<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                                 -------------

For the fiscal year ended December 31, 1997       Commission file number 0-19728

                        GRANITE BROADCASTING CORPORATION
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                                         <C>
       Delaware                                                13-3458782
(State of Incorporation)                                     (I.R.S. Employer
                                                             Identification No.)
</TABLE>

                          767 Third Avenue, 34th Floor
                            New York, New York 10017
                                 (212) 826-2530
               (Address, including zip code, and telephone number,
        including area code, of registrant's principal executive offices)

                                 -------------

           Securities Registered Pursuant to Section 12(b) of the Act:

                                      None

           Securities Registered Pursuant to Section 12(g) of the Act:

               Common Stock (Nonvoting), $.01 par value per share
 Cumulative Convertible Exchangeable Preferred Stock, $.01 par value per share

      Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No /_/

      Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in any definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /_/

      As of March 10, 1998, 9,536,052 shares of Granite Broadcasting Corporation
Common Stock (Nonvoting) and 1,662,519 shares of Granite Broadcasting
Corporation Cumulative Convertible Exchangeable Preferred Stock were
outstanding. The aggregate market value (based upon the last reported sale price
on the Nasdaq National Market on March 10, 1998) of the shares of Common Stock
(Nonvoting) held by non-affiliates was approximately $104,547,824. The aggregate
market value (based upon the last reported sale price on the Nasdaq National
Market on March 10, 1998) of shares of Cumulative Convertible Exchangeable
Preferred Stock held by non-affiliates was approximately $97,160,610. (For
purposes of calculating the preceding amounts only, all directors and executive
officers of the registrant are assumed to be affiliates.) As of March 10, 1998,
178,500 shares of Granite Broadcasting Corporation Class A Voting Common Stock
were outstanding, all of which were held by affiliates.

                                  -------------

                       DOCUMENTS INCORPORATED BY REFERENCE

      Portions of Item 14 of Part IV are incorporated by reference to: Granite
Broadcasting Corporation's Registration Statement No. 33-43770, filed on
November 5, 1991; Granite Broadcasting Corporation's Registration Statement No.
33-52988, filed on October 6, 1992; Granite Broadcasting Corporation's Current
Report on Form 8-K, filed on June 25, 1993; Granite Broadcasting Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1993, filed on
November 15, 1993; Amendment No. 2 to Granite Broadcasting Corporation's
Registration Statement No. 33-71172, filed on December 16, 1993; Granite
Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994, filed on November 14, 1994; Granite Broadcasting
Corporation's Annual Report on Form 10-K for the year ended December 31, 1994,
filed on March 29, 1995; Granite Broadcasting Corporation's Current Report on
Form 8-K, filed on May 19, 1995; Granite Broadcasting Corporation's Current
Report on Form 8-K, filed on July 14, 1995; Granite Broadcasting Corporation's
Registration Statement No. 33-94862, filed on July 21, 1995; Amendment No. 2 to
Granite Broadcasting Corporation's Registration Statement No. 33-94862, filed on
October 6, 1995; Granite Broadcasting Corporation's Annual Report on Form 10-K
for the year ended December 31, 1995, filed on March 28, 1996; Granite
Broadcasting Corporation's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996, filed on August 13, 1996; Granite Broadcasting Corporation's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1996, filed on
November 14, 1996; Granite Broadcasting Corporation's Current Report on Form
8-K, filed on December 17, 1996; Granite Broadcasting Corporations' Annual
Report on Form 10-K for the year ended December 31, 1996, filed on March 21,
1997; Amendment No. 1 to Granite Broadcasting Corporation's Registration
Statement No. 333-24907, filed on June 10, 1997; Granite Broadcasting
Corporation's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
filed on August 8, 1997; Granite Broadcasting Corporation's Current Report on
Form 8-K, filed on October 17, 1997; and Granite Broadcasting Corporation's
Current Report on Form 8-K, filed on March 2, 1998.

