing activities		(7,632	)		(11,791	)		7,976			(14,245	)		(4,889	)		(3,470	)		(24,611	)
Capital expenditures			10,833			10,147			12,784			12,157			13,690			7,161			4,795
Balance Sheet Data (end of period):
Cash and cash equivalents		$	2,648		$	4,291		$	3,278		$	3,983		$	3,503		$	3,988		$	4,771
Total assets			468,495			447,462			457,776			508,262			468,237			496,441			407,747
Total intangible assets, net(m)			345,588			335,634			335,348			381,914			346,352			376,509			293,316
Long-term debt(l)			370,917			374,816			427,579			432,942			437,372			438,119			412,591
Redeemable preferred stock			124,556			162,644			181,631			205,564			236,750			220,666			252,770
Stockholders’ (deficit)			(94,908	)		(147,263	)		(197,494	)		(205,731	)		(282,490	)		(232,926	)		(332,478	)


(a)	The selected consolidated financial data of Stations for the years ended December 31, 1997 and 1998 have been derived from Stations’ audited consolidated financial statements with reclassifications to reflect the application of Statement of Financial Accounting Standards No. 144.

(b)	In January 1999, Stations entered into a time brokerage agreement in anticipation of the station exchange of KKTV, Colorado Springs-Pueblo, Colorado and KCOY-TV, Santa Maria, California. The statement of operations and other data for the year ended December 31, 1999 includes information with respect to the time brokerage agreement. In March 2000, Stations exchanged WWLP-TV, its station in Springfield, Massachusetts, and $18.0 million for KAKE-TV, Wichita, Kansas and WOWT-TV, Omaha, Nebraska. The statement of operations does not reflect the exchange prior to March 2000.

(c)	Net revenues reflect deductions from gross revenues for agency and national sales representative commissions.

(d)	Net gain on sale of stations for 1999 includes $13.3 million as a result of the 1999 station exchange netted against a $6.9 million loss on the sale of KOSA-TV, Odessa, Texas. In 2000, net gain on sale of stations includes a $61.1 million gain on the exchange of WWLP-TV, Springfield, Massachusetts, for KAKE-TV, Wichita, Kansas and WOWT-TV, Omaha, Nebraska, and a $0.3 million gain on the sale of KOSA-TV, Odessa, Texas.

(e)	Cash interest expense, net, includes cash interest paid and normal adjustments to accrued interest. Other interest expense includes accrued interest added to long-term debt balances, deferred loan cost amortization and write offs, except deferred loan cost write offs related to extraordinary debt extinguishments, financing costs not consummated, and accretion of discounts.

(f)	In 1999, Stations recorded an extraordinary loss of $12.5 million net of applicable taxes of $8.3 million as a result of the early extinguishment of debt associated with the completion of the tender offer for $135.0 million of outstanding senior secured notes. In 2000, Stations redeemed a portion of its 13 1/4% senior subordinated discount notes with an aggregate face value of $12.3 million. The discount notes had an accreted value of $11.4 million and were purchased for $9.8 million. A total of $0.9 million, net of taxes, was recorded as a gain on the early extinguishment of debt.

(g)	Earnings (loss) per common share is computed by dividing income (loss) after the deduction of preferred dividends and accretion of the redemption prepayment premium and amortization of our initial warrants, by the weighted average number of common shares outstanding. The effect of the stock options and initial warrants has not been reflected in the computation since their inclusion as common stock equivalents for both basic and fully-diluted earnings (loss) per share was anti-dilutive.

(h)

Broadcast cash flow is defined as operating income before financial income as derived from the consolidated statements of operations plus depreciation and amortization, amortization of program broadcast rights, corporate expenses and noncash compensation less payments on program broadcast liabilities and net gain on sale of stations. Broadcast cash flow data is included in this prospectus because the information is a measurement:


	(1)	used by lenders to measure a borrower’s ability to service its debt and pay for capital expenditures;

	(2)	used by industry analysts to determine a market value of television stations; and

	(3)	used by industry analysts when evaluating and comparing operating performance of different companies.

Broadcast cash flow does not purport to represent cash provided by operating activities as reflected in Stations’ consolidated financial statements, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with generally accepted accounting principles. Broadcast cash flow is also not reflected in Stations’ consolidated statements of cash flows; but it is a common and meaningful measure for comparison to other companies in the broadcast industry. The amounts excluded from broadcast cash flow are significant components in understanding and assessing Stations’ results of operations and cash flows. The term “broadcast cash flow” may not be the same terminology utilized by other companies in the presentation of similar information.


(i)	Broadcast cash flow margin is defined as broadcast cash flow divided by net revenues.

(j)	Operating cash flow is defined as operating income before financial income as derived from the consolidated statements of operations plus depreciation and amortization, amortization of program broadcast rights and noncash compensation less payments on program broadcast liabilities and net gain on sale of stations. Operating cash flow data is included in this prospectus because the information is a measurement:


	(1)	used by lenders to measure a borrower’s ability to service its debt and pay for capital expenditures;

	(2)	used by industry analysts to determine a market value of television stations; and

	(3)	used by industry analysts when evaluating and comparing operating performance of different companies.

Operating cash flow does not purport to represent cash provided by operating activities as reflected in Stations’ consolidated financial statements, is not a measure of financial performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for measures of financial performance prepared in accordance with generally accepted accounting principles. Operating cash flow is also not reflected in Stations’ consolidated statements of cash flows; but it is a common and meaningful measure for comparison to other companies in the broadcast industry. The amounts excluded from operating cash flow are significant components in understanding and assessing Stations’ results of operations and cash flows. The term “Operating cash flow” may not be the same terminology utilized by other companies in the presentation of similar information.


(k)	Operating cash flow margin is defined as operating cash flow divided by net revenues.

(l)	Long-term debt is defined as notes payable, including the current portion thereof, net of discount. At June 30, 2002, long-term debt includes the balance of Stations’ credit facility of $252.9 million and the discount notes of $154.7 million, which are classified as “Liabilities Subject to Compromise” on the June 30, 2002 balance sheet.

(m)	Intangible assets at December 31, 2001 and June 30, 2002 include balances of $15.5 million and $4.9 million respectively, which are classified as “Assets of Stations Held for Sale” on the respective balance sheets.

STATIONS MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATION

Overview

On April 1, 2002, Stations signed a letter of intent with Gray and subsequently executed a merger agreement on June 4, 2002 whereby Stations will become a wholly-owned subsidiary of Gray. Gray will pay an estimated $502.5 million in cash consideration in connection with the merger and the transaction is expected to close during the fourth quarter of 2002.

Pursuant to the letter of intent with Gray, Stations agreed to sell all of the television broadcasting assets of eight television stations (the “Station Group”) to a third party prior to its merger with Gray. On June 4, 2002, Stations signed an agreement with Chelsey to sell the Station Group for a sales price of $30.0 million.

On November 16, 2001, Stations entered into an Asset Purchase agreement with West Virginia Media Holdings, LLC (“West Virginia Media”) pursuant to which, on April 30, 2002, Stations sold the television broadcast assets of WTRF-TV, in Wheeling West Virginia for $18.5 million.

Stations elected to early adopt Statement of Financial Accounting Standards No. 144 (“SFAS No. 144”) “Accounting for the Impairment or Disposal of Long-Lived Assets” for its 2001 financial statements. As a result of the early adoption of SFAS No. 144, the Station Group has been classified as assets held for sale at June 30, 2002, and accordingly the carrying value of the assets were adjusted to their fair value and the operations of the Station Group and WTRF-TV have been reported in discontinued operations.

Stations’ revenues are derived primarily from the sale of advertising time and, to a modest extent, from compensation paid by the networks for broadcasting network programming and barter transactions for goods and services. Revenues depend on Stations’ ability to provide programming that attracts audiences in the demographic groups targeted by advertisers. Stations’ revenues also depend significantly on factors such as the national and local economy and the level of local competition.

In March 2000, Stations restructured the organization of its local sales departments to place a greater emphasis on local and regional advertising sales. Stations shifted certain local advertising accounts to national representatives to better reflect the actual source of revenues. As a result of the restructuring and its new philosophy, year-to-year comparisons of trends in Stations’ local/regional and national sales for the years 2000 and 2001 will be difficult for you to make.

On March 31, 2000, Stations completed a transaction with WGRC, Inc., whereby it exchanged the television station assets of WWLP-TV, in Springfield, Massachusetts formerly owned by it plus $18.0 million for the television station assets of KAKE-TV, in Wichita, Kansas, together with its two satellite stations, and WOWT-TV in Omaha, Nebraska. The acquired stations were owned by The Chronicle Publishing Company and were acquired in a like-kind exchange transaction through WGRC, Inc. The transaction was recorded under the purchase method of accounting.

On March 21, 2000, Stations sold the television broadcast assets of KOSA-TV, in Odessa, Texas to ICA Broadcasting I, Ltd. for a cash payment of $8.0 million. Stations recorded a lower of cost or market adjustment of $6.9 million in 1999 to write down the assets of KOSA-TV to the sales price less estimated selling costs. The exchange of WWLP-TV and the sale of KOSA-TV resulted in a gain on sale of stations before taxes of $61.4 million in 2000.

During October 1998, Stations transferred WMTV-TV, its station in Madison, Wisconsin to The WMTV Trust due to the Grade A broadcast signal overlap between WMTV-TV and WIFR-TV, Stations’ station in Rockford, Illinois. Under the trust arrangement, Stations relinquished control of WMTV-TV to a trustee while retaining the economic risks and benefits of ownership. On August 5, 1999, the FCC approved new duopoly rules that enabled Stations to own both WMTV-TV and WIFR-TV. As a result of

the new rules, The WMTV Trust was dissolved on February 29, 2000 and all assets and liabilities were transferred to Stations.

Local and national non-political advertising sales constitute the largest concentration of Stations’ revenues and represent approximately 90% of gross revenues in 2001 compared to approximately 82% in 2000. Excluding political advertising revenues, however, the percentage of gross revenues attributable to Stations’ local/regional advertising and national advertising in 1999, 2000 and 2001 was approximately 90%, 91% and 91%, respectively. Approximately 60% of Stations’ gross revenues in 2001 were generated from local and regional advertising, which is sold primarily by each stations’ sales staffs. The remainder of Stations’ advertising revenues is comprised primarily of national advertising, which is sold by national sales representatives retained by Stations. Stations generally pay commissions to advertising agencies on local, regional and national advertising and to national sales representatives on national advertising. Net revenues reflect deductions from gross revenues for commissions payable to advertising agencies and national sales representatives.

Stations’ primary operating expenses are employee compensation, programming expense, and depreciation and amortization. Changes in compensation expense result primarily from adjustments to fixed salaries based on employee performance and, to a lesser extent, from changes in sales commissions paid based on levels of advertising revenues. Programming expense consists primarily of amortization of program rights. Stations purchases first run and off-network syndicated programming on an ongoing basis. Under Stations’ contracts with the networks, a network-affiliated station receives more than half of its daily programming from its network and in turn is compensated, in most cases, by the network for carrying such programming with the network’s commercial content intact. Barter expense generally offsets barter revenues and reflects the fair market value of goods and services received. Stations’ operating expenses, excluding depreciation and amortization, represent approximately 65% of net revenues from continuing operations for 2001 compared to approximately 60% of net revenues in 2000 and 1999.

Results of Operations

The following table sets forth certain of Stations’ historical results of operations and operating data for the periods indicated in order to reconcile its broadcast cash flow and operating cash flow.



											Three Months Ended						Six Months Ended
		Years Ended December 31,									June 30,						June 30,

		1999			2000			2001			2001			2002			2001			2002


		(In thousands)
Operating income		$	28,729		$	88,857		$	15,707		$	5,198		$	4,768		$	5,089		$	6,242
Add:
	Amortization of program broadcast rights		4,740			5,907			6,341			1,595			1,508			3,161			3,051
	Depreciation and amortization		17,442			19,711			21,901			5,565			6,044			10,933			12,353
	Corporate expenses		4,510			5,590			5,946			1,459			1,561			3,123			3,104
Less:
	Payments on program broadcast liabilities		(4,337	)		(5,439	)		(5,961	)		(1,558	)		(1,540	)		(3,108	)		(3,373	)
	Gain on sale of stations, net		(6,403	)		(61,406	)		—			—			—			—			—

Broadcast cash flow			44,681			53,220			43,934			12,259			12,341			19,198			21,377
Less corporate expenses			4,510			5,590			5,946			1,459			1,561			3,123			3,104

Operating cash flow		$	40,171		$	47,630		$	37,988		$	10,800		$	10,780		$	16,075		$	18,273

Three Months Ended June 30, 2002 Compared to Three Months Ended June 30, 2001

The following table provides historical information for the three months ended June 30, 2001 and 2002.



		Historical
		Three Months Ended June 30,

		2001		2002		% Change


		(In thousands)
Local/regional		$	19,055	$	20,393		7.0%
National			10,804		10,142		(6.1	)
Political			437		1,069		144.6
Other			2,720		2,255		(17.1	)

			33,016		33,859		2.6
Direct costs			4,575		4,802		5.0

Net revenues			28,441		29,057		2.2	%

Operating expenses:
	Selling, technical and program expenses		12,240		12,431		1.6
	General and administrative		3,979		4,253		6.9
	Depreciation and amortization		5,565		6,044		8.6
	Corporate		1,459		1,561		7.0

			23,243		24,289		4.5

Operating income		$	5,198	$	4,768		(8.3	)

Broadcast cash flow		$	12,259	$	12,341		0.7	%
Broadcast cash flow margin			43.1%		42.5%
Operating cash flow		$	10,800	$	10,780		(0.2	)%
Operating cash flow margin			38.0%		37.1%

Net revenues. Stations had net revenues from continuing operations in the second quarter of 2002 of $29.1 million compared to $28.4 million for the same period in 2001. The increase in net revenues was $0.7 million or 2.2%. The improvement in net revenues from continuing operations in 2002 is a result of political advertising revenues and an increase in local advertising revenues due to the successful efforts toward increasing this portion of Stations’ advertising base. National advertising revenues in the second quarter of 2002 decreased by $0.7 million or 6.1% to $10.1 million for the second quarter of 2002 as compared to $10.8 million for the same period in 2001. Local/regional revenues were $20.4 million in the three months ended June 30, 2002 compared to $19.1 million for the same period in 2001, an increase of $1.3 million or 7.0%. Political advertising revenues were $1.1 million in the second quarter of 2002 as compared to $0.4 million in the same period in 2001 due to the primary elections held in certain of Stations’ Midwestern markets.

Operating expenses. Stations had operating expenses in the second quarter of 2002 of $24.3 million, an increase of $1.1 million or 4.5%, compared to $23.2 million in the same period in 2001. Depreciation and amortization increased by $0.4 million or 8.6% to $6.0 million as compared to $5.6 million in the same period in 2001 due to the shorter amortization period used for network affiliation intangible assets as a result of the adoption of Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”) “Goodwill and Other Intangible Assets” on January 1, 2002. The effect of the shorter amortization period used for network affiliation intangible assets more than offset the effect caused by the discontinuance of amortization on Stations’ intangibles related to its FCC licenses and goodwill. Amortization was discontinued on FCC intangible assets and goodwill in the first quarter of 2002 due to the requirement of SFAS No. 142 that specifies that intangible assets with indefinite useful lives are no longer subject to amortization.

Operating income (loss). Stations’ operating income for the second quarter of 2002 decreased by $0.4 million to $4.8 million from $5.2 million for the same period in 2001.

Financial income (expense). Stations’ financial expense for the second quarter of 2002 was relatively constant with the first quarter of 2001 and was $10.4 million as compared to $9.8 million for the three months ended June 30, 2001. The increase was the result of default interest charged on Stations’ credit facility since the fourth quarter of 2001.

Reorganization Items. Stations had reorganization items of $0.2 million in the second quarter of 2002 which consisted primarily of professional fees associated with its Chapter 11 bankruptcy filing on March 22, 2002.

Income tax benefit (expense). Stations’ income tax benefit in the second quarter of 2002 was $2.2 million compared to $1.5 million for the second quarter of 2001, an increase of $0.7 million or 40.0%. The increase in the tax benefit was caused by the increase in the loss from continuing operations before income tax.

Loss from continuing operations. Stations’ loss from continuing operations was $(3.6) million for the second quarter of 2002 compared to $(3.1) million for the corresponding period in 2001.

Discontinued operations. Stations’ loss from operations of discontinued stations was $(2.3) million for the second quarter 2002 as compared to $(0.5) million for the comparable period in 2001. Before income taxes, the loss on the operations of discontinued stations was $(0.1) million for the second quarter of 2002 as compared to $(0.7) million in the second quarter of 2001. The second quarter of 2002 reflected the sale of WTRF-TV, the assets of which included $5.6 million of non-deductible goodwill which resulted in income tax expense of $2.3 million on a $(0.1) million loss on operations of discontinued stations.

Broadcast cash flow. Broadcast cash flow remained at $12.3 million for the second quarter of 2002 as compared to the second quarter of 2001. As a percentage of net revenues, broadcast cash flow margin decreased to 42.5% for the second quarter of 2002 from 43.1% for the second quarter of 2001.

Six Months Ended June 30, 2002 Compared To Six Months Ended June 30, 2001.

The following table provides historical information for the six months ended June 30, 2001 and 2002.



		Historical
		Six Months Ended June 30,

		2001		2002		% Change


		(In thousands)
Local/regional		$	34,949	$	38,553		10.3%
National			19,244		18,549		(3.6	)
Political			739		1,598		116.2
Other			5,326		4,680		(12.1	)

			60,258		63,380		5.2
Direct costs			8,230		8,739		6.2

Net revenues			52,028		54,641		5.0	%

Operating expenses:
	Selling, technical and program expenses		24,766		24,622		(0.6	)
	General and administrative		8,117		8,320		2.5
	Depreciation and amortization		10,933		12,353		13.0
	Corporate		3,123		3,104		(0.6	)

			46,939		48,399		3.1

Operating income		$	5,089	$	6,242		22.7	%

Broadcast cash flow		$	19,198	$	21,377		11.4	%
Broadcast cash flow margin			36.9%		39.1%
Operating cash flow		$	16,075	$	18,273		13.7	%
Operating cash flow margin			30.9%		33.4%

Net revenues. Stations had net revenues from continuing operations in the first six months of 2002 of $54.6 million compared to $52.0 million for the same period in 2001. The increase in net revenues was $2.6 million or 5.0%. The improvement in net revenues from continuing operations in 2002 is a result of political advertising revenues, the winter Olympics’ impact on Stations’ four NBC affiliated stations and a significant increase in local advertising revenues due to the successful efforts toward increasing this portion of Stations’ advertising base. National advertising revenues in the first six months of 2002 decreased to $18.5 million compared to $19.2 million for the same period in 2001. Local/regional revenues increased and were $38.6 million in the six months ended June 30, 2002 compared to $34.9 million for the same period in 2001, an increase of $3.7 million or 10.3%. Political advertising revenues were $1.6 million in the first six months of 2002 as compared to $0.7 million in the same period in 2001.

Operating expenses. Stations had operating expenses in the first six months of 2002 of $48.4 million, an increase of $1.5 million or 3.1%, compared to $46.9 million in the same period in 2001. Depreciation and amortization increased by $1.5 million or 13.0% to $12.4 million as compared to $10.9 million in the same period in 2001 due to the shorter amortization period used for network affiliation intangible assets as a result of the adoption of SFAS No. 142 on January 1, 2002. The effect of the shorter amortization period used for network affiliation intangible assets more than offset the effect caused by the discontinuance of amortization on Stations’ intangibles related to its FCC licenses and goodwill. Amortization was discontinued on FCC intangible assets and goodwill in the first quarter of 2002 due to the requirement of SFAS No. 142 that specifies that intangible assets with indefinite useful lives are no longer subject to amortization.

Operating income (loss). Stations’ operating income for the first six months of 2002 increased by $1.1 million to $6.2 million from $5.1 million for the same period in 2001.

Financial income (expense). Stations’ financial expense for the first six months of 2002 increased by $0.6 million or 3.0% compared to the first six months of 2001 and was $21.1 million as compared to $20.5 million for the six months ended June 30, 2001 as a result of the default interest rate accrued on Stations’ credit facility since the fourth quarter of 2001.

Reorganization items. Stations had reorganization items of $1.1 million in the first six months of 2002 which consisted of professional fees associated with its Chapter 11 bankruptcy filing on March 22, 2002.

Income tax benefit (expense). Stations’ income tax benefit in the first six months of 2002 was $6.1 million compared to $5.6 million for the first six months of 2001, an increase of $0.5 million or 8.7%. Stations’ effective tax rate for the first six months of 2002 was 38.2% as compared to 36.4% in the first six months of 2001.

Loss from continuing operations. Stations’ loss from continuing operations was $(9.9) million for the first six months of 2002 compared to $(9.8) million for the corresponding period in 2001.

Discontinued operations. Stations’ loss from operations of discontinued stations was $(24.4) million for the first six months of 2002 as compared to $(2.1) million for the comparable period in 2001. Before income taxes, the loss on the operations of discontinued stations was $(33.6) million for the first six months of 2002 as compared to $(3.0) million in the first six months of 2001. Included in the first six months of 2002 was a $31.3 million write-down to the expected sales price of the assets of the Station Group.

Broadcast cash flow. Broadcast cash flow for the first six months of 2002 increased $2.2 million or 11.4% to $21.4 million from $19.2 million for the first six months of 2001. As a percentage of net revenues, broadcast cash flow margin increased to 39.1% for the first six months of 2002 from 36.9% for the first six months of 2001.

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

The following table provides historical information for the year ended December 31, 2000 and 2001.



		Year Ended December 31,

		2000		2001		% Change


		(Dollars in thousands)
Local/regional		$	70,732	$	73,501		3.9	%
National			41,153		37,624		(8.6	)
Political			13,238		1,367		(89.7	)
Other			10,935		10,557		(3.5	)

			136,058		123,049		(9.6	)
Direct costs			19,371		15,488		(20.0	)

Net revenues			116,687		107,561		(7.8	)%

Operating expenses:
	Selling technical and program expenses		48,078		48,696		1.3
	General and administrative		15,857		15,311		(3.4	)
	Depreciation and amortization		19,711		21,901		11.1
	Corporate		5,590		5,946		6.4

			89,236		91,854		2.9
Gain on sale of stations, net			61,406		—		(100.0	)

Operating income		$	88,857	$	15,707		(82.3	)%

Broadcast cash flow		$	53,220	$	43,934		(17.4	)%
Broadcast cash flow margin			45.6%		40.8%
Operating cash flow		$	47,630	$	37,988		(20.2	)%
Operating cash flow margin			40.8%		35.3%

Net revenues. Stations’ net revenues in 2001 decreased by $9.1 million or 7.8% to $107.6 million from $116.7 million in 2000. Stations’ net revenues were negatively impacted by the absence of political revenues in 2001 which were $1.4 million as compared to $13.2 million in 2000. Excluding political advertising revenues and before direct costs, Stations’ gross revenues decreased by $1.1 million or 0.9% to $121.7 million for 2001 from $122.8 million for 2000 due to a protracted softening of the advertising market and the negative effects on the advertising market and the economy in general as a result of the attacks of September 11, 2001.

Operating expenses. Stations’ operating expenses in 2001 increased by $2.7 million or 2.9% to $91.9 million from $89.2 million in 2000. The increase in operating expenses was caused by the change in the mix of stations owned by Stations, with the March 2000 addition of KAKE-TV and WOWT-TV and the disposition of WWLP-TV and KOSA-TV. The effect of the change of stations was greatest on depreciation and amortization expenses which increased $2.2 million or 11.1% to $21.9 million for 2001 as compared to $19.7 million for 2000. As a percentage of net revenues, operating expenses increased to 85.4% for 2001 compared to 76.5% for 2000.

Gain on sale of stations, net. In 2000, Stations recognized a gain of $61.1 million as a result of the exchange of the assets of WWLP-TV with a fair market value of $123.0 million and $18.0 million in cash for the assets of KAKE-TV and WOWT-TV. Stations also realized a $0.3 million gain on the sale of KOSA-TV in 2000. KOSA-TV was sold for $8.0 million.

Operating income. Stations’ operating income for 2001 decreased $73.2 million or 82.3% to $15.7 million from $88.9 million for 2000. The change in operating income was primarily caused by the gain on sale of stations in March 2000 and increased depreciation and amortization expense.

Financial income (expense). Stations’ financial expense for 2001 decreased $0.7 million or 1.7% to $43.2 million from $43.9 million in 2000 as a result of declining interest rates.

Income tax benefit (expense). Stations’ income tax benefit in 2001 was $10.2 million compared to an income tax expense of $29.2 million for 2000. The decrease in income tax expense in 2001 from 2000 was primarily due to the tax effect of the sale of WWLP-TV and KOSA-TV in March 2000. For tax purposes, the sale of the WWLP-TV assets was treated as an exchange for the assets of KAKE-TV and WOWT-TV under the Internal Revenue Service like-kind exchange rules. As such, Stations had a $2.2 million gain for tax purposes.

Discontinued operations. Stations’ loss from discontinued operations was $(28.1) million in 2001 as compared to $(0.9) million in 2000. Before income taxes, Stations’ loss from discontinued operations was $(29.8) million in 2001 as compared to $(0.2) million in 2000. Discontinued operations consist of the operating results and valuation adjustments related to WTRF-TV and the Station Group. Included in discontinued operations for 2001 was a write-down to fair value on the sale of WTRF-TV of $6.9 million as well as $17.7 million of valuation adjustments on certain other stations’ goodwill and network affiliation intangible assets that were determined to have been impaired based on estimated discounted future cash flows. During 2002, these certain stations were held for sale and the valuation adjustments have been reclassified to discontinued operations consistent with the restatement provisions of SFAS No. 144.

Net income (loss). Stations had a net loss of $(45.4) million for 2001 as compared to net income of $15.8 million for 2000.

Broadcast cash flow. Broadcast cash flow for 2001 decreased $9.3 million or 17.4% to $43.9 million from $53.2 million for 2000. As a percentage of net revenues, broadcast cash flow margin decreased to 40.8% for 2001 from 45.6% for 2000.

Year Ended December 31, 2000 Compared to Year Ended December 31, 1999

The following table provides historical information for the year ended December 31, 1999 and 2000.



		Year Ended December 31,

		1999		2000		% Change


		(Dollars in thousands)
Local/regional		$	66,146	$	70,732		6.9	%
National			35,535		41,153		15.8
Political			1,329		13,238		896.1
Other			11,756		10,935		(7.0	)

			114,766		136,058		18.6
Direct costs			15,334		19,371		26.3

Net revenues			99,432		116,687		17.4	%

Operating expenses:
	Selling, technical and program expenses		40,247		48,078		19.5
	General and administrative		14,907		15,857		6.4
	Depreciation and amortization		17,442		19,711		13.0
	Corporate		4,510		5,590		23.9

			77,106		89,236		15.7
Gain on sale of stations, net			6,403		61,406		859.0

Operating income		$	28,729	$	88,857		209.3	%

Broadcast cash flow		$	44,681		53,220		19.1	%
Broadcast cash flow margin			44.9%		45.6%
Operating cash flow		$	40,171	$	47,630		18.6	%
Operating cash flow margin			40.4%		40.8%

Net revenues. Stations’ net revenues in 2000 increased by $17.3 million or 17.4% to $116.7 million from $99.4 million in 1999. Stations’ net revenues were positively impacted by political revenues in 2000 which were $13.2 million compared to $1.3 million in 1999. Excluding political advertising revenues and before direct costs, Stations’ gross revenues increased by $9.4 million or 8.3% to $122.8 million for 2000 from $113.4 million for 1999 due to the exchange of WWLP for KAKE-TV and WOWT-TV which was offset in part by a softening advertising market and the displacement of commercial advertisers by political advertisers.

Operating expenses. Stations’ operating expenses in 2000 increased by $12.1 million or 15.7% to $89.2 million from $77.1 million in 1999. The increase in operating expenses was caused by the change in the mix of stations owned by Stations, with the March 2000 addition of KAKE-TV and WOWT-TV and the disposition of WWLP-TV and KOSA-TV. As a percentage of net revenues, operating expenses decreased to 76.5% for 2000 compared to 77.6% for 1999.

Gain on sale of stations, net. Stations recognized a gain of $61.1 million in 2000 as a result of the exchange of the assets of WWLP-TV with a fair market value of $123.0 million and $18.0 million in cash for the assets of KAKE-TV and WOWT-TV. The book value of the WWLP-TV assets was $61.4 million and related fees were $0.4 million. Stations also realized a $0.3 million gain on the sale of KOSA-TV in 2000. KOSA-TV was sold for $8.0 million and fees related to the sale were $0.1 million.

Operating income. Stations’ operating income for 2000 increased $60.2 million or 209.3% to $88.9 million from $28.7 million for 1999 primarily from the gain on the sale of stations.

Financial income (expense). Stations’ financial expense, net, for 2000 increased $4.2 million or 10.6% to $43.9 million from $39.7 million in 1999 as a result of higher interest rates and to a lesser extent to greater accretion on the 13 1/4% senior subordinated discount notes.

Discontinued operations. Stations’ loss from discontinued operations was $(0.9) million in 2000 as compared to $(4.4) million in 1999. Before income taxes, Stations’ loss from discontinued operations was $(0.2) million in 2000 as compared to $(6.1) million in 1999. Discontinued operations consist of the operating results and valuation adjustments related to the Station Group. Included in discontinued operations for 1999 was $2.8 million of valuation adjustments on certain stations’ goodwill and network affiliation intangible assets that were determined to have been impaired based on estimated discounted future cash flows. During 2002, these certain stations were held for sale and the valuation adjustments have been reclassified to discontinued operations consistent with SFAS No. 144.

Income tax expense. Stations’ income tax expense in 2000 was $29.2 million compared to $0.4 million for 1999. The increase in income tax expense in 2000 was due in part to the $61.1 million gain on the sale of WWLP-TV. For tax purposes, the sale of the WWLP-TV assets was treated as an exchange for the assets of KAKE-TV and WOWT-TV under the IRS like-kind exchange rules. As such, Stations had a $2.2 million gain for tax purposes compared with the book gain of $61.1 million.

Extraordinary gain (loss). Extraordinary gain was $0.9 million for 2000, net of $0.6 million in income taxes and consisted of an early extinguishment of debt. The gain was recognized when Stations purchased its 13 1/4% senior subordinated discount notes with a face amount of $12.3 million for $9.8 million. The notes Stations purchased had an accreted value of $11.4 million. In 1999, Stations recorded an extraordinary loss of $(12.5) million, net of $8.3 million in income taxes. The loss was a result of the early extinguishment of debt associated with the completion of the tender offer for $135.0 million of Benedek’s senior secured notes.

Net income (loss). Stations’ net income was $15.8 million for 2000 compared to a net loss of $(28.3) million for 1999.

Broadcast cash flow. Broadcast cash flow for 2000 increased $8.5 million or 19.1% to $53.2 million from $44.7 million for 1999. As a percentage of net revenues, broadcast cash flow margin increased to 45.6% for 2000 from 44.9% for 1999.

Income Taxes

For the year ended December 31, 2001, Stations had an income tax benefit of $10.2 million compared to an income tax expense of $29.2 million for the year ended December 31, 2000. The change in income taxes is due primarily to the $61.1 million gain on the sale of WWLP-TV in 2000. For tax purposes, the sale of the WWLP-TV assets was treated as an exchange for the assets of KAKE-TV and WOWT-TV under the Internal Revenue Service like-kind exchange rules. As such, Stations had a $2.2 million gain for tax purposes. At March 31, 2002, Stations has approximately $35.7 million of actual net operating loss carryforwards available to offset future tax liabilities. These net operating loss carryforwards expire in the years 2020 through 2023. Stations also has approximately $0.5 million of tax credit carryforwards with no expiration.

Seasonality

Stations net revenues and operating cash flow are generally highest during the fourth quarter of each year. This is primarily due to increased expenditures by advertisers in anticipation of holiday season consumer spending and an increase in viewership during this period. Generally, the second quarter of each year produces net revenues and operating cash flow greater than the first and third quarters due to higher viewership in this period.

Quantitative and Qualitative Disclosures About Market Risk

During September 2001, in accordance with certain covenants of Benedek’s credit facility, Benedek entered into an interest rate cap agreement, which matures in September 2003. The agreement reduces the impact of changes in interest rates on Benedek’s floating-rate long-term debt. That agreement effectively entitles Benedek to receive from a financial institution the amount, if any, by which the British Bankers’ Association interest settlement rates for U.S. dollar deposits exceeds 6.00% on a notional amount totaling $60.0 million subject to an amortization schedule. As of June 30, 2002, the settlement rate was 2.05%.

UNAUDITED PRO FORMA FINANCIAL DATA

The unaudited pro forma financial data presented below is for illustrative purposes only and is not necessarily indicative of the operating results that would have actually occurred, nor is it necessarily indicative of future operating results. The unaudited pro forma financial data should be read in conjunction with the Gray consolidated financial statements and notes thereto incorporated by reference in this prospectus, and in conjunction with Stations’ consolidated financial statements and notes thereto included elsewhere in this prospectus.

Stations’ historical consolidated financial statements reflect the nine television stations to be sold prior to our acquisition of Stations as discontinued operations. Accordingly, the operating results of those stations are excluded from continuing operations and the related assets and liabilities are segregated in the balance sheet. Those stations are:


	WTRF — Wheeling, WV which was sold in April 2002
	WYTV — Youngstown, OH
	WHOI — Peoria-Bloomington, IL
	KDLH — Duluth, MN - Superior, WI
	KMIZ, K02NQ, K11TB — Columbia - Jefferson City, MO
	KAUZ — Wichita Falls, TX - Lawton, OK
	KHQA — Quincy, IL - Hannibal, MO - Keokuk, IA
	KGWN, KSTF — Cheyenne, WY - Scottsbluff, NE
	KGWC, KGWL, KGWR — Casper - Riverton, WY

The unaudited pro forma combined condensed financial statements reflect the following transactions:


	•	Our acquisition of Stations in a merger transaction for total estimated consideration of $517.8 million which includes a base price of $502.5 million, additional cash consideration of $9.3 million for certain estimated net working capital, as specified in the merger agreement, and related fees and expenses of $6.0 million.

	•	Our financing the acquisition of Stations which includes (1) revising or replacing our senior credit facility to provide additional term loan borrowings of $150 million, (2) the issuance of $100 million of senior subordinated notes and (3) the sale of $275 million of our class B common stock for an estimated $13.30 per share, the closing price as of June 30, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our class B common stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

	•	The incurrence of an estimated $25.2 million in fees related to the financing transactions described above. The estimated costs include (1) revising our current senior credit facility and the issuance of additional senior subordinated notes for aggregate fees of $7.2 million and (2) the sale of additional shares of our class B common stock for a fee of $18.0 million. The estimated fees and expenses have been paid or are payable to various underwriters, advisors, and professional service providers, including lawyers and accountants.

	•	The issuance in April 2002 of $40.0 million liquidation value of the Series C with an 8% annual dividend rate. The pro forma adjustment for our issuance of the Series C is for the period from January 1, 2001 through April 22, 2002, the date of the issuance. Subsequent to this date, the effect of the Series C issuance on our financial statements is the actual impact on our results of operations, rather than a pro forma adjustment.

The unaudited pro forma combined condensed statements of operations for the six months ended June 30, 2002 and June 30, 2001 reflect these transactions as if they had been completed on January 1, 2001. The unaudited pro forma combined condensed statement of operations for the year ended December 31, 2001 reflects these transactions as if they had been completed on January 1, 2001. The June 30, 2002 unaudited pro forma combined condensed balance sheet reflects these transactions as if they had been completed on June 30, 2002.

The pro forma adjustments are based on the preliminary estimates of the number of shares of our class B common stock to be issued and their related value, indebtedness to be incurred and related financing terms, the amount of the specified net working capital and certain other payments as of the closing of the merger, and the transaction costs, all determined as of the closing of the merger. Accordingly, the actual amounts of these transactions are expected to differ from the pro forma financial statements.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2002


								Pro Forma
		Gray			Stations			Adjustments			Pro Forma


		(Dollars in thousands except per share data)
Operating revenues:
	Broadcasting (net of agency commissions)	$	55,006		$	54,641		$	—		$	109,647
	Publishing		21,216			—			—			21,216
	Paging		4,083			—			—			4,083

			80,305			54,641			—			134,946

Expenses:
	Broadcasting		31,975			32,942			—			64,917
	Publishing		15,420			—			—			15,420
	Paging		2,754			—			—			2,754
	Corporate and administrative		2,116			3,104			(1,197	)(a)		4,023
	Depreciation and amortization		7,433			12,353			(7,562	)(b)		12,224

			59,698			48,399			(8,759	)		99,338

Operating income			20,607			6,242			8,759			35,608
Other (income) expense:
	Interest expense		16,866			21,167			(12,089	)(c)(d)		25,944
	Miscellaneous income, net		(97	)		(56	)		—			(153	)
	Appreciation in value of derivatives, net		(730	)		—			—			(730	)
	Reorganization fees and expenses		—			1,091			(1,091	)(a)		—

	Total other (income) expense, net		16,039			22,202			(13,180	)		25,061

Income (loss) from continuing operations before provision for (benefit from) income taxes			4,568			(15,960	)		21,939			10,547
Provision for (benefit from) income taxes			1,616			(6,100	)		8,337(e	)		3,853

Income (loss) from continuing operations		$	2,952		$	(9,860	)	$	13,602		$	6,694

Preferred dividends			803			16,020			(15,223	)(f)(g)		1,600
Non-cash preferred dividends associated with redemption of preferred stock			3,969		$	—		$	(3,969	)(f)		—

Income (loss) from continuing operations available to common stockholders		$	(1,820	)							$	5,094

Basic and diluted earnings (loss) per common share:
Weighted average outstanding common shares:
	Basic		15,662									36,339	(h)

	Diluted		15,662									36,715	(h)

Basic earnings (loss) per share from continuing operations available to common stockholders		$	(0.12	)							$	0.14

Diluted earnings (loss) per share from continuing operations available to common stockholders		$	(0.12	)							$	0.14


(a)		Reflects the elimination of certain historical expenses of Stations that we will not, or do not expect to, incur subsequent to the acquisition including compensation paid to certain persons who will resign concurrent with the closing of the merger, certain professional fees and other overhead costs.

(b)		Reflects adjustment to the depreciation and amortization charges to reflect the allocation of the total consideration paid by us among the assets acquired and the liabilities assumed. The adjustment is primarily the result of eliminating Stations’ amortization of amounts assigned to FCC licenses and other indefinite lived intangible assets as these assets are no longer amortized. Of our consideration estimated to be paid, $7.6 million was assigned to network affiliation agreements, which are amortized over their remaining estimated lives.

(c)		Reflects the elimination of certain historical interest expense of Stations reflecting the repayment, in full, of certain senior and subordinated debt as part of Stations’ plan of reorganization.

(d)		Reflects adjustments to include (1) interest charges of $4.2 million on the estimated $153.1 million of newly issued senior debt with an assumed effective interest rate of 5.55%, (2) interest charges of $4.6 million on the estimated $100 million of newly issued senior subordinated indebtedness with an assumed effective interest rate of 9.25%, (3) amortization of $0.4 million of the estimated $7.2 million aggregate of deferred financing charges incurred with the revised or newly issued senior credit facility with an estimated average life to maturity of 8.25 years and the offering of the senior subordinated notes with an estimated average life to maturity of 9.2 years and (4) the elimination of $0.4 million of historical amortization expense for deferred financing charges associated with our prior senior credit facility.

(e)		Reflects the provision for (benefit from) income taxes using an effective income tax rate of 38%.

(f)		Preferred dividends have been adjusted to reflect our issuance of $40.0 million liquidation value Series C with an annual dividend rate of 8%. The pro forma adjustment for our issuance of the Series C is for the period from January 1, 2001 through April 22, 2002, the date of the issuance. Subsequent to this date, the effect of the Series C issuance on our financial statements is the actual impact on our results of operations, rather than a pro forma adjustment.

(g)		Reflects elimination of historical preferred dividends of Stations as such preferred stock is extinguished in the merger.

(h)		Reflects our assumed issuance of an additional 20,676,692 shares of our class B common stock at an assumed price of $13.30 per share, the closing price as of June 30, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our class B common stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger. Diluted average outstanding common shares include 376,762 common shares related to employee stock-based compensation plans and warrants that could potentially dilute basic earnings per share in the future.

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 2001


								Pro Forma
		Gray			Stations			Adjustments			Pro Forma


		(Dollars in thousands except per share data)
Operating revenues:
	Broadcasting (net of agency commissions)	$	52,575		$	52,028		$	—		$	104,603
	Publishing		19,927			—			—			19,927
	Paging		4,405			—			—			4,405

			76,907			52,028			—			128,935

Expenses:
	Broadcasting		32,375			32,883			—			65,258
	Publishing		15,659			—			—			15,659
	Paging		2,812			—			—			2,812
	Corporate and administrative		1,829			3,123			(1,091	)(a)		3,861
	Depreciation and amortization		15,696			10,933			(6,142	)(b)		20,487

			68,371			46,939			(7,233	)		108,077

Operating income			8,536			5,089			7,233			20,858
Other (income) expense:
	Interest expense		18,167			20,576			(11,498	)(c)(d)		27,245
	Miscellaneous income, net		(98	)		(87	)		—			(185	)
	Depreciation in value of derivatives, net		961			—			—			961

	Total other (income) expense, net		19,030			20,489			(11,498	)		28,021

Income (loss) from continuing operations before provision for (benefit from) income taxes			(10,494	)		(15,400	)		18,731			(7,163	)
Provision for (benefit from) income taxes			(3,232	)		(5,613	)		7,118	(e)		(1,727	)

Income (loss) from continuing operations		$	(7,262	)	$	(9,787	)	$	11,613		$	(5,436	)

Preferred dividends			308		$	15,102		$	(13,810	)(f)(g)		1,600

Loss from continuing operations available to common stockholders		$	(7,570	)							$	(7,036	)

Basic and diluted loss per common share:
Weighted average outstanding common shares:
	Basic and diluted		15,587									36,264	(h)

Basic and diluted loss per share from continuing operations available to common stockholders		$	(0.49	)							$	(0.19	)(i)


(a)		Reflects the elimination of certain historical expenses of Stations that we will not, or do not expect to, incur subsequent to the acquisition including compensation paid to certain persons who will resign concurrent with the closing of the merger, certain professional fees and other overhead costs.