<PAGE>

                                     PART I

Item 1. Business

                  Granite Broadcasting Corporation ("Granite" or the "Company"),
a Delaware corporation, is a group broadcasting company founded in 1988 to
acquire and manage network-affiliated television stations and other media and
communications-related properties. The Company's goal is to identify and acquire
properties that management believes have the potential for substantial long-term
appreciation and to aggressively manage such properties to improve their
operating results. The Company currently owns and operates ten
network-affiliated television stations: KNTV(TV), the ABC affiliate serving San
Jose, California and the Salinas-Monterey, California television market
("KNTV"); WTVH-TV, the CBS affiliate serving Syracuse, New York ("WTVH");
KSEE-TV, the NBC affiliate serving Fresno-Visalia, California ("KSEE"); WPTA-TV,
the ABC affiliate serving Fort Wayne, Indiana ("WPTA"); WEEK-TV, the NBC
affiliate serving Peoria-Bloomington, Illinois ("WEEK-TV"); KBJR-TV, the NBC
affiliate serving Duluth, Minnesota and Superior, Wisconsin ("KBJR"); KEYE-TV,
the CBS affiliate serving Austin, Texas ("KEYE"); WWMT-TV, the CBS affiliate
serving Grand Rapids-Kalamazoo-Battle Creek, Michigan ("WWMT"); WKBW-TV, the ABC
affiliate serving Buffalo, New York ("WKBW"); and WDWB-TV (formerly known as
WXON-TV), the WB Network affiliate serving Detroit, Michigan ("WDWB"). KBJR and
WEEK were acquired in separate transactions in October 1988, WPTA was acquired
in December 1989, KNTV was acquired in February 1990, WTVH and KSEE were
acquired in December 1993, KEYE was acquired in February 1995, WWMT and WKBW
were acquired in separate transactions in June 1995 and WDWB was acquired in
January 1997. WLAJ-TV, the ABC affiliate serving Lansing, Michigan ("WLAJ") is
currently being operated by the Company pursuant to a time brokerage agreement
that was entered into in October 1996. The Company owns each of KNTV, WTVH,
KSEE, WPTA, KBJR, KEYE, WWMT, WKBW and WDWB through separate wholly owned
subsidiaries (collectively, the "Subsidiaries"; references herein to the
"Company" or to "Granite" include Granite Broadcasting Corporation and its
subsidiaries). The Company's long-term objective is to acquire additional
television stations and to pursue acquisitions of other media and
communications-related properties in the future.

Recent Developments

      Acquisitions

            On January 31, 1997, the Company acquired substantially all the
assets used in the operation of WDWB, the WB Network affiliated station serving
Detroit, Michigan (the "WDWB Acquisition"), for approximately $175,000,000 in
cash and the assumption of certain liabilities. On January 8, 1997, the Company
completed the acquisition of WIVR-FM in Eureka, Illinois for $1,000,000 in cash.
The Company also changed the station's call letters to WEEK-FM. The radio
station is run in combination with Granite-owned WEEK-TV, the leading television
station in the Peoria - Bloomington, Illinois television market.

      KOFY Acquisition Agreement

            On October 3, 1997, the Company entered into a definitive agreement
with Pacific FM Incorporated ("Pacific"), a California corporation, James J.
Gabbert and Michael P. Lincoln to acquire 51% of the outstanding stock of
Pacific, the owner of KOFY-TV, the WB Network affiliated station serving the San
Francisco-Oakland-San Jose, California television market ("KOFY"). At the
closing of this purchase, it is contemplated that the Company will acquire the
remaining 49% of the stock of Pacific. The total purchase price for all the
stock of Pacific will be $143.75 million in cash, subject to certain
adjustments. In addition, the Company will pay $30 million to the principal
shareholders of Pacific for a covenant not to compete in the San Francisco-San
Jose television market for a period of five years from the closing of the
Company's acquisition.

            The proposed acquisition is subject to approval by the Federal
Communications Commission (the "FCC") and other customary closing conditions and
is expected to be completed during the third quarter of 1998. Because 
<PAGE>

Granite already owns a television station with an overlapping service area,
KNTV, the Company has requested a permanent waiver of the FCC's local television
multiple ownership rule to permit Granite to own both KNTV and KOFY.

      WWMT and WLAJ Sale Agreement

            On February 18, 1998, the Company and certain of the Company's
subsidiaries entered into a definitive agreement with Freedom Communications,
Inc. ("Freedom"), a California corporation, whereby Freedom will acquire the
assets of WWMT and WLAJ for a total purchase price of $170 million in cash,
subject to certain adjustments (the "Asset Sale Agreement"). It is anticipated
that proceeds from the sale will be used to fund part of the purchase price of
KOFY.

            Granite acquired all of the assets of WWMT in 1995 for $95 million
and has a contract to acquire all of the assets of WLAJ for $19.4 million.
Granite operates WLAJ pursuant to a time brokerage agreement.