(b)		Reflects adjustment to the depreciation and amortization charges to reflect the allocation of the total consideration paid by us among the assets acquired and the liabilities assumed. The adjustment is primarily the result of eliminating Stations’ amortization of amounts assigned to FCC licenses and other indefinite lived intangible assets as these assets are no longer amortized. Of our consideration estimated to be paid, $7.6 million was assigned to network affiliation agreements, which are amortized over their remaining estimated lives.


(c)		Reflects the elimination of certain historical interest expense of Stations reflecting the repayment, in full, of certain senior and subordinated debt as part of Stations’ plan of reorganization.

(d)		Reflects adjustments to include (1) interest charges of $4.2 million on the estimated $153.1 million of newly issued senior debt with an assumed effective interest rate of 5.55%, (2) interest charges of $4.6 million on the estimated $100 million of newly issued senior subordinated indebtedness with an assumed effective interest rate of 9.25%, (3) amortization of $0.4 million of the estimated $7.2 million aggregate of deferred financing charges incurred with the revised or newly issued senior credit facility with an estimated average life to maturity of 8.25 years and the offering of the senior subordinated notes with an estimated average life to maturity of 9.2 years and (4) the elimination of $0.4 million of historical amortization expense for deferred financing charges associated with our prior senior credit facility.

(e)		Reflects the provision for (benefit from) income taxes using an effective income tax rate of 38%.

(f)		Preferred dividends have been adjusted to reflect our issuance of $40.0 million liquidation value Series C with an annual dividend rate of 8%.

(g)		Reflects elimination of historical preferred dividends of Stations as such preferred stock is extinguished in the merger.

(h)		Reflects our assumed issuance of an additional 20,676,692 shares of our class B common stock at an assumed price of $13.30 per share, the closing price as of June 30, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our class B common stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

(i)		The following table presents the transitional disclosures regarding the adoption of SFAS No. 142:


	Pro Forma
	Six Months Ended
	June 30, 2001

Reported net income (loss) before extraordinary charge and cumulative effect of accounting change	$	(5,436	)
Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		5,516

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	80

Basic earnings per common share:
Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.19	)
Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		0.15

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.04	)

Diluted earnings per common share:
Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.04	)

UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 2001


								Pro Forma
		Gray			Stations			Adjustments			Pro Forma


		(Dollars in thousands except per share data)
Operating revenues:
	Broadcasting (less agency commissions)	$	106,430		$	107,561		$	—		$	213,991
	Publishing		41,189			—			—			41,189
	Paging		8,725			—			—			8,725

			156,344			107,561			—			263,905

Expenses:
	Broadcasting		66,233			64,007			—			130,240
	Publishing		31,915			—			—			31,915
	Paging		5,877			—			—			5,877
	Corporate and administrative		3,615			5,946			(2,310	)(a)		7,251
	Depreciation and amortization		30,824			21,901			(12,319	)(b)		40,406

			138,464			91,854			(14,629	)		215,689

Operating income			17,880			15,707			14,629			48,216
Other (income) expense:
	Interest expense		35,783			43,361			(25,347	)(c)(d)		53,797
	Depreciation in value of derivatives, net		1,581			—			—			1,581
	Miscellaneous income, net		(194	)		(159	)		—			(353	)

	Total other (income) expense, net		37,170			43,202			(25,347	)		55,025

Income (loss) from continuing operations before provision for (benefit from) income taxes			(19,290	)		(27,495	)		39,976			(6,809	)
Provision for (benefit from) income taxes			(5,972	)		(10,165	)		15,191(e	)		(946	)

Income (loss) from continuing operations		$	(13,318	)	$	(17,330	)	$	24,785		$	(5,863	)

Preferred dividends		$	616		$	31,186		$	(28,602	)(f)(g)	$	3,200

Loss from continuing operations available to common stockholders		$	(13,934	)							$	(9,063	)

Basic and diluted loss per common share:
Weighted average outstanding common shares:
	Basic and diluted		15,605									36,282(h	)

Basic and diluted loss per share from continuing operations available to common stockholders		$	(0.89	)							$	(0.25	)(i)


(a)		Reflects the elimination of certain historical expenses of Stations that we will not, or do not expect to, incur subsequent to the acquisition including compensation paid to certain persons who will resign concurrent with the closing of the merger, certain professional fees and other overhead costs.

(b)		Includes adjustment to the depreciation and amortization charges to reflect the allocation of the total consideration estimated to be paid by us among the assets acquired and the liabilities assumed. However, the adjustment is primarily the result of eliminating Stations’ amortization of FCC licenses and goodwill, which are no longer amortized on acquisitions occurring after July 1, 2001.


(c)		Reflects the elimination of certain historical interest expense of Stations reflecting the repayment, in full, of certain senior and subordinated debt as part of Stations’ plan of reorganization.

(d)		Reflects adjustments to include (1) interest charges of $8.5 million on the estimated $153.1 million of newly issued senior debt with an assumed effective interest rate of 5.55%, (2) interest charges of $9.2 million on the estimated $100 million of newly issued senior subordinated indebtedness with an assumed effective interest rate of 9.25%, (3) amortization of $0.8 million of the estimated $7.2 million aggregate of deferred financing charges incurred with the revised or newly issued senior credit facility with an estimated average life to maturity of 8.25 years and the offering of the senior subordinated notes with an estimated average life to maturity of 9.2 years and (4) the elimination of $0.9 million of the historical amortization expense for deferred financing charges associated with our prior senior credit facility.

(e)		Reflects the provision for (benefit from) income taxes using an effective income tax rate of 38%.

(f)		Preferred dividends have been adjusted to reflect our issuance of $40.0 million liquidation value Series C with an annual dividend rate of 8%.

(g)		Reflects elimination of historical preferred dividends of Stations as such preferred stock is extinguished in the merger.

(h)		Reflects our assumed issuance of an additional 20,676,692 shares of our class B common stock at an assumed price of $13.30 per share, the closing price as of June 30, 2002. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our class B common stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

(i)		The following table presents the transitional disclosures regarding the adoption of SFAS No. 142:


	Pro Forma
	Year Ended
	December 31,
	2001

Reported net income (loss) before extraordinary charge and cumulative effect of accounting change	$	(5,863	)
Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		11,033

Adjusted net income (loss) before extraordinary charge and cumulative effect of accounting change	$	5,170

Basic earnings per common share:
Reported net income (loss) before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	(0.25	)
Add back: amortization of goodwill and intangible assets with indefinite lives, net of tax		0.30

Adjusted net income before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.05

Diluted earnings per common share:
Adjusted net income before extraordinary charge and cumulative effect of accounting change available to common stockholders	$	0.05

UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET

AS OF JUNE 30, 2002


								Pro Forma
		Gray			Stations			Adjustments			Pro Forma


		(Dollars in thousands)
ASSETS
Current assets:
	Cash and cash equivalents	$	15,470		$	4,771		$	(15,000	)(a)	$	5,241
	Trade accounts receivable, less allowance for doubtful accounts		26,338			23,088			(1,650	)(b)		47,776
	Recoverable income taxes		849			—			—			849
	Inventories		959			—			—			959
	Current portion of program broadcast rights, net		1,729			1,260			—			2,989
	Other current assets		1,175			2,896			—			4,071
	Assets of stations held for sale		—			33,351			(33,351	)(c)		—

Total current assets			46,520			65,366			(50,001	)		61,885

Property and equipment, net			60,647			48,579			—			109,226
Deferred loan costs, net			11,050			3,534			(1,713	)(b)(d)		12,871
FCC licenses and network affiliation agreements			403,794			210,370			242,244 (b	)		856,408
Goodwill			53,151			78,099			37,031 (b	)		168,281
Consulting, noncompete and other definite lived intangible assets			688			—			3,000 (b	)		3,688
Other			20,061			1,799			—			21,860

Total assets		$	595,911		$	407,747		$	230,561		$	1,234,219

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Trade accounts payable and accrued expenses	$	12,202		$	17,625		$	(9,957	)(e)	$	19,870
	Accrued interest		3,585			—			—			3,585
	Current portion of program broadcast obligations		1,532			3,471			—			5,003
	Deferred revenue		3,185			265			—			3,450
	Unrealized loss on derivatives		851			—			—			851
	Current portion of long-term debt		202			1,979			—			2,181
	Liabilities of stations held for sale		—			6,365			(6,365	)(c)		—

Total current liabilities			21,557			29,705			(16,322	)		34,940

Long-term debt, less current portion			378,676			3,050			253,092 (d	)		634,818
Program broadcast obligations, less current portion			550			1,120			—			1,670
Supplemental employee benefits			449			—			—			449
Deferred income taxes			55,543			28,041			85,741 (b	)(d)		169,325
Other			1,615			500			—			2,115
Liabilities subject to compromise			—			425,039			(425,039	)(e)		—

Total liabilities			458,390			487,455			(102,528	)		843,317

Senior exchangeable preferred stock			—			166,604			(166,604	)(f)		—
Seller junior discount preferred stock			—			86,166			(86,166	)(f)		—
Series C preferred stock, redeemable, exchangeable, 4,000 shares, liquidation value $10,000 per share			39,234			—			—			39,234

Total preferred stock			39,234			252,770			(252,770	)		39,234

Stockholders’ equity
	Class A common stock		20,173			—			—			20,173
	Class B common stock		118,721			74			256,926 (f	)(g)		375,721
	Additional paid-in capital		—			(68,585	)		68,585 (f	)		—
	Retained earnings (accumulated deficit)		(32,268	)		(263,516	)		259,897 (d	)(f)		(35,887	)
	Stockholder’s note receivable		—			(451	)		451 (f	)		—

			106,626			(332,478	)		585,859			336,007
	Treasury stock at cost, class A common		(8,339	)		—			—			(8,339	)

Total stockholders’ equity			98,287			(332,478	)		585,859			351,668

Total liabilities and stockholders’ equity		$	595,911		$	407,747		$	230,561		$	1,234,219


(a)		Assumes $15.0 million of the aggregate cash on hand upon concluding the merger is utilized to pay certain fees and expenses incurred with the merger.

(b)		Reflects the acquisition of Stations for total estimated consideration of $517.8 million which includes a base price of $502.5 million, additional cash consideration of $9.3 million for certain estimated net working capital, as specified in the merger agreement, fees and expenses of $6.0 million and the allocation of the estimated consideration among the assets acquired and the liabilities assumed as of June 30, 2002. The allocation of the consideration paid is as follows:


				Disposition of
				Designated
				Stations and
				Accrued
				Interest on
				Liabilities						Opening
				Subject to			Fair Value			Balance
Description	SHC			Compromise			Adjustments			Sheet


	(Dollars in thousands)
Cash	$	4,771								$	4,771
Accounts receivable		23,088					$	(1,650	)		21,438
Assets of stations held for sale		33,351		$	(33,351	)					—
Current portion of program broadcast rights		1,260									1,260
Other current assets		2,896									2,896
Property and equipment		48,579									48,579
Other long term assets		1,799									1,799
Deferred loan costs		3,534						(3,126	)		408
FCC licenses, network affiliation agreements and other indefinite lived intangible assets		210,370						242,244			452,614
Consulting, noncompete and other definite lived intangible assets		—						3,000			3,000
Goodwill		78,099						37,031			115,130
Trade payables and accrued expenses		(17,625	)		9,957						(7,668	)
Current portion of notes payable		(1,979	)								(1,979	)
Current portion of program broadcast obligations		(3,471	)								(3,471	)
Liabilities of stations held for sale		(6,365	)		6,365						—
Deferred revenue		(265	)								(265	)
Deferred tax liabilities		(28,041	)		3,684			(91,643	)		(116,000	)
Long term portion of program broadcast obligations		(1,120	)								(1,120	)
Long term portion of notes payable		(3,050	)								(3,050	)
Other long term liabilities		(500	)								(500	)

Total purchase price including expenses	$	345,331		$	(13,345	)	$	185,856		$	517,842


	The allocation of the consideration to the assets and liabilities of Stations acquired by us will remain preliminary until we have finalized our assessment of these assets and liabilities following the acquisition. Such assessment will be based in part upon third party evaluations, which we will not receive until after the acquisition is completed.


(c)		Reflects the elimination of assets sold or to be sold and the liabilities assumed, or to be assumed, for the nine television stations, which have been or will be sold by Stations prior to our merger.

(d)		Reflects (1) our issuance of an estimated $153.1 million of senior debt with a variable interest rate based on LIBOR plus a premium which we have assumed to be 3.25% and we have further assumed for the pro forma adjustments that the effective interest rate on this debt is 5.55% and that it will have an assumed average life to maturity of 8.25 years, (2) our offering of $100 million of senior


		subordinated indebtedness with an assumed effective interest rate of 9.25% and an assumed average life to maturity of 9.2 years, (3) our incurring $7.2 million of deferred financing fees in connection with revising or replacing our senior credit facility and our offering of senior subordinated notes and (4) the elimination of our historical deferred financing charges of $5.8 million associated with our prior senior credit facility net of an income tax benefit assuming an effective tax rate of 38%.

(e)		Reflects the elimination of certain senior and subordinated debt and related accrued interest of Stations reflecting the repayment, in full, of such debt as part of Stations’ plan of reorganization. The cash used to make such debt repayments is a portion of the cash provided from our proposed issuance of senior debt, subordinated debt and class B common stock as discussed below.

(f)		Reflects the elimination of the historical stockholders’ equity of Stations including all preferred stock, common stock, additional paid-in capital and accumulated deficits.

(g)		Reflects our assumed issuance of an additional 20,676,692 shares of our class B common stock at an assumed price of $13.30 per share, the closing price as of June 30, 2002, net of assumed issuance costs of $18.0 million. We may elect to offer, in whole or in part, other equity or equity-linked securities including preferred stock in place of offering our class B common stock. We may, depending on the relative conditions of the financial markets, increase or decrease our relative issuance of debt and equity securities to complete our financing of the merger.

DESCRIPTION OF CERTAIN INDEBTEDNESS

The following is a summary of certain of our indebtedness and obligations. To the extent such summary contains descriptions of the senior secured credit facility, the 2001 notes or the exchange notes, such descriptions do not purport to be complete and are qualified in their entirety by reference to those and related documents, copies of which we will provide you upon request as described under “Incorporation by Reference.”

Senior Secured Credit Facility

We amended and restated our senior secured credit facility on September 25, 2001. The facility provides us with a $200.0 million term facility and a $50.0 million reducing revolving credit facility. In addition, the agreement provides us with the ability to access, through December 31, 2003, up to $100.0 million of incremental senior secured term loans upon the consent of the lenders.

Under the revolving and term facilities, at our option, we can borrow funds at an interest rate equal to LIBOR plus a margin or at the lenders’ base rate plus a margin. The base rate will generally be equal to the lenders’ prime rate. Interest rates under the revolving facility are base rate plus a margin ranging from 0.25% to 1.75% or LIBOR plus a margin ranging from 1.5% to 3.0%. Interest rates under the term facility are base rate plus a margin ranging from 1.75% to 2.0% or LIBOR plus a margin ranging from 3.0% to 3.25%. Our applicable margin will be determined by our operating leverage ratio which is calculated quarterly. As of June 30, 2002, the interest rate for the revolving credit facility was the lenders’ base rate plus 1.75% or LIBOR plus 3.0% at our option. As of June 30, 2002, the interest rate for the term facility was the lenders’ base rate plus 2.0% or LIBOR plus 3.25% at our option.

The lenders’ commitments for the revolving facility will reduce quarterly, as specified in the credit agreement, beginning March 31, 2004, and final repayment of any outstanding amounts under the revolving facility is due December 31, 2008. The term facility commences amortization in quarterly installments of $500,000 beginning March 31, 2003 through December 31, 2008, with the remaining outstanding balance payable in three equal quarterly installments beginning March 31, 2009. The final maturity date for any outstanding amounts under the term facility is September 30, 2009.

The facilities are collateralized by substantially all of the assets, excluding real estate, of our subsidiaries and us. 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 agreement contains certain restrictive provisions which include, but are not limited to, requiring us to maintain certain financial ratios and limits upon our ability to incur additional indebtedness, make certain acquisitions or investments, sell assets and make other restricted payments.

As of June 30, 2002, we had senior indebtedness of $200.0 million funded under our senior secured credit facility. As of this date, we had unused availability of $37.5 million under our senior secured credit facility after giving effect to the $12.5 million undrawn letter of credit. The interest rate on the balance outstanding was 5.3%. In conjunction with the merger, we intend to amend our existing credit facility or enter into a new credit facility. Following the merger, the stock and assets of our subsidiaries, including Stations and its subsidiaries, and any future subsidiaries that we may acquire will be subject to liens under our senior secured credit facility.

The 2001 Notes and the Exchange Notes

On April 12, 2002, we filed with the SEC a registration statement on Form S-4, offering to exchange up to $180.0 million in aggregate principal amount of the exchange notes, which have been registered under the Securities Act for all of our 2001 notes. The SEC declared the registration statement on Form S-4 effective and the exchange offer commenced on July 19, 2002 and ended on August 16, 2002. All of the 2001 notes were tendered for exchange in the exchange offer.

The 2001 notes and the exchange notes are our general unsecured obligations subordinated in right of payment to all of our existing and future senior indebtedness, including all of our obligations under our

senior secured credit facility. The interest rate on the 2001 notes and the exchange notes is 9.25% per year (calculated using a 360-day year) payable on June 15 and December 15 of each year, beginning on June 15, 2002.

The 2001 notes and the exchange notes are guaranteed, jointly and severally, fully and unconditionally, on a senior subordinated basis by each of the guarantors, which consist of all of our subsidiaries. The obligations of a guarantor under its guarantee of the notes are subordinated in right of payment, to the same extent as our obligations under the 2001 notes and the exchange notes, to all existing and future senior indebtedness of such guarantor, which includes any guarantee by it of our indebtedness under our senior secured credit facility.

The indenture governing the 2001 notes and the exchange notes contains certain covenants that, among other things, limit our ability to (1) transfer or issue shares of capital stock of subsidiaries to third parties, (2) pay dividends or make certain other payments, (3) incur additional indebtedness, (4) issue preferred stock, (5) incur liens to secure our indebtedness, (6) apply net proceeds from certain asset sales, (7) enter into certain transactions with affiliates or (8) merge with or into any other person.

We may redeem:


	•	all or part of the original principal amount of the 2001 notes and the exchange notes beginning on December 15, 2006, at redemption prices based on the year of redemption, plus accrued and unpaid interest;

	•	up to 35% of the original principal amount of the 2001 notes and the exchange notes at any time prior to December 15, 2004 at a price of 109.250% of the principal amount of the 2001 notes and the exchange notes, respectively, plus accrued and unpaid interest, with the proceeds of certain public equity offerings of our company; and

	•	all but not part of the 2001 notes and the exchange notes at any time prior to December 15, 2006 at a price equal to 100% of the principal amount of the 2001 notes and the exchange notes, respectively, plus accrued and unpaid interest, if any, to the date of redemption plus a make-whole premium based upon the present value of the remaining payments on the 2001 notes and the exchange notes.

Upon a change in control, defined as the acquisition by any persons of beneficial ownership of more than 35% of the voting power of the outstanding shares of our common stock, transfers of substantially all of our assets, certain substantial changes in our board of directors, certain consolidations or mergers of our company involving a significant change in shareholdings or the liquidation of our company, we will be required to make an offer to repurchase all of the outstanding 2001 notes and outstanding exchange notes at 101% of their aggregate principal amount plus accrued and unpaid interest to the date of purchase. Under certain circumstances, we may not be required to make such a change of control offer.

DESCRIPTION OF CAPITAL STOCK

We are authorized to issue 50,000,000 shares of all classes of stock, of which 15,000,000 shares are designated class A common stock, 15,000,000 shares are designated class B common stock and 20,000,000 shares are designated preferred stock for which our board of directors has the authority to determine the rights, powers, limitations and restrictions.

On August 30, 2002, we changed our ticker symbols to “GTN.A” from “GCS” for our class A common stock and to “GTN” from “GCS.B” for our class B common stock on the New York Stock Exchange. On September 16, 2002, we plan to hold a stockholder vote to approve a change in the name of our class B common stock. If the proposal passes, the new name of our class B common stock will be “Common Stock.”

Terms of Our Common Stock

As of June 30, 2002, 6,848,467 shares of class A common stock were issued and outstanding and 8,882,841 shares of class B common stock were issued and outstanding (excluding 885,269 shares of class B common stock held in escrow under the merger agreement). The rights of our class A and class B common stock are identical, except that our class A common stock entitles the holder to ten votes on all matters on which shareholders are permitted to vote and our class B common stock entitles the holder to one vote on all matters on which shareholders are permitted to vote. The holders of our common stock are entitled to dividends when, as and if declared by our board of directors out of funds legally available therefor and, upon liquidation, to a pro rata share in any distribution to shareholders. Our common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to our common stock. All outstanding shares of our class A and class B common stock are fully paid and nonassessable.

Terms of Our Preferred Stock

As of June 30, 2002, 4,000 shares of Series C convertible preferred stock were issued and outstanding. The following is a description of our Series C:


	•	Our Series C is preferred stock and ranks senior to our class A and class B common stock as to payment of dividends and distribution of assets upon liquidation.