            The consummation of the transactions described in the Asset Sale
Agreement is contingent on, among other things, approval by the FCC and
satisfaction of other customary closing conditions. It is contemplated that the
sale will close in the second quarter of 1998.

      Other Developments

            In April 1996, the Company joined Datacast LLC, a company formed to
establish and operate a national data center and network for the broadcast of
digital data through television station broadcast signals. The other equity
investors in Datacast LLC include Chris-Craft Industries, Inc., Lin Television
Corporation and Schurz Communications Inc. The Company has committed to invest
up to $3,500,000 in Datacast LLC, of which $3,250,000 has been invested to date.


                                      -2-
<PAGE>

      Company and Industry Overview

            The following table sets forth general information for each of the
Company's television stations:

<TABLE>
<CAPTION>
                                                                                     Other
                                                                                  Commercial     Expiration
               Market              Date of      Channel/     Network      Market    Stations       Date of
Station         Area             Acquisition    Frequency   Affiliation   Rank(1)   in DMA      FCC License
-------       --------           -----------    ---------   -----------   ------- ----------    -----------
<S>           <C>                <C>   <C>      <C>           <C>           <C>        <C>      <C>
WDWB-TV       Detroit, MI        01/31/97        20/UHF         WB            9          5        10/01/05
                                                                          
WWMT-TV       Grand Rapids -                                              
              Kalamazoo -                                                 
              Battle Creek, MI   06/01/95(2)      3/VHF        CBS           37          6        10/01/05
                                                                          
WKBW-TV       Buffalo, NY        06/29/95         7/VHF        ABC           40          4        06/01/99
                                                                          
KNTV(TV)      San Jose,                                                   
              Salinas -                                                   
              Monterey, CA       02/05/90        11/VHF        ABC           52          5(3)     12/01/98
                                                                          
KSEE-TV       Fresno-                                                     
              Visalia, CA        12/23/93        24/UHF        NBC           55          9(4)     12/01/98
                                                                          
KEYE-TV       Austin, TX         02/01/95        42/UHF        CBS           60          6        08/01/98
                                                                          
WTVH-TV       Syracuse, NY       12/23/93         5/VHF        CBS           72          4        06/01/99
                                                                          
                                                                          
WPTA-TV       Fort Wayne, IN     12/11/89        21/UHF        ABC          102          4        08/01/05
                                                                       
WLAJ-TV       Lansing, MI        Pending(2),(5)  53/UHF        ABC          105          3        10/01/05
                                                                       
WEEK-TV       Peoria -                                                 
              Bloomington,                                             
              IL                 10/31/88        25/UHF        NBC          110          3        12/01/05
                                                                       
KBJR-TV       Duluth, MN -                                             
              Superior, WI       10/31/88         6/VHF        NBC          134          2        12/01/05
</TABLE>

----------
(1) "Market rank" refers to the size of the television market or Designated
    Market Area ("DMA") as defined by the A.C. Nielsen Company ("Nielsen"),
    except for San Jose. KNTV, whose DMA is the Salinas-Monterey television
    market, primarily serves San Jose and Santa Clara County (which are part
    of the San Francisco-Oakland-San Jose DMA). If Santa Clara County were a
    separate DMA, it would rank as the 52nd largest DMA in the United States.
    All market rank data is derived from the Nielsen Station Index for
    November 1997.

(2) The Company and certain of its subsidiaries have entered into the Asset
    Sale Agreement with Freedom, pursuant to which, subject to certain
    conditions, Freedom will acquire the assets of WWMT and WLAJ for a total
    purchase price of $170 million in cash, subject to certain adjustments.
    See "Recent Developments-WWMT and WLAJ Sale Agreement."

(3) Includes KSMS, Salinas-Monterey and KCU, Salinas, both of which broadcast
    entirely in Spanish.

(4) Includes KFTV Hanford-Fresno and KMSG, Sanger-Fresno, both of which
    broadcast entirely in Spanish.

(5) WLAJ is currently being operated by the Company pursuant to a time
    brokerage agreement.


                                      -3-
<PAGE>

            Commercial television broadcasting began in the United States on a
regular basis in the 1940s. Currently, there are a limited number of channels
available for broadcasting in any one geographic area and the license to operate
a broadcast station is granted by the FCC. Television stations can be
distinguished by the frequency on which they broadcast. Television stations
which broadcast over the very high frequency ("VHF") band of the spectrum
generally have some competitive advantage over television stations that
broadcast over the ultra-high frequency ("UHF") band of the spectrum because the
former usually have better signal coverage and operate at a lower transmission
cost. In television markets in which all local stations are UHF stations, such
as Fort Wayne, Indiana, Peoria-Bloomington, Illinois and Fresno-Visalia,
California, no competitive disadvantage exists.

            Television station revenues are primarily derived from local,
regional and national advertising and, to a lesser extent, from network
compensation and revenues from studio rental and commercial production
activities. Advertising rates are based upon a program's popularity among the
viewers an advertiser wishes to attract, the number of advertisers competing for
the available time, the size and demographic make-up of the market served by the
station, and the availability of alternative advertising media in the market
area. Because broadcast television stations rely on advertising revenues,
declines in advertising budgets, particularly in recessionary periods, adversely
affect the broadcast industry, and as a result may contribute to a decrease in
the valuation of broadcast properties.

      The Company's Stations

            Set forth below are the principal types of television gross revenues
(before agency and representative commissions) received by the Company's
television stations for the periods indicated and the percentage contribution of
each to the gross television revenues of the television stations owned by the
Company.

                          GROSS REVENUES, BY CATEGORY,
                           FOR THE COMPANY'S STATIONS
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                             Years Ended December 31,
                           ----------------------------------------------------------------------------------------
                                  1993             1994               1995              1996               1997
                           ---------------   --------------   ----------------   ---------------   ----------------
                            Amount       %    Amount      %      Amount      %     Amount      %      Amount      %
                            ------     ---    ------    ---      ------    ---     ------    ---      ------    ---
<S>                        <C>       <C>     <C>      <C>       <C>      <C>      <C>      <C>       <C>      <C>  
Local/Regional(1).......   $25,416   56.3%   $38,802  50.9%     $60,969  51.0%    $73,491  47.5%     $87,412  48.3%
National(2).............    16,290   36.1     28,548  37.5       48,995  41.0      61,945  40.0       78,833  43.5
Network Compensation(3).     1,286    2.8      2,244   2.9        4,154   3.5       7,289   4.7        7,859   4.3
Political(4)............       133    0.3      4,060   5.3        1,498   1.3       7,265   4.7        1,036   0.6
Other Revenue(5)........     2,041    4.5      2,559   3.4        3,849   3.2       4,851   3.1        5,943   3.3
                           -------  -----    ------- -----     -------- ------   -------- -----     --------  -----

Total...................   $45,166  100.0%   $76,213 100.0%    $119,465 100.0%   $154,841 100.0%    $181,083 100.0%
                           =======  =====    ======= =====     ======== ======   ======== =====     ========  =====
</TABLE>

----------

(1) Represents sale of advertising time to local and regional advertisers or
    agencies representing such advertisers and other local sources.
(2) Represents sale of advertising time to agencies representing national
    advertisers.
(3) Represents payment by networks for broadcasting network programming.
(4) Represents sale of advertising time to political advertisers.
(5) Represents miscellaneous revenue, including payment for production of
    commercials.

            Automobile advertising constitutes the Company's single largest
source of gross revenues, accounting for approximately 20% of the Company's
total gross revenues in 1997. Gross revenues from restaurants and
entertainment-related businesses accounted for approximately 13% of the
Company's total gross revenues in 1997. Each other category of advertising
revenue represents less than 5% of the Company's total gross revenues.


                                      -4-
<PAGE>

            The following is a description of each of the Company's television
stations:

      WDWB: Detroit, Michigan

            WDWB began operating in 1962 and commenced operating as a WB Network
affiliate in 1995.

            Detroit is the 9th largest DMA in the United States with a total of
1,782,000 television households and a population of 4,823,000 according to
Nielsen. Detroit's economy is based on manufacturing, retail and health
services. The largest employers are General Motors, Ford Motor Company,
Chrysler, Detroit Medical Center, Henry Ford Health System and Blue Cross Blue
Shield of Michigan. The average household income in the DMA is $43,374 according
to estimates provided in the BIA Investing in Television 1997 Report (the "BIA
Report").

      WWMT: Grand Rapids - Kalamazoo - Battle Creek, Michigan

            WWMT began operations in 1950 and is affiliated with CBS.