	•	Our Series C has a liquidation value equal to $10,000 per share plus accrued and unpaid dividends to the date of final distribution. There are no sinking fund provisions applicable to our Series C.

	•	Our Series C has a cumulative annual dividend of $800 per share, and beginning on April 22, 2009, $850 per share, payable, at our option, in cash or in additional shares of Series C on a quarterly basis beginning on June 30, 2002.

	•	Our Series C is convertible, at the option of the holder, into shares of our class B common stock at an initial conversion price of $14.39 per share, subject to certain adjustments, except that our affiliates may not convert their shares of Series C unless and until the issuance of the Series C to them has been approved by our shareholders or otherwise permitted by the New York Stock Exchange.

	•	Our Series C is redeemable, in whole or in part, at our option, on or after April 22, 2007, at a redemption price equal to $10,000 per share plus accrued and unpaid dividends. We must redeem all of the then outstanding shares of Series C on April 22, 2012 at a redemption price equal to $10,000 per share plus accrued and unpaid dividends.

	•	Holders of our Series C will not have any voting rights except as set forth below or as otherwise required by law. Holders of our Series C: (1) will be entitled to elect two additional directors of our company in the event of a default of the equivalent of six quarterly dividends on our Series C and (2) have approval rights over (A) the authorization or issuance of any shares of, or the reclassification of any shares of our capital stock into shares of, our capital stock ranking senior to


		our Series C, (B) the authorization or issuance of any additional shares of Series C and (C) any amendment of our restated articles of incorporation that adversely affects the powers, preferences or special rights of our Series C.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is Mellon Investor Services LLC. It is located at One Mellon Bank Center, 500 Grant Street, Room 2122, Pittsburgh, PA 15258-0001 and its telephone number is (412) 236-8172.

DESCRIPTION OF DEBT SECURITIES

The following is a summary description of the general terms of the debt securities covered by this prospectus. We will file a prospectus supplement that may contain additional terms when we issue debt securities under one or more senior or subordinated indentures. The terms presented here, together with the terms in a related prospectus supplement, which could be different from the terms described below, will be a description of the material terms of the debt securities. You should also read the applicable indenture. We are filing forms of indentures with the SEC as exhibits to the registration statement of which this prospectus is a part. All capitalized terms have the meanings specified in the indentures. The indentures are substantially identical except for the subordination provisions described below under “Subordinated Debt Securities.” The terms and provisions of the debt securities below most likely will be modified by the documents that set forth the specific terms of the debt securities issued.

We may issue, from time to time, debt securities, in one or more series, that will consist of either our senior or subordinated debt. The debt securities we offer will be issued under an indenture or indentures between us and a trustee. Debt securities, whether senior or subordinated, may be issued as convertible debt securities or exchangeable debt securities.

General

Debt securities may be issued in separate series without limitation as to aggregate principal amount. We may specify a maximum aggregate principal amount for the debt securities of any series.

We are not limited as to the amount of debt securities we may issue under the indentures. The prospectus supplement will set forth:


	•	whether the debt securities will be senior or subordinated,

	•	the offering price,

	•	the title,

	•	any limit on the aggregate principal amount,

	•	the person who shall be entitled to receive interest, if other than the record holder on the record date,

	•	the date the principal will be payable,

	•	the interest rate, if any, the date interest will accrue, the interest payment dates and the regular record dates,

	•	the place where payments may be made,

	•	any mandatory or optional redemption provisions,

	•	any obligation to redeem or purchase the debt securities pursuant to a sinking fund,

	•	if applicable, the method for determining how the principal, premium, if any, or interest will be calculated by reference to an index or formula,

	•	conversion or exchange provisions, if any, including conversion or exchange prices or rates and adjustments thereto,

	•	if other than U.S. currency, the currency or currency units in which principal, premium, if any, or interest will be payable and whether we or the holder may elect payment to be made in a different currency,

	•	the portion of the principal amount that will be payable upon acceleration of stated maturity, if other than the entire principal amount,


	•	if the principal amount payable at stated maturity will not be determinable as of any date prior to stated maturity, the amount which will be deemed to be the principal amount,

	•	any defeasance provisions if different from those described below under “Satisfaction and Discharge; Defeasance,”

	•	any conversion or exchange provisions,

	•	whether the debt securities will be issuable in the form of a global security,

	•	any subordination provisions, if different than those described below under “Subordinated Debt Securities,”

	•	any deletions of, or changes or additions to, the events of default or covenants, and

	•	any other specific terms of such debt securities.

Unless otherwise specified in a prospectus supplement:


	•	the debt securities will be registered debt securities, and

	•	registered debt securities denominated in U.S. dollars will be issued in denominations of $1,000 or an integral multiple of $1,000.

Debt securities may be sold at a substantial discount below their stated principal amount, bearing no interest or interest at a rate which at time of issuance is below market rates.

Exchange and Transfer

Debt securities may be transferred or exchanged at the office of the security registrar or at the office of any transfer agent designated by us.

We will not impose a service charge for any transfer or exchange, but we may require holders to pay any tax or other governmental charges associated with any transfer or exchange.

In the event of any potential redemption of debt securities of any series, we will not be required to:


	•	issue, register the transfer of, or exchange, any debt security of that series during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption and ending at the close of business on the day of the mailing, or

	•	register the transfer of or exchange any debt security of that series selected for redemption, in whole or in part, except the unredeemed portion being redeemed in part.

We may initially appoint the trustee as the security registrar. Any transfer agent, in addition to the security registrar, initially designated by us will be named in a prospectus supplement. We may designate additional transfer agents or change transfer agents or change the office of the transfer agent. However, we will be required to maintain a transfer agent in each place of payment for the debt securities of each series.

Global Securities

The debt securities of any series may be represented, in whole or in part, by one or more global securities. Each global security will:


	•	be registered in the name of a depositary that we will identify in a prospectus supplement,

	•	be deposited with the depositary or nominee or custodian, and

	•	bear any required legends.

No global security may be exchanged in whole or in part for debt securities registered in the name of any person other than the depositary or any nominee unless:


	•	the depositary has notified us that it is unwilling or unable to continue as depositary or has ceased to be qualified to act as depositary,

	•	an event of default is continuing, or

	•	any other circumstances described in a prospectus supplement.

As long as the depositary, or its nominee, is the registered owner of a global security, the depositary or nominee will be considered the sole owner and holder of the debt securities represented by the global security for all purposes under the indenture. Except in the above limited circumstances, owners of beneficial interests in a global security:


	•	will not be entitled to have the debt securities registered in their names,

	•	will not be entitled to physical delivery of certificated debt securities, and

	•	will not be considered to be holders of those debt securities under the indentures.

Payments on a global security will be made to the depositary or its nominee as the holder of the global security. Some jurisdictions have laws that require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair the ability to transfer beneficial interests in a global security.

Institutions that have accounts with the depositary or its nominee are referred to as “participants.” Ownership of beneficial interests in a global security will be limited to participants and to persons that may hold beneficial interests through participants. The depositary will credit, on its book-entry registration and transfer system, the respective principal amounts of debt securities represented by the global security to the accounts of its participants.

Ownership of beneficial interests in a global security will be shown on and effected through records maintained by the depositary, with respect to participants’ interests, or any participant, with respect to interests of persons held by participants on their behalf.

Payments, transfers and exchanges relating to beneficial interests in a global security will be subject to policies and procedures of the depositary.

The depositary policies and procedures may change from time to time. Neither we nor the trustee will have any responsibility or liability for the depositary’s or any participant’s records with respect to beneficial interests in a global security.

Payment and Paying Agents

The provisions of this paragraph will apply to the debt securities unless otherwise indicated in a prospectus supplement. Payment of interest on a debt security on any interest payment date will be made to the person in whose name the debt security is registered at the close of business on the regular record date. Payment on debt securities of a particular series will be payable at the office of a paying agent or paying agents designated by us. However, at our option, we may pay interest by mailing a check to the record holder. The corporate trust office will be designated as our sole paying agent.

We may also name any other paying agents in a prospectus supplement. We may designate additional paying agents, change paying agents or change the office of any paying agent. However, we will be required to maintain a paying agent in each place of payment for the debt securities of a particular series.

All moneys paid by us to a paying agent for payment on any debt security which remain unclaimed at the end of two years after such payment was due will be repaid to us. Thereafter, the holder may look only to us for such payment.

Consolidation, Merger and Sale of Assets

We may not consolidate with or merge into any other person, in a transaction in which we are not the surviving corporation, or convey, transfer or lease our properties and assets substantially as an entirety to, any person, unless:


	•	the successor, if any, is a U.S. corporation, limited liability company, partnership, trust or other entity,

	•	the successor assumes all of our obligations under the debt securities and the indenture,

	•	immediately after giving effect to the transaction, no default or event of default shall have occurred and be continuing, and

	•	certain other conditions are met.

Events of Default

Unless we inform you otherwise in a prospectus supplement, the indenture will define an event of default with respect to any series of debt securities as one or more of the following events:


	(1) failure to pay principal of or any premium on any debt security of that series when due,

	(2) failure to pay any interest on any debt security of that series for 30 days when due,

	(3) failure to deposit any sinking fund payment when due,

	(4) failure to perform any other covenant in the indenture continued for 60 days after being given the notice required in the indenture,

	(5) our bankruptcy, insolvency or reorganization, and

	(6) any other event of default specified in a prospectus supplement.

An event of default of one series of debt securities is not necessarily an event of default for any other series of debt securities. If an event of default, other than an event of default described in clause (5) above, shall occur and be continuing, either the trustee or the holders of at least 25% in aggregate principal amount of the outstanding securities of that series may declare the principal amount of the debt securities of that series to be due and payable immediately.

If an event of default described in clause (5) above shall occur, the principal amount of all the debt securities of that series will automatically become immediately due and payable. Any payment by us on the subordinated debt securities following any such acceleration will be subject to the subordination provisions described below under “Subordinated Debt Securities.”

After acceleration the holders of a majority in aggregate principal amount of the outstanding securities of that series may, under certain circumstances, rescind and annul such acceleration if all events of default, other than the non-payment of accelerated principal, or other specified amount, have been cured or waived.

Other than the duty to act with the required care during an event of default, the trustee will not be obligated to exercise any of its rights or powers at the request of the holders unless the holders shall have offered to the trustee reasonable indemnity. Generally, the holders of a majority in aggregate principal amount of the outstanding debt securities of any series will have the right to direct the time, method and place of conducting any proceeding for any remedy available to the trustee or exercising any trust or power conferred on the trustee.

A holder will not have any right to institute any proceeding under the indentures, or for the appointment of a receiver or a trustee, or for any other remedy under the indentures, unless:


	(1) the holder has previously given to the trustee written notice of a continuing event of default with respect to the debt securities of that series,


	(2) the holders of at least 25% in aggregate principal amount of the outstanding debt securities of that series have made a written request and have offered reasonable indemnity to the trustee to institute the proceeding, and

	(3) the trustee has failed to institute the proceeding and has not received direction inconsistent with the original request from the holders of a majority in aggregate principal amount of the outstanding debt securities of that series within 60 days after the original request.

Holders may, however, sue to enforce the payment of principal, premium or interest on any debt security on or after the due date or to enforce the right, if any, to convert any debt security without following the procedures listed in (1) through (3) above.

We will furnish the trustee an annual statement by our officers as to whether or not we are in default in the performance of the indenture and, if so, specifying all known defaults.

Modification and Waiver

We and the trustee may make modifications and amendments to the indentures with the consent of the holders of a majority in aggregate principal amount of the outstanding securities of each series affected by the modification or amendment.

However, neither we nor the trustee may make any modification or amendment without the consent of the holder of each outstanding security of that series affected by the modification or amendment if such modification or amendment would:


	•	change the stated maturity of any debt security,

	•	reduce the principal, premium, if any, or interest on any debt security,

	•	reduce the principal of an original issue discount security or any other debt security payable on acceleration of maturity,

	•	reduce the rate of interest on any debt security,

	•	change the currency in which any debt security is payable,

	•	impair the right to enforce any payment after the stated maturity or redemption date,

	•	waive any default or event of default in payment of the principal of, premium or interest on any debt security,

	•	waive a redemption payment or modify any of the redemption provisions of any debt security,

	•	adversely affect the right to convert any debt security, or

	•	change the provisions in the indenture that relate to modifying or amending the indenture.

Satisfaction and Discharge; Defeasance

We may be discharged from our obligations on the debt securities of any series that have matured or will mature or be redeemed within one year if we deposit with the trustee enough cash to pay all the principal, interest and any premium due to the stated maturity date or redemption date of the debt securities.

Each indenture contains a provision that permits us to elect:


	•	to be discharged from all of our obligations, subject to limited exceptions, with respect to any series of debt securities then outstanding, and/or


	•	to be released from our obligations under the following covenants and from the consequences of an event of default resulting from a breach of these covenants:


	•	the subordination provisions under the subordinated indenture, and

	•	covenants as to payment of taxes and maintenance of corporate existence.

To make either of the above elections, we must deposit in trust with the trustee enough money to pay in full the principal, interest and premium on the debt securities. This amount may be made in cash and/or U.S. government obligations. As a condition to either of the above elections, we must deliver to the trustee an opinion of counsel that the holders of the debt securities will not recognize income, gain or loss for Federal income tax purposes as a result of the action.

If any of the above events occurs, the holders of the debt securities of the series will not be entitled to the benefits of the indenture, except for the rights of holders to receive payments on debt securities or the registration of transfer and exchange of debt securities and replacement of lost, stolen or mutilated debt securities.

Notices

Notices to holders will be given by mail to the addresses of the holders in the security register.

Governing Law

The indentures and the debt securities will be governed by, and construed under, the laws of the State of New York.

Regarding the Trustee

The indenture limits the right of the trustee, should it become our creditor, to obtain payment of claims or secure its claims.

The trustee is permitted to engage in certain other transactions. However, if the trustee acquires any conflicting interest, and there is a default under the debt securities of any series for which they are trustee, the trustee must eliminate the conflict or resign.

Subordinated Debt Securities

Payment on the subordinated debt securities will, to the extent provided in the indenture, be subordinated in right of payment to the prior payment in full of all our senior indebtedness.

Upon any distribution of our assets upon any dissolution, winding up, liquidation or reorganization, the payment of the principal of and interest on the subordinated debt securities will be subordinated in right of payment to the prior payment in full in cash or other payment satisfactory to the holders of senior indebtedness of all senior indebtedness. In the event of any acceleration of the subordinated debt securities because of an event of default, the holders of any senior indebtedness would be entitled to payment in full in cash or other payment satisfactory to such holders of all senior indebtedness obligations before the holders of the subordinated debt securities are entitled to receive any payment or distribution. The indenture requires us or the trustee to promptly notify holders of designated senior indebtedness if payment of the subordinated debt securities is accelerated because of an event of default.

We may not make any payment on the subordinated debt securities, including upon redemption at the option of the holder of any subordinated debt securities or at our option, if:


	•	a default in the payment of the principal, premium, if any, interest, rent or other obligations in respect of designated senior indebtedness occurs and is continuing beyond any applicable period of grace (called a “payment default”), or


	•	a default other than a payment default on any designated senior indebtedness occurs and is continuing that permits holders of designated senior indebtedness to accelerate its maturity, and the trustee receives a notice of such default (called a “payment blockage notice”) from us or any other person permitted to give such notice under the indenture (called a “non-payment default”).

We may resume payments and distributions on the subordinated debt securities:


	•	in the case of a payment default, upon the date on which such default is cured or waived or ceases to exist, and

	•	in the case of a nonpayment default, upon the earlier of the date on which such nonpayment default is cured or waived or ceases to exist and 179 days after the date on which the payment blockage notice is received by the trustee, if the maturity of the designated senior indebtedness has not been accelerated.

No new period of payment blockage may be commenced pursuant to a payment blockage notice unless 365 days have elapsed since the initial effectiveness of the immediately prior payment blockage notice and all scheduled payments of principal, premium and interest, including any liquidated damages, on the debt securities that have come due have been paid in full in cash. No nonpayment default that existed or was continuing on the date of delivery of any payment blockage notice shall be the basis for any later payment blockage notice unless the non-payment default is based upon facts or events arising after the date of delivery of such payment blockage notice.

If the trustee or any holder of the notes receives any payment or distribution of our assets in contravention of the subordination provisions on the subordinated debt securities before all senior indebtedness is paid in full in cash, property or securities, including by way of set-off, or other payment satisfactory to holders of senior indebtedness, then such payment or distribution will be held in trust for the benefit of holders of senior indebtedness or their representatives to the extent necessary to make payment in full in cash or payment satisfactory to the holders of senior indebtedness of all unpaid senior indebtedness.

In the event of our bankruptcy, dissolution or reorganization, holders of senior indebtedness may receive more, ratably, and holders of the subordinated debt securities may receive less, ratably, than our other creditors (including our trade creditors). This subordination will not prevent the occurrence of any event of default under the indenture.

As of June 30, 2002, we had senior indebtedness of $200.0 million funded under our senior secured credit facility. As of this date, we had unused availability of $37.5 million under our senior secured credit facility after giving effect to the $12.5 million undrawn letter of credit. The interest rate on the balance outstanding was 5.3%. We are not prohibited from incurring debt, including senior indebtedness, under the indenture. We may from time to time incur additional debt, including senior indebtedness.

We are obligated to pay reasonable compensation to the trustee and to indemnify the trustee against certain losses, liabilities or expenses incurred by the trustee in connection with its duties relating to the subordinated debt securities. The trustee’s claims for these payments will generally be senior to those of noteholders in respect of all funds collected or held by the trustee.

Conversion or Exchange Rights

Debt securities may be convertible into or exchangeable for shares of our common stock. The terms and conditions of conversion or exchange will be stated in the applicable prospectus supplement. The terms will include, among others, the following:


	•	the conversion or exchange price,

	•	the conversion or exchange period,

	•	provisions regarding the convertibility or exchangeability of the debt securities, including who may convert or exchange,


	•	events requiring adjustment to the conversion or exchange price,

	•	provisions affecting conversion or exchange in the event of our redemption of the debt securities, and

	•	any anti-dilution provisions, if applicable.

No Individual Liability of Stockholders, Officers or Directors

The indentures provide that none of our past, present or future stockholders, officers or directors, or stockholders, officers or directors of any successor corporation, in their capacity as such shall have any individual liability for any of our obligations, covenants or agreements under the debt securities or the applicable indenture.

PLAN OF DISTRIBUTION

We may sell the securities separately or together:


	•	through one or more underwriters or dealers in a public offering and sale by them,

	•	directly to investors, or

	•	through agents.

We may sell the securities from time to time in one or more transactions:


	•	at a fixed price or prices, which may be changed from time to time,

	•	at market prices prevailing at the time of sale,

	•	at prices related to such prevailing market prices, or

	•	at negotiated prices.

We will describe the method of distribution of the securities in the applicable prospectus supplement.

Underwriters, dealers or agents may receive compensation in the form of discounts, concessions or commissions from us or our purchasers (as their agents in connection with the sale of securities). These underwriters, dealers or agents may be considered to be underwriters under the Securities Act. As a result, discounts, commissions or profits on resale received by the underwriters, dealers or agents may be treated as underwriting discounts and commissions. The applicable prospectus supplement will identify any such underwriter, dealer or agent, and describe any compensation received by them from us.

Underwriters, dealers and agents may be entitled to indemnification by us against certain civil liabilities, including liabilities under the Securities Act, or to contribution with respect to payments made by the underwriters, dealers and agents.

We may grant underwriters who participate in the distribution of securities an option to purchase additional securities to cover over-allotments, if any, in connection with the distribution.

All debt securities will be new issues of securities with no established trading market. Underwriters involved in the public offering and sale of debt securities may make a market in the debt securities. However, they are not obligated to make a market and may discontinue market making activity at any time. No assurance can be given as to the liquidity of the trading market for any debt securities.

Underwriters or agents and their associates may be customers of, engage in transactions with or perform services for us in the ordinary course of business.

LEGAL MATTERS

Proskauer Rose LLP, New York, New York, and Troutman Sanders LLP, Atlanta, Georgia, will pass on the validity of the issuance of the securities offered in this prospectus.

EXPERTS

The consolidated financial statements and schedule of Gray Communications Systems, Inc. as of December 31, 2000, and for each of the two years in the period ended December 31, 2000, incorporated by reference in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their reports thereon also incorporated by reference herein and in the registration statement. Such consolidated financial statements have been incorporated herein by reference in reliance upon such reports given on the authority of such firm as experts in accounting and auditing.

The consolidated financial statements of Gray Communications Systems, Inc. as of December 31, 2001, and for the year then ended, incorporated into this prospectus by reference to the Gray Communications Systems, Inc. Annual Report on Form 10-K for the year ended December 31, 2001 have

been so incorporated in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting.

The consolidated financial statements of Stations Holding Company, Inc. and subsidiaries as of December 31, 2000 and 2001, and for each of the three years in the period ended December 31, 2001 included in this prospectus have been audited by McGladrey & Pullen, LLP, independent auditors, as stated in their report appearing herein and are included in reliance upon the authority of said firm as experts in accounting and auditing.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other information with the Securities and Exchange Commission. You may read and copy any document we file at the SEC’s public reference rooms at 450 Fifth Street, N.W., Washington, D.C., 20549 and also at its locations in New York, New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. Our SEC filings are also available to the public at the SEC’s web site at http://www.sec.gov. Our class A common stock and class B common stock are listed on the New York Stock Exchange. Our reports, proxy statements and other information can also be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New York, New York 10005.