            The Grand Rapids - Kalamazoo - Battle Creek economy is centered
around manufacturing, health services, education and financial services. The
average household income in the DMA was $39,023, according to estimates provided
in the BIA Report. Leading employers in the area include Pharmacia-UpJohn,
Bronson Medical Center, Borgess Medical Center, Butterworth Hospital, St. Mary's
Health Services, Steel Case, Inc., Amway Corporation, Meijer, Inc., James River
Corporation, General Motors Corporation and The Kellogg Company.

      WKBW: Buffalo, New York

            WKBW began operations in 1958 and is affiliated with ABC.

            The Buffalo economy is centered around manufacturing, government,
health services and financial services. The average household income in the DMA
was $33,913, according to estimates provided in the BIA Report. Leading
employers in the area include General Motors, Ford Motor Company, American Axle
and Manufacturing, M&T Bank, Fleet Bank, Roswell Park Cancer Institute, Buffalo
General Hospital, NYNEX, Tops Markets and DuPont.

      KNTV: San Jose, California

            KNTV began operations in 1955 and is affiliated with ABC.

            KNTV is the only network-affiliated station and only VHF station
licensed to serve San Jose, California, the largest city in Northern California
and the eleventh largest city in the United States. Its VHF signal is broadcast
on Channel 11 and covers all of Santa Clara County, which includes an area that
has come to be known as "Silicon Valley." Although the Nielsen rating service
designates KNTV as the ABC affiliate for the Salinas-Monterey market (which is
southwest of and adjacent to San Jose), according to the November 1997 Nielsen
Monterey/Salinas Viewers In Profile Report more than 83% of the station's
audience resides in the San Francisco-Oakland-San Jose television market (the
fifth largest DMA in the country). The Company believes that the majority of
such audience resides in Santa Clara County. If Santa Clara County were a
separate DMA with its 540,050 television households, it would rank as the 52nd
largest DMA in the United States.

            Santa Clara County has a diverse and affluent economy. The average
effective buying income by household was $57,028, according to the 1996
Demographics USA Report. The area is home to over 2,800 technological companies
as well as numerous institutions and companies of national reputation. Prominent
corporations located in Santa Clara County include Hewlett-Packard,
Lockheed/Martin, IBM, Apple, Intel, Sun Microsystems, Amdahl, Tandem Computers,
National Semiconductor, Syntex, Conner Peripherals, Varian Associates and Chips
& Technologies. Santa Clara County is also the home of several universities
including 


                                      -5-
<PAGE>

Stanford University, San Jose State University and Santa Clara University with
enrollments aggregating approximately 51,000 students.

      KSEE: Fresno-Visalia, California

            KSEE began operations in 1953 and is affiliated with NBC.

            Fresno and the San Joaquin Valley is one of the most productive
agricultural areas in the world with over 6,000 square miles planted with more
than 250 different crops. Although farming continues to be the single most
important part of the Fresno area economy, the area now attracts a variety of
service-based industries and manufacturing and industrial operations. No single
employer or industry dominates the local economy. The average income by
household in the DMA was $33,428, according to estimates provided in the BIA
Report. The Fresno-Visalia DMA is also the home of several universities,
including Fresno State University, with enrollment estimated at 40,000.

      KEYE: Austin, Texas

            KEYE began operations in 1983. The station, formerly a Fox
affiliate, became a CBS affiliate on July 2, 1995.

            The Austin economy benefits from having large private sector
employers such as IBM, Motorola, HEB Stores, Advanced Micro Devices, Abbott
Laboratories, Texas Instruments, Dell Computers, 3M Corporation, Applied
Materials and SEMATECH. Approximately 825 high tech firms employ nearly 85,000
people in the area. This fact, plus the terrain of the region's Hill Country,
has resulted in the Austin area being nicknamed "Silicon Hills." Since Austin,
the nation's 27th largest city, is the state capital, as well as home to the
University of Texas, it also provides a substantial amount of public sector
employment opportunities. The average income per household in the DMA was
$41,348, according to estimates provided in the BIA Report. In addition to the
University of Texas, Southwestern University, Saint Edwards University and
Southwest Texas State University are located in the DMA. Total university
enrollment in the DMA is approximately 100,000 students.

      WTVH: Syracuse, New York

            WTVH began operations in 1948 and is affiliated with CBS.