INCORPORATION BY REFERENCE

The SEC allows us to “incorporate by reference” the information we file with them, which means that we can disclose important information to you by referring you to those documents. The information incorporated by reference is considered to be part of this prospectus and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference the following documents:


	•	our Annual Report on Form 10-K for the fiscal year ended December 31, 2001;

	•	our Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 2002 and June 30, 2002;

	•	our Definitive Proxy Statement on Schedule 14A, filed on August 15, 2002;

	•	our Current Reports on Form 8-K, filed on July 17, 2002, July 30, 2002 and September 4, 2002; and

	•	any future filings that we will make with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended.

You may request a copy of those filings, at no cost, by writing or telephoning us at the following:

Gray Television, Inc.

4370 Peachtree Road, NE

Atlanta, Georgia 30319

Attention: James C. Ryan

Telephone: (404) 504-9828

This prospectus is part of a registration statement we filed with the SEC. You should rely on only the information or representations provided in this prospectus. We have authorized no one to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date on the front of the document.

INDEX TO FINANCIAL STATEMENTS

OF STATIONS HOLDING COMPANY, INC.


	Page

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES
Independent Auditor’s Report		F-2
Consolidated Balance Sheets as of December 31, 2000 and 2001		F-3
Consolidated Statements of Operations for the Three Years Ended December 31, 2001		F-4
Consolidated Statements of Stockholders’ (Deficit) for the Three Years Ended December 31, 2001.		F-5
Consolidated Statements of Cash Flows for the Three Years Ended December 31, 2001		F-6
Notes to Consolidated Financial Statements		F-8
STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES
Consolidated Balance Sheets as of December 31, 2001 and June 30, 2002		F-29
Consolidated Statements of Operations for the Three Months Ended June 30, 2001 and 2002		F-30
Consolidated Statements of Operations for the Six Months Ended June 30, 2001 and 2002		F-31
Consolidated Statements of Stockholders’ (Deficit) for the Six Months Ended June 30, 2002		F-32
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2001 and 2002		F-33
Notes to Consolidated Financial Statements		F-35

F-1

INDEPENDENT AUDITOR’S REPORT

To the Board of Directors

Stations Holding Company, Inc. (formerly Benedek Communications Corporation) and Subsidiaries

Hoffman Estates, Illinois

We have audited the accompanying consolidated balance sheets of Stations Holding Company, Inc. (“Stations”) and subsidiaries as of December 31, 2000 and 2001 and the related consolidated statements of operations, stockholders’ (deficit) and cash flows for the years ended December 31, 1999, 2000 and 2001. These financial statements are the responsibility of Stations’ management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stations and subsidiaries as of December 31, 2000 and 2001 and the results of their operations and their cash flows for the years ended December 31, 1999, 2000 and 2001, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that Stations will continue as a going concern. As discussed in Note Q to the consolidated financial statements, Stations is currently in default under its Credit Facility and Discount Notes and has filed for relief under Chapter 11 of the Bankruptcy Code subsequent to year-end. This raises substantial doubt about Stations’ ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note Q. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

As described in Note O to the consolidated financial statements, Stations has elected to early adopt the provisions of Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”


	/s/ McGLADREY & PULLEN, LLP

Rockford, Illinois

March 15, 2002, except for the subsequent

events described in Note Q as to which

the date is June 4, 2002

F-2

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS



				December 31,

				2000			2001


				(In thousands)
ASSETS
Current Assets
	Cash and cash equivalents			$	3,983		$	3,503
	Receivables
		Trade, less allowance for doubtful accounts of $799 and $834 for 2000 and 2001			30,108			29,912
		Notes receivable-officers			15			720
		Other			935			720
	Current portion of program broadcast rights				5,917			6,394
	Prepaid expenses				1,957			2,237
	Deferred income taxes				1,138			946
	Assets of station held for sale (Note B)
		Property and equipment			—			3,023
		Intangible assets			—			15,477

			Total current assets		44,053			62,932

Property and equipment (Note D)					74,911			67,874

Intangible assets (Note E)					381,914			330,875

Other assets
	Program broadcast rights, less current portion (Note H)				854			1,884
	Deferred loan costs				4,627			3,487
	Notes receivable-officers (Note C)				1,702			982
	Other				201			203

					7,384			6,556

				$	508,262		$	468,237

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Current Liabilities
	Current maturities of notes payable			$	1,460		$	432,639
	Current portion of program broadcast liabilities				9,188			9,421
	Accounts payable and accrued expenses (Note I)				12,449			23,061
	Deferred revenue				579			580

			Total current liabilities		23,676			465,701

Long-Term Obligations
	Notes payable (Note F, G)				431,482			4,733
	Program broadcast liabilities (Note H)				329			2,006
	Deferred revenue				1,877			1,325
	Deferred income taxes (Note K)				51,065			40,212

					484,753			48,276

Senior exchangeable preferred stock, liquidation
	Preference, 2000-$134,721 and 2001-$150,895 (Note F)				139,636			157,845

Seller junior discount preferred stock, liquidation preference, 2000-$64,426 and 2001-$73,296 (Note F)					65,928			78,905
Commitments (Note H, J, P, Q)
Stockholders’ (Deficit) (Note C, F, L) Common stock, class A					—			—
	Common stock, class B				74			74
	Additional paid-in capital				(66,413	)		(68,605	)
	Accumulated deficit				(138,733	)		(213,260	)
	Stockholder’s note receivable (Note C)				(659	)		(699	)

					(205,731	)		(282,490	)

				$	508,262		$	468,237

The accompanying notes are an integral part of the consolidated financial statements.

F-3

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



			Years Ended December 31,

			1999			2000			2001


			(In thousands, except share and
			per share data)
Net revenues			$	99,432		$	116,687		$	107,561

Operating expenses:
	Selling, technical and program expenses			40,247			48,078			48,696
	General and administrative			14,907			15,857			15,311
	Depreciation and amortization (Note E)			17,442			19,711			21,901
	Corporate			4,510			5,590			5,946

				77,106			89,236			91,854

Net gain on sale of stations (Note B & E)				6,403			61,406			—

	Operating income			28,729			88,857			15,707

Financial income (expense):
	Interest expense: (Note A)
		Cash interest		(20,901	)		(23,564	)		(33,350	)
		Other interest		(19,040	)		(20,943	)		(10,011	)

				(39,941	)		(44,507	)		(43,361	)
	Interest income			200			564			159

				(39,741	)		(43,943	)		(43,202	)

Income (loss) from continuing operations before income tax and extraordinary item				(11,012	)		44,914			(27,495	)
	Income tax benefit (expense)			(406	)		(29,199	)		10,165

Income (loss) from continuing operations				(11,418	)		15,715			(17,330	)
Discontinued Operations (Note O & Q):
	(Loss) from operations of discontinued stations			(6,142	)		(229	)		(29,826	)
	Income tax benefit (expense)			1,783			(652	)		1,741

		(Loss) from discontinued operations		(4,359	)		(881	)		(28,085	)

	Income (loss) before extraordinary item			(15,777	)		14,834			(45,415	)
Extraordinary item, gain (loss) on early extinguishment of debt net of applicable income taxes of $8,340 and $(628) in 1999
	and 2000 (Note G)			(12,510	)		942			—

Net income (loss)				(28,287	)		15,776			(45,415	)
Preferred stock dividends and accretion				(18,987	)		(23,933	)		(31,186	)

Net (loss) applicable to common stock			$	(47,274	)	$	(8,157	)	$	(76,601	)

Basic and diluted (loss) per common share:
	(Loss) from continuing operations		$	(4.11	)	$	(1.11	)	$	(6.56	)
	(Loss) from discontinued operations			(0.59	)		(0.12	)		(3.79	)
	Extraordinary item			(1.69	)		0.13			—

		(Loss) per common share	$	(6.39	)	$	(1.10	)	$	(10.35	)

Weighted-average common shares outstanding				7,400,000			7,400,000			7,400,000

The accompanying notes are an integral part of the consolidated financial statements.

F-4

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

Years Ended December 31, 1999, 2000 and 2001


				Additional						Stockholder’s
		Common		Paid-In			Accumulated			Note
		Stock		Capital			Deficit			Receivable			Total


		(In thousands)
Balance at December 31, 1998.		$	74	$	(59,549	)	$	(87,200	)	$	(588	)	$	(147,263	)
	Accretion to senior exchangeable preferred stock (Note F)		—		(1,823	)		—			—			(1,823	)
	Dividends on preferred stock		—		—			(17,164	)		—			(17,164	)
	Repurchase of initial warrants		—		(2,957	)		—			—			(2,957	)
	Accrued interest on note receivable		—		33			—			(33	)		—
	Net (loss)		—		—			(28,287	)		—			(28,287	)

Balance at December 31, 1999.		$	74	$	(64,296	)	$	(132,651	)	$	(621	)	$	(197,494	)
	Accretion to senior exchangeable preferred stock (Note F)		—		(2,075	)		—			—			(2,075	)
	Dividends on preferred stock		—		—			(21,858	)		—			(21,858	)
	Repurchase of initial warrants		—		(80	)		—			—			(80	)
	Accrued interest on note receivable		—		38			—			(38	)		—
	Net income		—		—			15,776			—			15,776

Balance at December 31, 2000.		$	74	$	(66,413	)	$	(138,733	)	$	(659	)	$	(205,731	)
	Accretion to senior exchangeable preferred stock (Note F)		—		(2,074	)		—			—			(2,074	)
	Dividends on preferred stock		—		—			(29,112	)		—			(29,112	)
	Repurchase of initial warrants		—		(158	)		—			—			(158	)
	Accrued interest on note receivable		—		40			—			(40	)		—
	Net (loss)		—		—			(45,415	)		—			(45,415	)

Balance at December 31, 2001.		$	74	$	(68,605	)	$	(213,260	)	$	(699	)	$	(282,490	)

The accompanying notes are an integral part of the consolidated financial statements.

F-5

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



					Years Ended December 31,

					1999			2000			2001


					(In thousands)
Cash flows from operating activities
	Net income (loss)				$	(28,287	)	$	15,776		$	(45,415	)
		Adjustments to reconcile net income (loss) to net cash provided by operating activities:
			Amortization of program broadcast rights			8,127			9,015			9,276
			Depreciation and amortization			15,695			16,002			17,237
			Amortization and writedown of intangibles and deferred loan costs			14,609			12,574			29,840
			Amortization of note discount			17,227			18,887			7,124
			Deferred income taxes			(10,368	)		27,721			(10,661	)
			Net (gain) on sale of stations			(6,181	)		(61,406	)		—
			Loss on writedown of station held for sale			—			—			6,880
			(Gain) loss on early extinguishment of debt			20,850			(1,570	)		—
	Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
			Receivables			(1,504	)		(2,441	)		411
			Prepaid expenses and other			(356	)		60			(280	)
			Payments on program broadcast liabilities			(7,455	)		(8,691	)		(8,873	)
			Accounts payable and accrued expenses			(2,482	)		793			10,216
			Deferred revenue			(573	)		(511	)		(511	)

				Net cash provided by operating activities		19,302			26,209			15,244

Cash flows from investing activities
	Purchase of property and equipment					(7,923	)		(9,814	)		(11,073	)
	Payment for acquisition of stations					(9,359	)		(8,584	)		—
	Deposit on and costs of acquisitions					(10,294	)		—			—
	Proceeds from sale of stations					56			7,585			—
	Deposit on sale of station, net of fees paid					—			—			235
	Disbursements on notes receivable-officers, net of payments					(720	)		(722	)		15
	Other, net					(51	)		276			(12	)

				Net cash (used in) investing activities		(28,291	)		(11,259	)		(10,835	)

Cash flows from financing activities
	Principal payments on notes payable					(259,453	)		(3,806	)		(2,231	)
	Redemption of discount notes					(2,591	)		(9,820	)		—
	Net (payments) borrowings on long-term revolver					58,500			—			(2,500	)
	Proceeds from long-term borrowing					220,000			—			—
	Repurchase of initial warrants					(2,957	)		(80	)		(158	)
	Payment of debt and senior preferred stock acquisition costs					(5,523	)		(539	)		—

				Net cash provided by (used in) financing activities		7,976			(14,245	)		(4,889	)

				Increase (decrease) in cash and cash equivalents		(1,013	)		705			(480	)
Cash and cash equivalents:
		Beginning				4,291			3,278			3,983

		Ending			$	3,278		$	3,983		$	3,503

The accompanying notes are an integral part of the consolidated financial statements.

F-6

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)



		Years Ended December 31,

		1999			2000			2001


		(In thousands)
Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest	$	30,307		$	26,395		$	25,242
	Cash payments (receipts) for income taxes		679			2,672			(1,524	)

Supplemental Schedule of Noncash Investing and Financing Activities:
	Acquisition of program broadcast rights	$	8,186		$	8,100		$	10,783
	Purchase of equipment on accounts payable		500			419			57
	Notes payable incurred for purchase of property and equipment		4,140			1,672			2,037
	Equipment acquired by barter transactions		221			252			523
	Dividends accrued on preferred stock		17,164			21,858			29,112
	Accrued interest on note receivable stockholder added to additional paid-in capital		33			38			40
	Accretion to senior preferred stock		1,823			2,075			2,074

Acquisition of stations:
	Property and equipment acquired at fair market value	$	6,238		$	25,693		$	—
	Intangible assets acquired		27,376			117,426			—
	Program broadcast rights acquired		1,115			931			—
	Program broadcast liabilities assumed		(1,115	)		(868	)		—
	Other, net		17			(1,343	)		—

			33,631			141,839			—
	Less: Fair value of assets swapped		(24,272	)		(122,961	)		—

	Cash purchase price, including fees paid		9,359			18,878			—
	Less: Deposits and costs paid in prior year		—			(10,294	)		—

	Payment for acquisition of stations	$	9,359		$	8,584		$	—

Sale of stations:
	Property and equipment sold	$	3,076		$	8,876		$	—
	Intangible assets sold		8,101			60,258			—
	Program broadcast rights sold		136			358			—
	Program broadcast liabilities transferred		(145	)		(345	)		—
	Other, net		—			(74	)		—

			11,168			69,073			—
	Gain recognized on sale of stations		13,101			61,406			—

			24,269			130,479			—
	Less: Fair value of assets swapped		(24,272	)		(122,961	)		—
	Fees paid on sales, prior year		59			67			—

	Proceeds from sale of station net of fees paid	$	56		$	7,585		$	—

The accompanying notes are an integral part of the consolidated financial statements.

F-7

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Note A) — Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies


	*Nature of Business*

Stations Holding Company, Inc. and its subsidiaries (“Stations”), formerly known as Benedek Communications Corporation, is a holding company with minimal operations other than from its wholly owned subsidiary, Benedek Broadcasting Corporation (“Benedek”). Benedek owns and operates twenty-three television stations located throughout the United States. Stations’ revenues are derived primarily from the sale of advertising time and, to a modest extent from compensation paid by the networks for broadcasting network programming and barter transactions for goods and services. Stations sells commercial time during the programs to national, regional and local advertisers. The networks also sell commercial time during the programs to national advertisers. Credit arrangements are determined on an individual customer basis. Segment information is not presented since all of Stations’ revenue is attributed to a single reportable segment.


	*Basis of Presentation*

The consolidated financial statements include the accounts of Stations and its wholly owned subsidiary, Benedek. Benedek has three wholly owned subsidiaries, Benedek License Corporation, Benedek Cable, Inc. and Benedek Interactive Media, LLC (the “Benedek Subsidiaries”). All significant intercompany items and transactions have been eliminated in consolidation.


	*Significant Accounting Policies*


	(1) Accounting estimates

The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.


	(2) Cash equivalents and concentration

Stations considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

At various times during the periods, Stations had cash and cash equivalents on deposit with a financial institution in excess of federal depository insurance limits. Stations has not experienced any credit losses on these deposits.


	(3) Revenues

Revenue related to the sale of advertising is recognized at the time of broadcast. Net revenues are shown net of agency and national representatives’ commissions.

Deferred revenues primarily relate to compensation paid by the network at the inception of the network affiliation agreement. This revenue is being recognized prorata until 2005, on a straight-line method.


	(4) Barter transactions

Revenue from barter transactions (advertising provided in exchange for goods and services) is recognized as income when advertisements are broadcast and merchandise or services received are charged to expense (or capitalized as appropriate) when received or used. The transactions are recorded at the fair

F-8

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

market value of the asset or service received. For the years ended December 31, 1999, 2000 and 2001, revenues from barter transactions totaled approximately $6,377,000, $6,182,000 and $6,111,000, respectively.


	(5) Program broadcast rights and liabilities

Program broadcast rights represent rights for the telecast of feature length motion pictures, series produced for television and other films, and are presented at the lower of amortized cost or net realizable value. Each agreement is recorded as an asset and liability when the license period begins and the program is available for its first showing. Program broadcast rights are amortized on a straight-line method over the life of the contract, which is included in selling, technical and program expenses. The agreements are classified between current and long-term assets according to the estimated time of future usage. The related liability is classified between current and long-term on the basis of the payment terms.


	(6) Deferred loan and acquisition costs

Deferred loan costs are amounts incurred in connection with long-term financing. The costs are amortized on the interest method over the terms of the related debt security. Costs incurred in connection with long-term financing which is not consummated are expensed at the point in time when the negotiation on the financing ceases. Costs incurred in connection with issuances of preferred stock are included in stockholders’ deficit as a permanent reduction of additional paid-in capital.

Acquisition costs are amounts incurred in connection with acquiring additional television stations. Costs incurred in connection with acquisitions, which are not consummated, are expensed at the point in time when the negotiation on the acquisition ceases. The acquisition costs related to successful acquisitions are treated as part of the purchase price and are allocated to the assets purchased.


	(7) Property and equipment and intangible assets


	(a) Property and equipment are recorded at cost and depreciated using the straight-line method over the following estimated ranges of useful lives:


	Years

Buildings and improvements		5-40
Towers		5-12
Transmission equipment		3-10
Other equipment		1-5

Gains and losses on the disposition of property and equipment in the normal course of business are insignificant and are included in depreciation and amortization on the consolidated statement of operations.


	(b) Intangible assets, which include FCC licenses, network affiliation agreements and goodwill, have been recorded at cost and are amortized over 40 years using the straight-line method.

	(c) Stations reviews its property and equipment and intangibles annually to determine potential impairment by comparing the carrying value of the assets with the undiscounted anticipated future cash flows of the related property before interest charges. If the future cash flows are less than the carrying value, Stations would obtain an appraisal or discount the future cash flows to determine fair value, and adjust the carrying value of the assets to the estimated fair value if the fair value is less than the carrying value (Note E).

F-9

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)


	(8) Other interest expense

Other interest expense includes accrued interest added to long-term debt balances, deferred loan cost amortization and write offs (except deferred loan cost write offs related to extraordinary debt extinguishments), financing costs not consummated, and accretion of discounts.


	(9) Income taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences, operating losses and tax credit carryforwards. Deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Stations and its subsidiaries file a consolidated federal income tax return.


	(10) Employee Benefits

Stations has defined contribution plans covering all eligible employees. Stations’ contribution is at the discretion of the Board of Directors.

Stations self-insures for health benefits, which are provided to all full-time employees with specified periods of service. Insurance coverage is maintained by Stations for claims in excess of specific and annual aggregate limits.

Stations has elected to continue accounting for employee stock-based compensation under Accounting Principles Board Opinion No. 25.


	(11) Earnings (loss) per common share

Basic per-share amounts are computed by dividing net income (loss) adjusted for preferred stock dividends declared and accretion (the numerator) by the weighted-average number of common shares outstanding (the denominator). Diluted per-share amounts assume the conversion, exercise or issuance of all potential common stock instruments unless the effect is to reduce the loss or increase the income per common share from continuing operations. Stations has no present dilutive per-share amounts, since the inclusion of the Initial Warrants (as defined) and stock options would have been anti-dilutive for the periods presented.

(12) Interest rate cap agreement and recently adopted accounting standard

Interest rate cap agreements are used to manage interest rate exposure by hedging certain liabilities. Income and expense are accrued under the terms of the agreement based on the expected settlement payments and are recorded as a component of interest income or expense.

Effective January 1, 2001, Stations adopted Statement of Financial Accounting Standards (SFAS) No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended by SFAS Nos. 137 and 138. The new accounting standards require all derivative instruments be recorded on the balance sheet at fair value. Changes in fair value of the derivatives are recorded each period in current earnings or in other comprehensive income, depending on whether the derivative is designated as a fair value or cash flow hedge. The ineffective portion of all hedges is recognized in current period earnings. On adoption Stations’ only derivative instrument was an interest rate cap for which the fair value approximated the carrying value.

F-10

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Note B) — Acquisition and Sale of Certain Television Stations

On December 30, 1998, Stations entered into an Asset Exchange Agreement with The Ackerley Group, Inc. (“Ackerley”) pursuant to which Stations exchanged the television broadcast assets of KCOY-TV, in Santa Maria, California, for the television broadcast assets of KKTV, Ackerley’s station in Colorado Springs, Colorado (the “1999 Swap”). Both KCOY-TV and KKTV are CBS affiliates. The exchange was completed on May 1, 1999, upon which Stations paid $9,000,000 to Ackerley as further consideration in accordance with the agreement.