            The Syracuse economy is centered on manufacturing, education and
government. The average income by household in the DMA was $35,285, according to
estimates provided in the BIA Report. Prominent corporations located in the area
include Carrier Corporation, New Venture Gear, Bristol-Myers Squibb,
Crouse-Hinds, Nestle Foods and Lockheed/Martin. The Syracuse DMA is also the
home of several universities, including Syracuse University, Cornell University
and Colgate University, with enrollments aggregating over 50,000 students.

      WPTA: Fort Wayne, Indiana

            WPTA began operations in 1957 and is affiliated with ABC.

            The Fort Wayne economy is centered on manufacturing, government,
insurance, financial services and education. The average income by household in
the DMA was $39,231, according to estimates provided in the BIA Report.
Prominent corporations located in the area include Magnavox, Lincoln National
Life Insurance, General Electric, General Motors, North American Van Lines, GTE,
Dana, Phelps Dodge, ITT, and Tokheim. Fort Wayne is also the home of several
universities, including the joint campus of Indiana University and Purdue
University at Fort Wayne, with enrollments aggregating over 11,000 students.


                                      -6-
<PAGE>

      WLAJ: Lansing, Michigan

            WLAJ began operations in 1990 and is an ABC affiliate.

            Lansing is the state capital and its economy is centered around
government employment, education and manufacturing. The largest employers are
General Motors, the State of Michigan, Michigan State University, Meijer Inc.,
Michigan Capital Healthcare, Sparrow Hospital and Lansing Community College. The
average household income in the DMA is $38,948 according to estimates provided
in the BIA Report.

      WEEK-TV and WEEK-FM: Peoria-Bloomington, Illinois

            WEEK began operations in 1953 and is affiliated with NBC. WEEK-FM,
acquired in January 1997, is run in combination with WEEK-TV.

            The Peoria economy is centered on agriculture and heavy equipment
manufacturing but has achieved diversification with the growth of service-based
industries such as conventions, healthcare and higher technology manufacturing.
Prominent corporations located in Peoria include Caterpillar, Bemis, Central
Illinois Light Company, Commonwealth Edison Company, Komatsu-Dresser Industries,
IBM, Trans-Technology Electronics and Keystone Steel & Wire. In addition, the
United States Department of Agriculture's second largest research facility is
located in Peoria, and the area has become a major regional healthcare center.
The economy of Bloomington, on the other hand, is focused on insurance,
education, agriculture and manufacturing. Prominent corporations located in
Bloomington include State Farm Insurance Company, Country Companies Insurance
Company and Diamond-Star Motors Corporation (a subsidiary of Mitsubishi). The
average income by household in the DMA was $40,341, according to estimates
provided in the BIA Report. The Peoria-Bloomington area is also the home of
numerous institutions of higher education including Bradley University, Illinois
Central College, Illinois Wesleyan University, Illinois State University, Eureka
College and the University of Illinois College of Medicine, with enrollments
aggregating over 38,000 students.

      KBJR: Duluth, Minnesota and Superior, Wisconsin

            KBJR began operations in 1954 and is affiliated with NBC.

            The area's primary industries include mining, fishing, food
products, paper, medical, shipping, tourism and timber. The average income by
household in the DMA was $30,421, according to estimates provided in the BIA
Report. Duluth is one of the major ports in the United States out of which iron
ore, coal, limestone, cement, grain, paper and chemicals are shipped. Northwest
Airlines has completed construction of two airplane maintenance facilities in
the Duluth area that management estimates added approximately 1,000 jobs to the
Duluth area's economy. Prominent corporations located in the area include
Minnesota Power, U.S. West, Mesabi & Iron Range Railway Co., Walmart, Jeno
Paulucci International, Lake Superior Industries, Potlatch Corporation, Boise
Cascade, Burlington Northern Railway, Target (Dayton-Hudson Corporation),
ConAgra, International Multifoods, Peavey, Cargill, U.S. Steel, Cleveland-Cliffs
Corporation, NorWest Bank, Shopko, Cub Foods and Advanstar. The Duluth-Superior
area is also the home of numerous educational institutions such as the
University of Minnesota-Duluth, the University of Wisconsin-Superior and the
College of St. Scholastica, with enrollments aggregating over 12,000 students.

      Network Affiliation

            Whether or not a station is affiliated with one of the four major
networks, NBC, ABC, CBS or Fox (collectively, the "Networks"), has a significant
impact on the composition of the station's revenues, expenses and operations. A
typical Network affiliate receives the significant portion of its programming
each day from the Network. This programming, along with cash payments, is
provided to the affiliate by the Network in exchange for a substantial majority
of the advertising inventory during Network programs. The Network then sells
this advertising time and retains the revenues so generated.


                                      -7-
<PAGE>

            In contrast, a fully independent station purchases or produces all
of the programming which it broadcasts, resulting in generally higher
programming costs, although the independent station is, in theory, able to
retain its entire inventory of advertising and all of the revenue obtained
therefrom. However, barter and cash-plus-barter arrangements are becoming
increasingly popular. Under such arrangements, a national program distributor
typically retains up to 50% of the available advertising time for programming it
supplies, in exchange for reduced fees for such programming.

            Each of the Company's stations other than WDWB is affiliated with a
Network pursuant to an affiliation agreement. KSEE, WEEK and KBJR are affiliated
with NBC; KNTV, WPTA, WKBW and WLAJ are affiliated with ABC; and KEYE, WTVH and
WWMT are affiliated with CBS. The Network affiliation agreements provide for
contract terms of ten years (other than the NBC agreements for which the terms
are seven years). WDWB has an affiliation arrangement with the WB Network, which
is terminable by either party at will.

            Under each of the Company's affiliation agreements, the Networks may
increase or decrease network compensation and, under certain circumstances,
terminate the agreement upon advance written notice. Under the Company's
ownership, none of its stations has received a termination notice from its
respective Network.

            In substance, each affiliation agreement provides the stations with
the right to broadcast all programs transmitted by the Network with which it is
affiliated. In exchange, the Network has the right to sell a substantial
majority of the advertising time during such broadcast. In addition, for every
hour that the station elects to broadcast Network programming, the Network pays
the station a fee, specified in each affiliation agreement, which varies with
the time of day. Typically, "prime-time" programming (Monday through Saturday
8-11 p.m. and Sunday 7-11 p.m. Eastern Time) generates the highest hourly rates.
Rates are subject to increase or decrease by the Network during the term of each
affiliation agreement, with provisions for advance notice to and right of
termination by the station in the event of a reduction in rates.

      Competition

            The financial success of the Company's television and radio stations
is dependent on audience ratings and revenues from advertisers within each
station's geographic market. The Company's stations compete for revenues with
other television stations in their respective markets, as well as with other
advertising media, such as newspapers, radio, magazines, outdoor advertising,
transit advertising, yellow page directories, direct mail and local cable
systems. Some competitors are part of larger companies with substantially
greater financial resources than the Company.

            Competition in the broadcasting industry occurs primarily in
individual markets. Generally, a television broadcasting station in one market
does not compete with stations in other market areas. The Company's television
stations are located in highly competitive markets.

            In addition to management experience, factors that are material to a
television station's competitive position include signal coverage, local program
acceptance, Network affiliation, audience characteristics, assigned frequency
and strength of local competition. The broadcasting industry is continuously
faced with technological change and innovation, the possible rise in popularity
of competing entertainment and communications media, changes in labor conditions
and governmental restrictions or actions of federal regulatory bodies, including
the FCC and the Federal Trade Commission, any of which could possibly have a
material adverse effect on the Company's operations and results.

            Conventional commercial television broadcasters also face
competition from other programming, entertainment and video distribution
systems, the most common of which is cable television. These other programming,
entertainment and video distribution systems can increase competition for a
broadcasting station by bringing into its market distant broadcasting signals
not otherwise available to the station's audience and also by serving as
distribution systems for non-broadcast programming. Programming is now being
distributed to cable television systems by both terrestrial microwave systems
and by satellite. Other sources of competition include home entertainment
systems (including video cassette recorders and playback systems, video discs
and television


                                      -8-
<PAGE>

game devices), multi-point distribution systems, multichannel multi-point
distribution systems, video programming services available through the Internet
and other video delivery systems. The Company's television stations also face
competition from direct broadcast satellite services which transmit programming
directly to homes equipped with special receiving antennas and from video
signals delivered over telephone lines. Satellites may be used not only to
distribute non-broadcast programming and distant broadcasting signals but also
to deliver certain local broadcast programming which otherwise may not be
available to a station's audience.