The exchange was recorded as a separate sale and acquisition of stations, with the acquisition of KKTV accounted for under the purchase method of accounting. Accordingly, the results of the operations for KKTV are included in Stations’ consolidated financial statements since the date of acquisition, May 1, 1999. In addition, the parties entered into a time brokerage agreement for each station, in effect from January 1, 1999 until April 30, 1999. During the time brokerage period, the revenue and expenses of each station went to the account of the buyer, net of applicable time brokerage fees. The net time brokerage fee expense was $508,000 for the year ended December 31, 1999.

The total purchase price for KKTV was approximately $33,631,000, which consisted of the fair market value of the KCOY-TV assets of $24,272,000, a cash payment of $9,000,000, and fees and costs of the transaction of $359,000. The purchase price has been allocated to acquired assets and liabilities based on their relative fair values as of the closing date. The excess of the purchase price over the net assets received from the acquisition is being amortized on the straight-line method over a period of 40 years.

A gain of approximately $13,323,000 was recorded to reflect the sale of KCOY-TV. This gain consisted of the fair market value of the KCOY-TV assets of $24,272,000 less their book value of $10,732,000 and fees of $217,000.

During September 1999, a loss in the amount of approximately $222,000 was recorded to reflect the sale of KTVS-TV, Sterling, Colorado, which was a satellite operation of KGWN-TV, Cheyenne, Wyoming. Stations sold KTVS-TV since KTVS-TV is outside of the KGWN-TV designated market area. The loss is included in “Loss from operations of discontinued stations” in the consolidated statement of operations as KGWN-TV is one of the stations included in the Station Group to be sold. See (Note Q).

On November 19, 1999, Stations entered into an Asset Purchase Agreement with The Chronicle Publishing Company (“Chronicle”) and on December 10, 1999, Stations entered into an Asset Exchange Agreement with WGRC, Inc. (“WGRC”). Pursuant to these agreements, WGRC acquired the television broadcast assets of WOWT-TV and KAKE-TV, Chronicle’s television stations in Omaha, Nebraska and Wichita, Kansas, respectively, and then immediately transferred the same to the Company in exchange for the television broadcast assets of WWLP-TV, Stations’ station in Springfield, Massachusetts (the “2000 Swap”). The exchange was completed on March 31, 2000, upon which Stations paid $18,000,000 to WGRC as further consideration in accordance with the agreements. At December 31, 1999, Stations had deposited $10,000,000 in an escrow account related to this transaction. The remaining $8,000,000 was funded from the proceeds of the sale of KOSA-TV discussed below.

The exchange was recorded as a separate sale and acquisition of stations, with the acquisition of KAKE-TV and WOWT-TV accounted for under the purchase method of accounting. Accordingly, the results of the operations for KAKE-TV and WOWT-TV are included in Stations’ consolidated financial statements since the date of acquisition, March 31, 2000.

The total purchase price and costs of the acquisition of KAKE-TV and WOWT-TV was approximately $141,839,000, which consisted of the fair market value of the WWLP-TV assets of $122,961,000, a cash payment of $18,000,000 and fees and costs of the transaction of approximately

F-11

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$878,000. The purchase price has been allocated to acquired assets and liabilities based on their relative fair market values as of the closing date.

A gain of approximately $61,144,000 was recorded to reflect the disposition of WWLP-TV. The gain consisted of the fair market value of the WWLP-TV assets of $122,961,000 less their book value of $61,431,000 and fees of $386,000.

On December 15, 1999, Stations entered into an Asset Purchase Agreement with ICA Broadcasting I, Ltd. (“ICA”) pursuant to which Stations sold the television broadcast assets of KOSA-TV, in Odessa, Texas to ICA for a cash payment of $8,000,000 on March 21, 2000 (the “2000 Sale”). A gain of approximately $262,000 was recorded on the sale of KOSA-TV, which consisted of the excess of the $8,000,000 sale price over the book value of the assets of $7,642,000 less fees of the transaction. Stations wrote down the KOSA-TV assets during 1999 by $6,920,000, as a result of the signing of the Asset Purchase Agreement with ICA, which contemplated the sale.

The unaudited pro forma results of operations and earnings per share for the years ended December 31, 1999 and 2000, assuming the 1999 Swap, 2000 Swap and 2000 Sale had occurred on January 1, 1999 and 2000, are presented in the table below.



		Year Ended December 31,

		1999			2000


		(In thousands)
Net revenue		$	112,381		$	120,155
(Loss) before extraordinary item			(19,308	)		(13,262	)
Extraordinary item			(12,510	)		942

Net (loss)		$	(31,818	)	$	(12,320	)
Basic and diluted (loss) per common share:
	(Loss) before extraordinary item	$	(5.18	)	$	(5.03	)
	Extraordinary item		(1.69	)		0.13

	(Loss) per common share	$	(6.87	)	$	(4.90	)

The pro forma results of operations and earnings per share for the 1999 Swap, 2000 Swap and 2000 Sale for the years ended December 31, 1999 and 2000 refer to the operating results of KKTV, KAKE-TV and WOWT-TV as if such stations were owned, and to KCOY-TV, WWLP-TV and KOSA-TV as if such stations were sold, by Stations on January 1, 1999 and 2000, with pro forma adjustments only for depreciation and amortization, interest and income taxes. The pro forma results do not include the gain on the disposition of KCOY-TV, WWLP-TV and KOSA-TV, nor the write down of KOSA-TV’s assets in contemplation of the sale, for either period presented.

The pro forma information does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of the operations of the stations.

Sale of Station

On November 26, 2001, Stations entered into an Asset Purchase Agreement with West Virginia Media Holdings, LLC (“West Virginia Media”) pursuant to which Stations will sell the television broadcast assets of WTRF-TV, in Wheeling, West Virginia to West Virginia Media for $18,500,000. Upon the execution of the agreement, Stations received a $350,000 option payment from West Virginia which will reduce the final purchase price. Stations recorded a lower of cost or market adjustment of approximately $6,880,000 in 2001 to write down the assets of WTRF-TV to the sales price. Because Stations has elected to early adopt the provisions of SFAS No. 144, “Accounting for the Impairment or

F-12

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Disposal of Long-Lived Assets,” as discussed in [Note O], this lower of cost or market adjustment is included in “Loss from operations of discontinued stations.” The assets of WTRF-TV have been shown on the accompanying balance sheet as “Assets of station held for sale” as of December 31, 2001. It is anticipated that the sale will be completed in the second quarter of 2002. See (Note Q).

(Note C) — Related Party Transactions and 1999 Stock Option Plan

Stock Option Agreements

In 1998, a key employee exercised all outstanding options granted to him under a stock-based compensation plan for the employee. Stations loaned the key employee the funds necessary to pay for the shares under a note for $555,000 which bears interest at 5.93% and is due on December 31, 2007. This recourse note, which is a personal obligation of the employee, is collateralized by the stock, which was issued upon exercise of the option, and is classified as a negative equity account in the accompanying consolidated balance sheets.

During 2001, Stations amended the above-mentioned key employee’s employment agreement whereby he will receive compensation sufficient to satisfy the obligation and any related income tax liability, provided that he remains an active employee through the earlier of death, disability, termination by Stations without cause, or December 31, 2003. This obligation is being accrued ratably through December 31, 2003. In connection therewith, Stations recognized expense of approximately $107,000 for the year ended December 31, 2001.

In December 1998, Stations’ board of directors adopted the 1999 Stock Option Plan (the “Plan”) whereby from time to time on or before December 31, 2008, options to purchase shares of class B common stock may be granted to employees, directors or consultants and advisors of Stations and its subsidiaries. The aggregate number of shares of common stock, which may be purchased pursuant to options granted at any time under the Plan, shall not exceed 240,000. The purchase price per share shall be the fair market value, as defined by the Plan, or an amount determined by the board. If options are granted to an employee who, at the time of the grant, owns more than ten percent of the voting stock of Stations, the purchase price per share shall be at least one hundred and ten percent of the fair market value, as defined by the Plan. The vesting period of options granted under the Plan are determined by the board. The maximum term options may be outstanding under the plan is ten years.

A summary of the status of the Plan at December 31, 1999, 2000 and 2001 and changes during the years then ended is as follows:



		1999				2000					2001

				Wgt. Avg.					Wgt. Avg.					Wgt. Avg.
				Exercise					Exercise					Exercise
		Shares		Price		Shares			Price		Shares			Price

Outstanding at beginning of year			—	$	—		165,000		$	15.00		60,000		$	15.00
	Granted		165,000		15.00		—			—		75,000			27.00
	Exercised		—		—		—			—		—			—
	Forfeited		—		—		(105,000	)		15.00		(15,000	)		15.00
	Expired		—		—		—			—		—			—

Outstanding at end of year			165,000	$	15.00		60,000		$	15.00		120,000		$	22.50

Exercisable at end of year			—	$	—		6,000		$	15.00		10,000		$	16.20

The remaining contractual life of the options outstanding at December 31, 2001 is seven years for 45,000 options and nine years for 75,000 options.

F-13

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

As permitted under generally accepted accounting principles, Stations accounts for the employee options under the provisions of APB Opinion No. 25 and its related interpretations. Accordingly, no compensation cost has been recognized for the grant of the options. Had compensation cost been determined based on the fair value method prescribed in FASB Statement No. 123, the reported net income (loss) and basic and diluted (loss) per common share for the years ended December 31, 1999, 2000 and 2001 would have been $(28,395) and $(6.40), $15,805 and $(1.10), and $(45,432) and $(10.35), respectively. In determining the pro forma amounts for the options granted in 1999, the fair value per share for each option was estimated to be $6.61 at the grant date by using the Black-Scholes option-pricing model with the following assumptions: no dividends will be paid on the class B common stock; a risk-free interest rate of 4.44%; an expected life of five years; and an expected price volatility of 43.0%. In determining the pro forma amounts for the options granted in 2001, the fair value per share for each option was estimated to be $0.97 at the grant date by using the Black-Scholes option-pricing model with the following assumptions: no dividends will be paid on the class B common stock; a risk-free interest rate of 4.91%; an expected life of six years; and an expected price volatility of 64.0%.

Director Fees

Stations paid fees of approximately $871,000, $896,000, and $974,000 during the years ended December 31, 1999, 2000 and 2001, respectively, to the law firm of Shack Siegel Katz Flaherty & Goodman, P.C. A partner of Shack Siegel Katz Flaherty & Goodman, P.C. serves as a director to Stations.

Notes Receivable-Officers

During 1999 and 2000 Stations issued loans to various officers of Stations for which the total amounts receivable as of December 31, 2000 and 2001 were $1,717,000 and $1,702,000, respectively. These notes bear interest at the applicable federal rates in effect at the time of issuance and have due dates ranging from May 1, 2002 to December 31, 2003. These notes are personal obligations of the applicable officer and have been issued with recourse.

On March 1, 2002, the foregoing notes due from one officer were consolidated into a single note in the amount of $1,635,000, representing the aggregate outstanding principal and interest due to Stations from the officer. The maturity of such loans was extended until the earlier of June 30, 2002 or the date the employee sells his securities in Stations. The interest is payable at maturity and accrues at the applicable federal rate in effect on March 1, 2002.

F-14

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Note D) — Property and Equipment

Property and equipment consists of the following:



	December 31,

	2000		2001


	(In thousands)
Land and improvements	$	7,182	$	7,175
Buildings and improvements		35,083		35,126
Towers		17,493		16,859
Transmission and studio equipment		81,179		81,393
Office equipment		12,101		13,604
Transportation equipment		4,308		4,770
Construction in progress		6,167		6,652

		163,513		165,579
Less accumulated depreciation and amortization		88,602		97,705

	$	74,911	$	67,874

(Note E) — Intangible Assets

Intangible assets consist of the following:



	December 31,

	2000		2001


	(In thousands)
Goodwill	$	115,797	$	83,210
FCC licenses		173,882		163,766
Network affiliations		90,874		82,738
Other		1,361		1,161

	$	381,914	$	330,875

Intangible assets are recorded net of accumulated amortization of $54,830,000 and $79,748,000 as of December 31, 2000 and 2001, respectively. In addition to the $6,920,000 lower of cost or market adjustment on KOSA-TV as discussed in (Note B), during 1999 Stations also wrote down certain stations’ goodwill and FCC licenses which were determined to have been impaired based on Stations’ estimate of fair value using discounted future cash flows. The writedown of approximately $2,762,000 is included in “Loss from operations of discontinued stations” on the consolidated statement of operations as the related stations are part of the Station Group to be sold as discussed in (Note Q).

In addition to the $6,880,000 lower of cost or market adjustment on WTRF-TV as discussed in (Note B), during 2001 Stations also wrote down a certain station’s goodwill and network affiliation which were determined to have been impaired based on Stations’ estimate of fair value using discounted future cash flows. The writedown of approximately $17,673,000 is included in “Loss from operations of discontinued stations” on the consolidated statement of operations as the related station is part of the Station Group to be sold as discussed in (Note Q).

F-15

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Note F) — Redeemable Equity Securities and Discount Notes


	*Senior Preferred Stock*

In 1996, Stations sold 60,000 Units in a private placement, which generated proceeds of $60,000,000. Each Unit consisted of (i) ten shares of 15% Exchangeable Redeemable Senior Preferred Stock due 2007 (the “Original Senior Preferred Stock”), (ii) ten initial warrants to purchase class A common stock of Stations with an expiration date of July 1, 2007 (the “Initial Warrants”) and (iii) 14.8 contingent warrants to purchase class A common stock of Stations.

The Original Senior Preferred Stock and the contingent warrants were redeemed in June 1998 from the proceeds of Stations’ May 14, 1998 issuance of 100,000 shares of 11.5% Senior Exchangeable Preferred Stock (the “Senior Preferred Stock”), with an initial liquidation preference equal to proceeds received of $100,000,000.

Dividends on the Senior Preferred Stock are cumulative and payable quarterly commencing August 15, 1998 at a rate of 11.5% of the then effective liquidation preference per share. Stations, at its option, may pay dividends on any dividend payment date occurring on or before May 15, 2003 either in cash or by adding such dividends to the then effective liquidation preference. Stations has been adding the dividends to the liquidation preference from the issuance date through December 31, 2001. The Senior Preferred Stock is not redeemable until May 15, 2003 at which time cash dividends are required to be paid at a rate of 11.5% of the then effective liquidation preference per share. Thereafter, Stations has the option to redeem these shares in whole or in part at predetermined redemption prices prior to May 15, 2008 when they are due. The Senior Preferred Stock is exchangeable into debentures at Stations’ option, subject to certain conditions, in whole on any scheduled dividend payment date. The Senior Preferred Stock contains various restrictive covenants relating to limitations on dividends, transactions with affiliates, further issuance of debt, and the sales of assets, among other things.

Since it was originally management’s intention to redeem the Senior Preferred Stock prior to the date that cash dividends are required to be paid, the amount of the estimated redemption premium payable had been accreted as a constructive distribution over five years since May 1998. During the fourth quarter of 2001, management determined that the redemption of the Senior Preferred Stock was unlikely to occur based on Stations’ financial position as described in (Note Q). As a result, accretion has been discontinued on the redemption premium for future periods.


	*Junior Preferred Stock*

In 1996, Stations issued 450,000 shares of Seller Junior Discount Preferred Stock due July 1, 2008 (the “Junior Preferred Stock”) with an aggregate liquidation preference equal to the proceeds of $45,000,000. Dividends are payable to the holders of the Junior Preferred Stock at 7.92% per annum, cumulative until the fifth anniversary of the issuance thereof and thereafter at increasing rates up to 18%. The dividends on the Junior Preferred Stock are cumulative and were being accrued at the initial rate of 7.92% through September 30, 2000, since it was Stations’ intention to redeem the Junior Preferred Stock prior to the fifth anniversary. During October 2000, Stations determined that redemption of the Junior Preferred Stock would most likely occur subsequent to the fifth anniversary. Accordingly, Stations began to accrue dividends in October 2000 under the effective cost method on a prospective basis based on the carrying value at October 1, 2000 to the liquidation preference at July 1, 2008. The effect of this change was to increase the loss per common share for the year ended December 31, 2000 by $(0.20). The change had no effect on income before extraordinary item or net income. Prior to June 5, 2001, dividend payments on the Junior Preferred Stock were not permitted to be made in cash and instead were added automatically to the liquidation preference and as a result are deemed paid in full.

F-16

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The Junior Preferred Stock is subject to mandatory redemption in whole on July 1, 2008 and Stations has the option to redeem these shares in whole or in part at a price equal to the sum of the liquidation value per share plus an amount equal to all accumulated and unpaid dividends per share to the date of redemption.

The following table summarizes these activities from December 31, 1999 through December 31, 2001 as follows:


		Senior		Junior
		Preferred		Preferred
		Stock		Stock


		(In thousands)
Balance at December 31, 1999		$	122,092	$	59,539
	Accrued dividends		15,469		6,389
	Accretion of redemption prepayment premium		2,075		—

Balance at December 31, 2000		$	139,636	$	65,928
	Accrued dividends		16,135		12,977
	Accretion of redemption prepayment premium		2,074		—

Balance at December 31, 2001		$	157,845	$	78,905


	*Initial Warrants*

At December 31, 2000 and 2001, there were 345,000 and 310,000 of outstanding Initial Warrants, respectively, which expire July 1, 2007. Each Initial Warrant entitles the holder thereof to purchase one share of class A common stock at an exercise price of $0.01 per share. The value of the Initial Warrants at the date of issuance was $9,000,000, which was allocated to paid-in capital. During September 1999, December 2000 and January 2001, Stations redeemed 185,000, 20,000, and 35,000 of the outstanding Initial Warrants for $2,957,000, $80,000 and $158,000, respectively.


	*Discount Notes*

In June 1996, Stations issued Senior Subordinated Discount Notes due 2006 (the “Discount Notes”) in the principal amount of $170,000,000. These Discount Notes were issued at a discount of $79,822,000, which generated gross proceeds of $90,178,000. The Discount Notes mature on May 15, 2006 and yield 13.25% per annum with no cash interest accruing prior to May 15, 2001. On May 15, 2001, cash interest began to accrue until maturity payable semiannually, commencing November 15, 2001. The Discount Notes are redeemable at the option of Stations, in whole or in part, at predetermined redemption prices and under specified conditions. The Discount Notes are subordinated to all other senior debt of Stations. The Discount Notes contain various restrictive covenants. The Discount Notes were exchanged for Discount Notes registered with the Securities and Exchange Commission pursuant to a registration statement declared effective in October 1996. At December 31, 2000 and 2001 the accreted value of the notes was $147,546,000 and $154,670,000, respectively. The outstanding face value at December 31, 2000 and 2001 was $154,670,000.

Stations is currently in default on the Discount Notes as Stations was unable to make the November 15, 2001 interest payment as Stations’ senior lenders under the Credit Facility blocked the payment of interest due on the Discount Notes as discussed in (Note Q). The entire outstanding balance of the Discount Notes of $154,670,000 has been classified as a current liability as a result of the default and related uncertainty.

F-17

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Since Stations derives all of its operating income and cash flow from Benedek Stations’ ability to pay its obligations, including (i) interest on and principal of the Discount Notes, (ii) redemption of and cash dividends on the Senior Preferred Stock and (iii) redemption of and cash dividends on the Junior Preferred Stock, will be dependent primarily upon receiving dividends and other payments or advances from Benedek. Benedek is a separate and distinct legal entity and has no legal obligation, contingent or otherwise, to pay any amount to Stations or to make funds available to Stations for debt service or any other obligation.

(Note G) — Long Term Debt

(1) Notes payable

Term Loans and Revolver

On May 20, 1999, Stations borrowed $275,000,000 against a credit facility (the “Credit Facility”), which was amended as of June 18, 1999 and March 22, 2000, with an aggregate borrowing limit of $310,000,000. The proceeds were used by Stations to finance the tender offer of its 11.875% Senior Secured Notes due 2005 (the “Senior Secured Notes”) and extinguish the then existing credit agreement.

The Credit Facility includes a $220,000,000 term loan (the “Term Loan”) and a $90,000,000 revolver (the “Revolver”) of which no additional borrowings were available at December 31, 2001 due to covenant violations discussed below. The Term Loan bears interest, at Stations’ option, at a base rate plus 2.25% or at a LIBOR rate plus 3.25%. The Revolver bears interest, at Stations’ option, at a base rate plus 1.00% to 1.75% or at a LIBOR rate plus 2.00% to 2.75%. The margins above the base rate and the LIBOR rate at which the Revolver bears interest is reduced when certain leverage ratios decrease. The interest rate on the Term Loan was 7.0% and the interest rate on the Revolver was 6.5% at December 31, 2001. In addition, Stations has accrued for an additional 2.0% interest on the Term Loan and Revolver since September 17, 2001 due to a default interest rate provision which became effective when a forebearance agreement with the lenders expired. The unused portion of the Revolver is subject to a commitment fee ranging from 0.75% per annum to 0.375% per annum based on certain leverage ratios.

Stations is required to make scheduled payments on the Term Loan beginning in 2002 to maturity in 2007. In addition, Stations is required to make prepayments on the Term Loan and the Revolver under certain circumstances, including upon the sale of certain assets and the issuance of certain debt or equity securities. Beginning in 2002, Stations is required to make prepayments on the Term Loan and the Revolver in an amount equal to 50% of excess cash flow, which will require a payment of approximately $2,664,000 on or prior to April 30, 2002.

The commitment under the Revolver will be permanently reduced over the period from June 2002 to maturity in 2007. In addition, the commitment under the Revolver will be permanently reduced in certain circumstances including upon the sale of certain assets and the issuance of certain debt or equity securities and with excess cash flow. Stations has the right to pay down the Revolver without penalty in increments of $1,000,000.

The Credit Facility contains certain financial covenants, including, but not limited to, covenants related to interest coverage, total and senior leverage ratios and fixed charge ratio. In addition, the Credit Facility contains other affirmative and negative covenants relating to, among other things, liens, payments on other debt, restricted junior payments (excluding distributions from Benedek to Stations), transactions with affiliates, mergers and acquisitions, sales of assets, guarantees and investments. The Credit Facility contains customary events of default for highly-leveraged financings, including certain changes in ownership or control of Stations. The Credit Facility is secured by Stations’ present and future property and assets and the common stock of Benedek License Corporation.

F-18

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stations is currently in default under the Credit Facility due to Stations being in violation of certain covenants since June 30, 2001. At December 31, 2001 Stations was not in compliance with the senior debt ratio, total leverage ratio and interest coverage ratio under the Credit Facility. The non-compliance results from the decline in operating results during 2001. The entire outstanding balance under the Credit Facility of $276,000,000 has been classified as a current liability as a result of the default and related uncertainty.

Other Notes

Other notes payable consist of multiple financing agreements requiring monthly payments including interest from 0.9% to 11.6% on notes maturing from 2002 through 2021 that are collateralized by various assets of Stations.

Notes payable consist of the following:



	December 31,

	2000		2001


	(In thousands)
Revolver	$	58,500	$	56,000
Term Loan		220,000		220,000
Discount Notes — see (Note F) for terms		147,546		154,670
Other		6,896		6,702

		432,942		437,372
Less current maturities		1,460		432,639

	$	431,482	$	4,733

At December 31, 2001, the notes provide for annual reductions as follows:


Year Ending December 31,	(In thousands)

2002	$	432,639
2003		858
2004		638
2005		491
2006		264
Thereafter		2,482

	$	437,372

Other notes include Stations’ lease of its premises in Harrisonburg, Virginia under a capital lease. Stations has the option to purchase the premises upon written notice to the landlord at any time during the 20-year term, which expires April 27, 2018. At December 31, 2001, the option purchase price was $1,415,000.

(2) Interest Rate Cap

During September 2001, in accordance with certain covenants of the Credit Facility, Stations entered into an interest rate cap agreement which matures in September 2003, to reduce the impact of changes in interest rates on its floating-rate long-term debt. That agreement effectively entitles Stations to receive from a financial institution the amount, if any, by which the British Bankers’ Association interest settlement rates (“settlement rate”) for U.S. dollar deposits exceeds 6.00% on a notional amount totaling $60,000,000 subject to an amortization schedule. As of December 31, 2001, the settlement rate was 1.90%.

F-19

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The $95,000 premium paid for this interest rate cap is being amortized ratably to interest expense over the 24-month term of the cap, and is reported as an other asset in the accompanying consolidated balance sheets. The carrying value of the interest rate cap at December 31, 2001 materially approximates fair value. Although Stations is exposed to credit loss in the event of nonperformance by the counterparty on the interest rate cap, management does not expect nonperformance by the counterparty.

(3) Gain (Loss) on Extinguishment of Debt

On April 16, 1999, Stations commenced a tender offer and consent solicitation (the “Offer”) for any and all of the $135,000,000 in outstanding principal amount of the Senior Secured Notes. The total consideration for each of $1,000 principal of Senior Secured Notes was $1,105.78 which consisted of the Offer price per $1,000 principal of Senior Secured Notes of $1,075.78 and a consent payment of $30 per $1,000 principal amount of the Senior Secured Notes.

On May 20, 1999, Stations redeemed all of the outstanding Senior Secured Notes. The offer was financed through the Credit Facility. A total of $12,510,000 (net of $8,340,000 of applicable income taxes) was reflected as a loss on the early extinguishment of debt which was comprised of prepayment premiums, consent payments, expenses of the transaction and a write-off of unamortized fees associated with the Senior Secured Notes and the then existing credit agreement.

During July 1999, Stations retired a portion of its Discount Notes with a face amount of $3,000,000. The Discount Notes had an accreted value of $2,371,000 and were purchased for a total of $2,591,000, which includes a premium payment for early retirement. The premium payment, totaling $220,000, is included in other interest expense.

During 2000, Stations retired portions of its Discount Notes with a total face amount of $12,330,000. The Discount Notes had an accreted value of $11,390,000 and were purchased for a total of $9,820,000. A total of $942,000 (net of $628,000 of applicable income taxes) was reflected as a gain on the early extinguishment of debt.

(Note H) — Program Broadcast Rights and Liabilities

Program broadcast rights and program broadcast liabilities consist of the following:


		Program			Program
		Broadcast			Broadcast
		Rights			Liabilities


		(In thousands)
Balance at December 31, 1999		$	7,114		$	9,586
	Contracts acquired		8,100			8,100
	Net addition due to station swap (Note B)		572			522
	Amortization		(9,015	)		—
	Payments		—			(8,691	)

Balance at December 31, 2000			6,771			9,517
	Contracts acquired		10,783			10,783
	Amortization		(9,276	)		—
	Payments		—			(8,873	)

Balance at December 31, 2001		$	8,278		$	11,427

F-20

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The current maturities of program broadcast liabilities consist of the following:



	December 31,

	2000			2001


	(In thousands)
Program contracts, due in varying installments	$	9,517		$	11,427
Less current maturities		(9,188	)		(9,421	)

Long-term portion	$	329		$	2,006

The maturities of the contracts are as follows at December 31, 2001:


Year Ending December 31,	(In thousands)

2002	$	9,421
2003		877
2004		563
2005		510
2006		56

	$	11,427

In addition, Stations has entered into noncancellable commitments for future program broadcast rights aggregating approximately $13,630,000 as of December 31, 2001 with future payments as follows:


Year Ending December 31,	(In thousands)

2002	$	1,365
2003		5,246
2004		4,342
2005		2,225
2006		434
Thereafter		18

	$	13,630

(Note I) — Accounts Payable and Accrued Expenses

Accounts payable and accrued expenses consist of the following:



	December 31,

	2000		2001


	(In thousands)
Trade payables	$	1,553	$	1,207
Barter, net		279		200
Compensation and benefits		5,757		4,517
Interest		2,486		14,449
Other		2,374		2,688

	$	12,449	$	23,061

F-21

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

(Note J) — Leases

Stations leases land, office space and office and transportation equipment under agreements which expire from 2002 through 2007 and require various minimum annual rentals. The leases also require payment of the normal maintenance, real estate taxes and insurance on the properties.

Stations has the option to purchase its leased premises in Casper, Wyoming upon written notice to the landlord at any time during the 10-year term, which expires March 5, 2007. At December 31, 2001, the option purchase price was $446,000, which increases each year through 2002 by six percent and each year thereafter by three percent of the original option purchase price.

The approximate total minimum rental commitments at December 31, 2001 under these leases are due as follows:


Year Ending December 31,	(In thousands)

2002	$	1,364
2003		1,278
2004		893
2005		807
2006		400
Thereafter		156

	$	4,898

Total rental expense under these agreements and other monthly rentals for the years ended 1999, 2000 and 2001 was approximately $1,127,000, $1,129,000 and $1,040,000, respectively.

Stations is a lessor of certain portions of its real property to various organizations. Total rental income under these agreements for the years ended 1999, 2000 and 2001 was approximately $1,000,000, $1,031,000 and $799,000, respectively.

(Note K) — Income Tax Matters

On June 6, 1996 when Stations changed tax status from an S corporation to a C corporation, the accumulated deficit of $41,073,000, which existed on that date, was reclassified to additional paid-in capital.

F-22

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The deferred tax assets and liabilities consist of the following components for Stations:



		December 31,

		2000			2001


		(In thousands)
Deferred tax assets:
	Loss and tax credit carryforwards	$	5,838		$	11,343
	Receivable allowances and accruals		1,138			946
	Network agreements		973			762
	Original issue discount		26,200			29,049

			34,149			42,100

Deferred tax liabilities:
	Property and equipment		5,596			4,555
	Intangibles		78,480			76,811

			84,076			81,366

	Net deferred tax liability	$	(49,927	)	$	(39,266	)

The total income tax benefit (expense) for the years ended December 31, 1999, 2000 and 2001 was $9,717, $(30,479) and $11,906, respectively. Those amounts have been allocated to the following financial statement items:



	Year Ended December 31,

	1999			2000			2001


	(In thousands)
Income (loss) from continuing operations	$	(406	)	$	(29,199	)	$	10,165
(Loss) from discontinued operations		1,783			(652	)		1,741
Extraordinary item		8,340			(628	)		—

	$	9,717		$	(30,479	)	$	11,906

The income tax benefit (expense) related to continuing operations before income taxes and extraordinary item for Stations consisted of the following:



	Year Ended December 31,

	1999			2000			2001


	(In thousands)
Current tax benefit (expense)	$	(696	)	$	(608	)	$	359
Deferred tax benefit (expense)		290			(28,591	)		9,806

	$	(406	)	$	(29,199	)	$	10,165

Under the provisions of the Internal Revenue Code, Stations and its subsidiaries have approximately $27,021,000 of net operating loss carryforwards, which expire in the years 2020 through 2022, and approximately $535,000 of tax credit carryforwards with no expiration, that are available to offset future tax liabilities.

F-23

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

A reconciliation of the statutory federal income tax rate to Stations’ effective tax rate on income (loss) from continuing operations is as follows:



		December 31,

		1999			2000			2001

Computed “expected” income tax (benefit) expense			(35.0	)%		35.0	%		(35.0	)%
Increase (decrease) resulting from:
	State income taxes, net of federal effect		(5.0	)		5.0			(5.0	)
	Nondeductible amortization and expenses		14.7			2.5			3.2
	Nondeductible goodwill write-off related to sale of stations		25.1			22.6			—
	Other, net		3.9			(0.1	)		(0.2	)

Effective tax rate			3.7	%		65.0	%		(37.0	)%

The 1999 and 2000 tax effects related to the extraordinary items in 1999 and 2000 (Note G) are deferred and approximate the statutory U.S. tax rate.

(Note L) — Preferred and Common Stock

The board of directors of Stations has authorized 2,500,000 shares of preferred stock of which 550,000 was issued and outstanding as of December 31, 2001. The board has the right and ability to set the terms and preferences of the preferred stock. The board has not set the terms and preferences of the remaining 1,950,000 unissued shares.

The following table summarizes common stock:



		December 31,

		2000		2001

Common stock, class A par value $0.01, one vote per share
	Authorized shares		10,000,000		10,000,000
	Issued and outstanding shares		None		None
Common stock, class B par value $0.01, ten votes per share, convertible into class A common stock at a ratio of 1:1
	Authorized shares		10,000,000		10,000,000
	Issued and outstanding shares		7,400,000		7,400,000

(Note M) — Fair Value of Financial Instruments

The estimated fair value of financial instruments has been estimated by Stations using available market information and appropriate valuation methodologies as discussed below. Considerable judgment was required, however, to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented below are not necessarily indicative of the amounts Stations could realize in a current market exchange.

Cash and cash equivalents, current receivables and current payables have carrying values which approximate fair value because of the short-term nature of those instruments. The floating rate long-term debt carrying amount approximates fair value because the interest rate fluctuates with the bank’s lending rate. The interest rate cap agreement is carried at fair value.

F-24

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table shows the carrying amounts and estimated fair values of other financial instrument liabilities at December 31, 2000 and 2001:



	2000				2001

	Carrying		Estimated		Carrying		Estimated
	Amount		Fair Value		Amount		Fair Value


	(In thousands)
Program broadcast liabilities	$	9,517	$	9,081	$	11,427	$	11,002
Other notes payable		6,896		6,896		6,702		6,702
Discount Notes		147,546		119,096		154,670		112,909
Senior Preferred Stock		139,636		47,152		157,845		30,179
Junior Preferred Stock		65,928		22,078		78,905		See Below

The fair value of program broadcast liabilities and other notes payable were estimated using the discounted cash flow method.

The fair value of the Discount Notes and Senior Preferred Stock were estimated using readily available quoted market prices.

The fair value of the Junior Preferred Stock at December 31, 2000 was estimated using discounted cash flow analysis, based on the interest rate, preferences and other risks inherent in the instrument. Due to Stations’ current financial position and the lack of available market prices, the fair value of the Junior Preferred Stock was not practicable to be estimated at December 31, 2001.

The above fair value estimates were made at a discrete point in time based on relevant market information and other assumptions about the financial instruments. As no active market exists for a significant portion of Stations’ financial instruments, fair value estimates were based on judgments regarding current economic conditions; future expected cash flows, risk characteristics and other factors. These estimates are subjective in nature and involve uncertainties and, therefore, cannot be calculated with precision. Changes in assumptions could significantly affect these estimates.

(Note N) — Pending Adoption of Accounting Standards

In July 2001, the Financial Accounting Standards Board (FASB) issued two statements — Statement 141 “Business Combinations” and Statement 142 “Goodwill and Other Intangible Assets,” which will impact Stations’ accounting for its goodwill and other intangible assets. Stations will be required to adopt these pronouncements for its 2002 financial statements.

Statement 141 “Business Combinations”:


	•	Eliminates the pooling method of accounting for business combinations.

	•	Requires that intangible assets that meet certain criteria be reported separately from goodwill.

	•	Requires that negative goodwill arising from a business combination is recorded as an extraordinary gain.

Statement 142 “Goodwill and Other Intangible Assets”:


	•	Eliminates the amortization of goodwill and other intangibles that are determined to have an indefinite life.

	•	Requires, at a minimum, annual impairment tests for goodwill and other intangible assets that are determined to have an indefinite life.

F-25

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Upon adoption of these statements, Stations is required to:


	•	Evaluate its existing intangible assets and goodwill that were acquired in prior purchase business combinations and to make any necessary reclassifications in order to conform to the new criteria.

	•	Reassess the useful lives of intangible assets and adjust the remaining amortization periods accordingly.

In accordance with Statement 142, Stations stopped amortizing its goodwill and FCC licenses upon adoption on January 1, 2002. Stations also revised the amortization periods for its network affiliation agreements from 40 years to the remaining term of the applicable agreement. As of January 1, 2002, Stations also performed the first of the required impairment tests of goodwill and indefinite lived intangible assets, from which no impairment loss was identified.

A reconciliation of previously reported net loss applicable to common stock and basic and diluted loss per share to the amounts adjusted for the exclusion of goodwill and FCC license amortization and for the adjustment to network affiliation agreement amortization, net of applicable income taxes, follow:



		Years Ended December 31,

		1999			2000			2001


		(In thousands, except per share data)
Reported net loss before extraordinary item applicable to common stock		$	(34,764	)	$	(9,099	)	$	(76,601	)
Add back:
	Goodwill amortization		4,415			3,590			3,389
	FCC license amortization		2,054			2,658			2,842
Adjust network affiliation agreement amortization			(6,188	)		(6,188	)		(6,188	)

Adjusted net loss before extraordinary item applicable to common stock		$	(34,483	)	$	(9,039	)	$	(76,558	)
Extraordinary item			(12,510	)		942			—

Adjusted net loss applicable to common stock		$	(46,993	)	$	(8,097	)	$	(76,558	)

Reported basic and diluted loss per share before extraordinary item		$	(4.70	)	$	(1.23	)	$	(10.35	)
Add back:
	Goodwill amortization		0.60			0.49			0.46
	FCC license amortization		0.28			0.36			0.38
Adjust network affiliation agreement amortization			(0.84	)		(0.84	)		(0.84	)

Adjusted basic and diluted loss per share before extraordinary item		$	(4.66	)	$	(1.22	)	$	(10.35	)
Extraordinary item			(1.69	)		0.13			—

Adjusted basic and diluted loss per share		$	(6.35	)	$	(1.09	)	$	(10.35	)

(Note O) — Early Adoption of Accounting Standard

In October 2001, the FASB issued Statement 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which establishes accounting and reporting standards for the impairment or disposal of long-lived assets. This statement supercedes Statement 121 “Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of.” Statement 144 provides one accounting model to

F-26

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

be used for long-lived assets to be disposed of by sale, whether previously held for use or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions. The provisions of Statement 144 are effective for financial statements issued for fiscal years beginning after December 15, 2001, however, as permitted by the Statement, Stations has elected to early adopt Statement 144 as of January 1, 2001, and the accompanying financial statements have been prepared with the Station Group and WTRF-TV accounted for as discontinued operations in accordance with Statement 144. The adoption of this Statement had no effect on net loss for the year ended December 31, 2001.

(Note P) — Commitments

In accordance with FCC regulations, Stations is required to provide digital advanced television transmission (“DTV”) for each of its television stations by May 1, 2002. The conversion to DTV from current analog transmissions will require a substantial capital outlay by Stations and has been completed at one of the television stations. Stations has requested six-month extensions for each of the remaining stations which are currently pending with the FCC. Stations estimates the total costs associated with the conversion to be approximately $18,700,000. Approximately $4,147,000 has been incurred at December 31, 2001, with the remainder to be incurred in 2002 and beyond. In connection with the conversion to DTV, Stations has entered into an agreement to purchase twelve digital transmitters for approximately $4,990,000.

(Note Q) — Management Plans, Continuing Operations and Subsequent Events

Stations is currently in default under its Credit Facility due to the violation of certain covenants since June 30, 2001. The senior lenders under the Credit Facility thus blocked the payment of approximately $10,247,000 of cash interest due to the holders of the Discount Notes on November 15, 2001. The payment blockage is for a period of 179 days commencing on November 7, 2001. Due to this payment blockage, Stations has not yet made the November 15, 2001 interest payment and is in default under the Discount Notes.

In response to the above, Stations has been actively seeking to reduce its debt burden since February 2001. These efforts include, among other things, potential asset or stock sales. The Stations’ efforts to sell assets and reduce indebtedness are designed to enable Stations to service and/or prepay its debt obligations. In addition to potential asset and stock sales, Stations continues to explore other alternatives to address its cash interest obligations on the Discount Notes and its non-compliance with the Credit Facility. The events of September 11, 2001 and their adverse impact on Stations’ liquidity, together with the difficult advertising revenue climate that continued through the end of 2001, have negatively impacted some of the alternatives that were previously available to Stations.

Stations has held extensive negotiations with certain holders of the Discount Notes and other constituents in an attempt to obtain additional liquidity or otherwise address the outstanding defaults under the Discount Notes and the Credit Facility. Notwithstanding many weeks of intense discussions, Stations has been unable to accomplish an out of court restructuring with its constituents. Therefore, on March 22, 2002 Stations filed for relief under Chapter 11 of the Bankruptcy Code to fully explore all available strategic alternatives in order to identify the option that will best maximize value for Stations’ constituents.

On April 1, 2002 Stations signed a letter of intent with Gray Communications Systems, Inc. (“Gray”), whereby Gray will acquire 100% of the capital stock of Stations for a cash payment of $500,000,000 less the amount of debt assumed at closing. The transaction is subject to execution of a definitive agreement as well as approval by the FCC of the transfer of control of Stations’ FCC licenses. The transaction is also subject to approval by the Delaware bankruptcy court with jurisdiction over the Chapter 11 reorganization of Stations. The transaction is expected to close by the fourth quarter of 2002.

F-27

STATIONS HOLDING COMPANY, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

On April 30, 2002, Stations completed the sale of the television broadcast assets of WTRF-TV to West Virginia Media. See (Note B).

On June 4, 2002, Stations executed a merger agreement with Gray whereby Stations will become a subsidiary of Gray in exchange for approximately $502,500,000 in cash, a substantial portion of which will be used to satisfy, in full, certain indebtedness of Stations. As part of the merger agreement, Stations and Gray agreed to sell the assets of eight television stations (the “Station Group”) to a third party prior to the merger with Gray. On June 4, 2002, Stations also signed an agreement with a third party to sell the Station Group for a sales price of $30,000,000 less assumed indebtedness. The Station Group and WTRF-TV have been accounted for as discontinued operations under SFAS No. 144 for each period presented.

The assets and liabilities of the Station Group and WTRF-TV consist of the following at December 31:


		2000		2001


		(In thousands)
Assets
Accounts receivable		$	8,080	$	7,438
Program broadcast rights			2,281		2,783
Property and equipment			20,389		19,041
Goodwill			35,277		10,729
Intangible assets			44,027		41,542
Other			886		1,107

	Total	$	110,940	$	82,640

Liabilities
Notes and leases payable		$	2,219	$	1,921
Accounts payable and accrued expenses			2,297		3,133
Program broadcast liabilities			3,151		2,741
Deferred taxes			13,106		12,217
Other			1,307		1,017

	Total	$	22,080	$	21,029

The assets of WTRF-TV are separately classified as “Assets of station held for sale” at December 31, 2001.

For the years ended December 31, 1999, 2000 and 2001, the net revenues included in discontinued operations for the Station Group and WTRF-TV were $40,974,000, $43,399,000 and $36,115,000, respectively. Excluding writedowns to fair value and losses on sale of $(2,984,000) in 1999 and $(24,553,000) in 2001, the amount of loss before income taxes included in discontinued operations for the years ended December 31, 1999, 2000 and 2001 was $(3,158,000), $(229,000) and $(5,273,000), respectively.

F-28

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS


				December 31,			June 30,
				2001			2002

							(Unaudited)

				(In thousands)
ASSETS
Current Assets
	Cash and cash equivalents			$	3,503		$	4,771
	Receivables
		Trade, net			29,912			20,959
		Notes receivable-officers			720			1,650
		Other			720			479
	Current portion of program broadcast rights				6,394			1,260
	Prepaid expenses				2,237			2,347
	Deferred income taxes				946			549
	Assets of stations held for sale				18,500			33,351

			Total current assets		62,932			65,366

Property and equipment					67,874			48,579

Goodwill					83,210			78,099

Intangible assets					247,665			210,370

Other assets
	Program broadcast rights, less current portion				1,884			1,320
	Deferred loan and transaction costs				3,487			3,534
	Notes receivable-officers				982			168
	Other				203			311

					6,556			5,333

				$	468,237		$	407,747

LIABILITIES AND STOCKHOLDERS’ (DEFICIT)
Liabilities Not Subject to Compromise:
	Current Liabilities:
		Current maturities of notes payable		$	432,639		$	1,979
		Current portion of program broadcast liabilities			9,421			3,471
		Accounts payable and accrued expenses			23,061			17,625
		Deferred revenue			580			265
		Liabilities of stations held for sale			—			6,365

			Total current liabilities		465,701			29,705

	Long-Term Obligations
		Notes payable			4,733			3,050
		Program broadcast liabilities			2,006			1,120
		Deferred revenue			1,325			500
		Deferred income taxes			40,212			28,041

					48,276			32,711

Liabilities subject to compromise					—			425,039

Senior exchangeable preferred stock, liquidation preference, 2001 – $150,895 and 2002 – $159,696					157,845			166,604

Seller junior discount preferred stock, liquidation preference, 2001 – $73,296 and 2002 – $79,604					78,905			86,166

Stockholders’ (Deficit)
	Common stock, Class A				—			—
	Common stock, Class B				74			74
	Additional paid-in capital				(68,605	)		(68,585	)
	Accumulated deficit				(213,260	)		(263,516	)
	Stockholder’s note receivable				(699	)		(451	)

					(282,490	)		(332,478	)

				$	468,237		$	407,747

The accompanying notes are an integral part of the consolidated financial statements.

F-29

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



				Three Months Ended
				June 30,

				2001			2002


				(Unaudited)
				(In thousands, except
				share and per share data)
Net revenues				$	28,441		$	29,057

Operating expenses:
	Selling, technical and program expenses				12,240			12,431
	General and administrative				3,979			4,253
	Depreciation and amortization				5,565			6,044
	Corporate				1,459			1,561

					23,243			24,289

			Operating income		5,198			4,768

Financial income (expense):
	Interest expense:
		Cash interest			(7,728	)		(10,192	)
		Other interest			(2,136	)		(192	)

					(9,864	)		(10,384	)
	Interest income				38			24

					(9,826	)		(10,360	)

(Loss) before reorganization items					(4,628	)		(5,592	)
Reorganization items:
	Professional fees				—			(160	)

(Loss) from continuing operations before income tax					(4,628	)		(5,752	)
	Income tax benefit				1,549			2,169

(Loss) from continuing operations					(3,079	)		(3,583	)
Discontinued Operations:
(Loss) from operations of discontinued stations					(665	)		(84	)
	Income tax benefit (expense)				163			(2,264	)

(Loss) from discontinued operations					(502	)		(2,348	)

Net (loss)					(3,581	)		(5,931	)
Preferred stock dividends and accretion					(7,622	)		(8,171	)

Net (loss) applicable to common stock				$	(11,203	)	$	(14,102	)

Basic and diluted (loss) per common share:
	(Loss) from continuing operations			$	(1.44	)	$	(1.59	)
	(Loss) from discontinued operations				(0.07	)		(0.32	)

		(Loss) per common share		$	(1.51	)	$	(1.91	)

		Weighted-average common shares outstanding			7,400,000			7,400,000

The accompanying notes are an integral part of the consolidated financial statements.

F-30

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS



				Six Months Ended
				June 30,

				2001			2002


				(Unaudited)
				(In thousands, except
				share and per share data)
Net revenues				$	52,028		$	54,641

Operating expenses:
	Selling, technical and program expenses				24,766			24,622
	General and administrative				8,117			8,320
	Depreciation and amortization				10,933			12,353
	Corporate				3,123			3,104

					46,939			48,399

			Operating income		5,089			6,242

Financial income (expense):
	Interest expense:
		Cash interest			(12,779	)		(20,783	)
		Other interest			(7,797	)		(384	)

					(20,576	)		(21,167	)
	Interest income				87			56

					(20,489	)		(21,111	)

(Loss) before reorganization items					(15,400	)		(14,869	)
Reorganization items:
	Professional fees				—			(1,091	)

(Loss) from continuing operations before income tax					(15,400	)		(15,960	)
	Income tax benefit				5,613			6,100

(Loss) from continuing operations					(9,787	)		(9,860	)
Discontinued Operations:
	(Loss) from operations of discontinued stations				(3,036	)		(33,581	)
	Income tax benefit				888			9,205

		(Loss) from discontinued operations			(2,148	)		(24,376	)

Net (loss)					(11,935	)		(34,236	)
Preferred stock dividends and accretion					(15,102	)		(16,020	)

Net (loss) applicable to common stock				$	(27,037	)	$	(50,256	)

Basic and diluted (loss) per common share:
	(Loss) from continuing operations			$	(3.36	)	$	(3.50	)
	(Loss) from discontinued operations				(0.29	)		(3.29	)

		(Loss) per common share		$	(3.65	)	$	(6.79	)

		Weighted-average common shares outstanding			7,400,000			7,400,000

The accompanying notes are an integral part of the consolidated financial statements.

F-31

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT)

Six Months Ended June 30, 2002


			Additional						Stockholder’s
	Common		Paid-In			Accumulated			Note
	Stock		Capital			Deficit			Receivable			Total


	(Unaudited)
	(In thousands)
Balance at December 31, 2001	$	74	$	(68,605	)	$	(213,260	)	$	(699	)	$	(282,490	)
Dividends on preferred stock		—		—			(16,020	)		—			(16,020	)
Accrued interest on note receivable		—		20			—			(20	)		—
Amortization of stockholder note forgiveness		—		—			—			268			268
Net (loss)		—		—			(34,236	)		—			(34,236	)

Balance at June 30, 2002	$	74	$	(68,585	)	$	(263,516	)	$	(451	)	$	(332,478	)

The accompanying notes are an integral part of the consolidated financial statements.

F-32

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS



					Six Months Ended
					June 30,

					2001			2002


					(Unaudited)
					(In thousands)
Cash flows from operating activities
	Net (loss)				$	(11,935	)	$	(34,236	)
		Adjustments to reconcile net (loss) to net cash provided by operating activities:
			Amortization of program broadcast rights			4,650			4,418
			Depreciation and amortization			8,870			7,140
			Amortization and writedown of intangibles and deferred loan costs			6,036			6,621
			Amortization of note discount			7,124			—
			Loss on writedown of stations held for sale			—			31,718
			Deferred income taxes			(5,133	)		(15,457	)
	Changes in operating assets and liabilities, net of effects of acquisitions and dispositions:
			Receivables			2,761			3,277
			Prepaid expenses and other			(492	)		(78	)
			Payments on program broadcast liabilities			(4,702	)		(4,860	)
			Accounts payable and accrued expenses			2,322			14,390
			Deferred revenue			(277	)		(247	)

				Net cash provided by operating activities		9,224			12,686

Cash flows from investing activities
	Purchase of property and equipment					(5,717	)		(4,643	)
	Proceeds from sale of station					—			17,821
	Disbursements on notes receivable — officers, net of payments					15			—
	Other, net					(47	)		15

				Net cash provided by (used in) investing activities		(5,749	)		13,193

Cash flows from financing activities
	Principal payments on notes payable					(671	)		(8,979	)
	Net payments on revolver					(2,500	)		(15,224	)
	Repurchase of initial warrants					(158	)		—
	Deferred transaction costs and other					(141	)		(408	)

				Net cash (used in) financing activities		(3,470	)		(24,611	)

				Increase in cash and cash equivalents		5			1,268
Cash and cash equivalents:
		Beginning				3,983			3,503

		Ending			$	3,988		$	4,771

The accompanying notes are an integral part of the consolidated financial statements.

F-33

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS — (Continued)



		Six Months Ended
		June 30,

		2001			2002


		(Unaudited)
		(In thousands)
Supplemental Disclosure of Cash Flow Information:
	Cash payments for interest	$	11,715		$	9,435
	Cash (received from) payments for income taxes		(1,474	)		100

Supplemental Schedule of Noncash Investing and Financing Activities:
	Acquisition of program broadcast rights	$	2,688		$	349
	Notes payable incurred for purchase of property and equipment		1,224			85
	Equipment acquired by barter transactions		220			67
	Dividends accrued on preferred stock		14,080			16,020
	Accrued interest on note receivable stockholder added to additional paid-in capital		20			40
	Amortization of stockholder note forgiveness		—			268
	Accretion to senior preferred stock		1,022			—

Sale of stations:
	Property and equipment sold	$	—		$	3,036
	Intangible assets sold		—			15,477
	Program broadcast rights sold		—			152
	Program liabilities transferred		—			(140	)
	Other, net		—			(39	)

			—			18,486
	Loss recognized on sale of station		—			(430	)

			—			18,056
	Option payment received during prior year, net of fees paid		—			(235	)

	Proceeds from sale of station, net	$	—		$	17,821

The accompanying notes are an integral part of the consolidated financial statements.

F-34

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Note A) — Nature of Business and Basis of Presentation

Nature of Business

Stations is a holding company with minimal operations other than from its wholly owned subsidiary, Benedek. Stations’ owns and operates twenty-three television stations located throughout the United States. Stations’ revenues are derived primarily from the sale of advertising time and, to a modest extent from compensation paid by the networks for broadcasting network programming and barter transactions for goods and services. The television stations sell commercial time during the programs to national, regional and local advertisers. The networks also sell commercial time during the programs to national advertisers. Credit arrangements are determined on an individual customer basis. Segment information is not presented since all of Stations’ revenue is attributed to a single reportable segment.

Basis of Presentation

The consolidated financial statements include the accounts of Stations and Benedek. Benedek includes three wholly owned subsidiaries, Benedek License Corporation, Benedek Cable, Inc. and Benedek Interactive Media, LLC. All significant intercompany items and transactions have been eliminated in consolidation.

On March 22, 2002, Stations filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Benedek and its subsidiaries are not party to the bankruptcy action. Under Chapter 11, certain claims against the Debtor in existence prior to the filing of the petitions for relief under the federal bankruptcy laws are stayed while the Debtor continues business operations as Debtor-in-possession. These claims are reflected in the June 30, 2002 balance sheet as “Liabilities subject to compromise.”

The accompanying financial statements have been prepared assuming that Stations will continue as a going concern. Stations is in default under its credit facility and senior subordinated discount notes and Stations has filed for relief as described above. These facts raise substantial doubt with respect to Stations’ ability to continue as a going concern. Management’s plans in regard to these matters are described in Note D below. The financial statements do not include any adjustments that might result from the outcome of this uncertainty, other than the classification of Stations’ credit facility, which totals $252,892,000, the Discount Notes of $154,670,000, and the prepetition interest due on the Discount Notes of $17,477,000, as a portion of liabilities subject to compromise.

The accompanying unaudited consolidated financial statements have been prepared consistent with generally accepted accounting principles for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Some of the information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to such rules and regulations. It is recommended that these financial statements be read along with the annual financial statements and footnotes thereto of Stations for the year ended December 31, 2001.

(Note B) — Commitments

In accordance with FCC regulations, the stations are required to provide digital television transmission (“DTV”) by May 1, 2002. The conversion to DTV from the current analog transmissions will require a substantial capital outlay by Stations and has been completed at one of the stations. The FCC has granted six month extensions for each of the remaining stations. Stations estimates the total costs associated with the conversion to be $17.0 million. At June 30, 2002, $7.5 million has been incurred, with the remainder to be incurred in 2002 and beyond.

F-35

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

In connection with the conversion to DTV, Stations entered into a strategic alliance agreement that requires Stations to purchase twenty-five transmitters for an amount that represents approximately $10,400,000. Through June 30, 2002, Stations had received and substantially completed payment on 13 of the transmitters.

(Note C) — Adoption of Accounting Standards

Statement of Financial Accounting Standards No. 142

On January 1, 2002, Stations adopted Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations” and SFAS No. 142 “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001, and also specifies the criteria for recognition of intangible assets separately from goodwill. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead be tested for impairment upon adoption and at least annually thereafter in accordance with the provisions of SFAS No. 142.

In accordance with SFAS No. 142, Stations stopped amortizing its goodwill and FCC licenses upon adoption on January 1, 2002. Amortization expense related to the goodwill and FCC licenses for the six-month period ended June 30, 2001 was approximately $3,094,000 (net of $1,000,000 of applicable income taxes). Stations also revised the amortization periods for its network affiliation agreements from 40 years to the remaining term of the applicable agreement. As of January 1, 2002, Stations also performed the first of the required impairment tests of goodwill and indefinite lived intangible assets, from which no impairment loss was identified.

A reconciliation of previously reported net loss applicable to common stock and basic and diluted loss per share to the amounts adjusted for the exclusion of goodwill amortization and the amortization of indefinite lived intangible assets and for the adjustment to network affiliation agreement amortization, net of applicable income taxes, follow:



		Six Months Ended
		June 30,

		2001			2002


		(In thousands, except per
		share data)
Reported net loss applicable to common stock		$	(27,037	)	$	(50,256	)
Add back:
	Goodwill amortization		1,673			—
	FCC license amortization		1,421			—
Adjust network affiliation agreement amortization			(3,142	)		—

Adjusted net loss applicable to common stock		$	(27,085	)	$	(50,256	)

Reported basic and diluted loss per share		$	(3.65	)	$	(6.79	)
Add back:
	Goodwill amortization		0.23			—
	FCC license amortization		0.19			—
Adjust network affiliation agreement amortization			(0.43	)		—

Adjusted basic and diluted loss per share		$	(3.66	)	$	(6.79	)

F-36

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The changes in the carrying amount of goodwill for the six-month period ended June 30, 2002 are as follows:


		(In thousands)
Balance as of January 1, 2002.		$	83,210
	Writedown associated with stations held for sale		(4,803	)
	Goodwill classified as asset of stations held for sale		(308	)

Balance as of June 30, 2002.		$	78,099

The composition of Stations’ intangible assets and associated accumulated amortization is as follows as of June 30, 2002:


		Gross Carrying		Accumulated		Assets Held		Net Carrying
		Amount		Amortization		For Sale		Amount


		(In thousands)
Intangible assets subject to amortization:
	Network affiliation agreements	$	99,111	$	28,139	$	4,518	$	66,454
	Other		2,526		1,380		21		1,125

			101,637		29,519		4,539		67,579
Intangible assets not subject to amortization:
	FCC licenses		142,791		—		—		142,791

Total intangible assets		$	244,428	$	29,519	$	4,539	$	210,370

The aggregate amortization expense for the six-month periods ended June 30, 2001 and 2002 totaled $5,406,000 and $6,261,000, respectively. Estimated amortization expense for each of the years ending December 31, 2002 through 2006 is approximately $11,300,000 per year.

Statement of Financial Accounting Standards No. 144

On January 1, 2001, Stations adopted SFAS No. 144 “Accounting for the Impairment or Disposal of Long-Lived Assets” which provides accounting and disclosure guidance for the impairment of long-lived assets and long-lived assets to be disposed of.

On April 1, 2002, Stations signed the letter of intent with Gray Communications Systems, Inc. (“Gray”), which is described more fully in Note D along with the resulting merger agreement. Included in that agreement, Stations agreed to sell all assets of eight television stations (“Station Group”) to a third party prior to the merger with Gray. On June 4, 2002, Stations signed an agreement with a third party to sell the Station Group for a sales price of $30,000,000 less assumed indebtedness. This sale is to close before the merger agreement with Gray is consummated, which will most likely occur in the fourth quarter of 2002.

On November 26, 2001, Stations entered into an Asset Purchase Agreement with West Virginia Media Holdings, LLC (“West Virginia Media”) pursuant to which, on April 30, 2002, Stations sold the television broadcast assets of WTRF-TV, in Wheeling, West Virginia to West Virginia Media for $18,500,000. Stations recorded a lower of cost or market adjustment of approximately $6,880,000 in the fourth quarter of 2001 to write down the assets of WTRF-TV to the sales price and subsequently recorded a loss on the disposition of WTRF-TV of approximately $430,000 during the quarter ending June 30, 2002.

The Station Group has been classified as stations held for sale at June 30, 2002 and the Station Group and WTRF-TV have accordingly been accounted for as discontinued operations under SFAS No. 144.

F-37

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The assets and liabilities of the Station Group and WTRF-TV at December 31, 2001 and the Station Group at June 30, 2002 consist of the following:


			December 31,		June 30,
			2001		2002


			(In thousands)
Assets
	Accounts receivable		$	7,438	$	5,684
	Program broadcast rights			2,783		1,478
	Property and equipment			19,041		16,914
	Goodwill			10,729		308
	Intangible assets			41,542		4,539
	Deferred taxes			—		3,684
	Other			1,107		744

		Total	$	82,640	$	33,351

Liabilities
	Notes and leases payable		$	1,921	$	1,429
	Accounts payable and accrued expenses			3,133		1,878
	Program broadcast liabilities			2,741		2,184
	Deferred taxes			12,217		—
	Other			1,017		874

		Total	$	21,029	$	6,365

During 2002, Stations recorded a write-down before income taxes of approximately $31,288,000. This write-down was needed to adjust the carrying value of the stations held for sale to their fair value.

For the six months ended June 30, 2001 and 2002, the net revenues included in discontinued operations for the Station Group and WTRF-TV were $17,909,000 and $16,395,000, respectively. Excluding the write-down to fair value of $(31,288,000) and the loss on the disposition of WTRF-TV of $(430,000) in 2002, the amount of loss before income taxes included in discontinued operations for the six months ended June 30, 2001 and 2002 was $(3,036,000) and $(1,863,000), respectively.

(Note D) – Management Plans, Continuing Operations and Subsequent Events

Stations has been in default under its Credit Facility due to the violation of certain covenants since June 30, 2001. The senior lenders under the credit facility thus blocked the payment of approximately $10,247,000 of cash interest due to the holders of the Senior Subordinated Discount Notes (“Discount Notes”). Due to this payment blockage, Stations has not yet made the November 15, 2001 and May 15, 2002 interest payments and is in default under the Discount Notes.

In response to the above, Stations has been actively seeking to reduce its debt burden since February 2001. These efforts included, among other things, potential asset or stock sales. Stations’ efforts to sell assets and reduce indebtedness were designed to enable Stations to service and/or prepay their debt obligations. In addition to potential asset and stock sales, Stations continued to explore other alternatives to address its cash interest obligations on the Discount Notes and its non-compliance with the Credit Facility. However, the events of September 11, 2001 and their adverse impact on Stations’ liquidity together with the difficult advertising revenue climate that continued through the end of 2001, negatively impacted some of the alternatives that were previously available to Stations.

F-38

STATIONS HOLDING COMPANY, INC., DEBTOR-IN-POSSESSION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Stations held extensive negotiations with certain holders of the Discount Notes and other constituents in an attempt to obtain additional liquidity or otherwise address the outstanding defaults under the Discount Notes and the Credit Facility. Notwithstanding many weeks of intense discussions, Stations was unable to accomplish an out of court restructuring with its constituents. Therefore, on March 22, 2002 Stations filed for relief under Chapter 11 of the Bankruptcy Code to fully explore all available strategic alternatives in order to identify the option that would best maximize value for Stations’ constituents.

On April 1, 2002 Stations signed a letter of intent with Gray and on June 4, 2002 Stations executed a merger agreement with Gray whereby Stations will become a subsidiary of Gray in exchange for approximately $502,500,000 in cash. This amount anticipates payment in full of the Credit Facility and Discount Notes and partial payment to the holders of the Senior Preferred Stock and the Junior Preferred Stock.

Stations and Gray agreed in the merger agreement to the disposition by Stations of the Station Group. On June 4, 2002 Stations thus entered into an agreement to sell the Station Group to a third party for a sales price of $30,000,000 less assumed indebtedness. The proceeds of the transaction, which is a condition of closing pursuant to the merger agreement, will be consummated immediately prior to the closing of the merger agreement with Gray and will be used to partially repay Stations’ lenders under the Credit Facility. The merger agreement with Gray and the sale of the Station Group are expected to close in the fourth quarter of 2002.

F-39

Gray Television, Inc.

$100,000,000

9 1/4% Senior Subordinated Notes Due 2011

PROSPECTUS

SEPTEMBER , 2002

Joint Book-Running Managers


Wachovia Securities	Banc of America Securities LLC	Deutsche Bank Securities

Allen & Company LLC