            The broadcasting industry is continuously faced with technological
change and innovation, which could possibly have a material adverse effect on
the Company's operations and results. Commercial television broadcasting may
face future competition from interactive video and data services that provide
two-way interaction with commercial video programming, along with information
and data services that may be delivered by commercial television stations, cable
television, direct broadcast satellites, multi-point distribution systems,
multichannel multi-point distribution systems or other video delivery systems.
In addition, recent actions by the FCC, Congress and the courts all presage
significant future involvement in the provision of video services by telephone
companies. The Telecommunications Act of 1996 lifts the prohibition on the
provision of cable television services by telephone companies in their own
telephone areas subject to regulatory safeguards and permits telephone companies
to own cable systems under certain circumstances. It is not possible to predict
the impact on the Company's television stations of any future relaxation or
elimination of the existing limitations on the ownership of cable systems by
telephone companies. The elimination or further relaxation of the restriction,
however, could increase the competition the Company's television stations face
from other distributors of video programming.

      FCC Licenses

            Television broadcasting is subject to the jurisdiction of the FCC
under the Communications Act of 1934, as amended (the "Communications Act"). The
Communications Act prohibits the operation of television broadcasting stations
except under a license issued by the FCC and empowers the FCC, among other
things, to issue, revoke and modify broadcasting licenses, determine the
locations of stations, regulate the equipment used by stations, adopt
regulations to carry out the provisions of the Communications Act and impose
penalties for violation of such regulations. The Telecommunications Act of 1996,
which amends major provisions of the Communications Act, was enacted on February
8, 1996. The FCC has commenced, but not yet completed, implementation of the
provisions of the Telecommunications Act of 1996.

            The Communications Act prohibits the assignment of a license or the
transfer of control of a licensee without prior approval of the FCC. In
addition, foreign governments, representatives of foreign governments,
non-citizens, representatives of non-citizens, and corporations or partnerships
organized under the laws of a foreign nation are barred from holding broadcast
licenses. Non-citizens, however, may own up to 20% of the capital stock of a
licensee and up to 25% of the capital stock of a United States corporation that,
in turn, owns a controlling interest in a licensee. A broadcast license may not
be granted to or held by any corporation that is controlled, directly or
indirectly, by any other corporation of which more than one-fourth of the
capital stock is owned or voted by non-citizens or their representatives, by
foreign governments or their representatives, or by non-U.S. corporations, if
the FCC finds that the public interest will be served by the refusal or
revocation of such license. Under the Telecommunications Act of 1996,
non-citizens may serve as officers and directors of a broadcast licensee and any
corporation controlling, directly or indirectly, such licensee. The Company,
which is the licensee of one of the existing stations, is restricted by the
Communications Act from having more than one-fifth of its capital stock owned by
non-citizens, foreign governments or foreign corporations, but not from having
an officer or director who is a non-citizen.

            Television broadcasting licenses are generally granted and renewed
for a period of eight years, but may be renewed for a shorter period upon a
finding by the FCC that the "public interest, convenience and necessity" would
be served thereby. At the time application is made for renewal of a television
license, parties in interest as well as members of the public may apprise the
FCC of the service the station has provided during the preceding license term
and urge the grant or denial of the application. Under the Telecommunications
Act of 1996 as implemented in the FCC's rules, a competing application for
authority to operate a station and replace the 


                                      -9-
<PAGE>

incumbent licensee may not be filed against a renewal application and considered
by the FCC in deciding whether to grant a renewal application. The statute
modified the license renewal process to provide for the grant of a renewal
application upon a finding by the FCC that the licensee (1) has served the
public interest, convenience, and necessity; (2) has committed no serious
violations of the Communications Act or the FCC's rules; and (3) has committed
no other violations of the Communications Act or the FCC's rules which would
constitute a pattern of abuse. If the FCC cannot make such a finding, it may
deny a renewal application, and only then may the FCC accept other applications
to operate the station of the former licensee. In the vast majority of cases,
broadcast licenses are renewed by the FCC even when petitions to deny are filed
against broadcast license renewal applications. All of the Company's existing
licenses that have come up for renewal have been renewed and are in effect. Such
licenses are subject to renewal at various times during 1998, 1999 and 2005.
Although there can be no assurance that the Company's licenses will be renewed,
the Company is not aware of any facts or circumstances that would prevent the
Company from having its licenses renewed.

            FCC regulations govern the multiple ownership of broadcast stations
and other media on a national and local level. The Telecommunications Act of
1996 directs the FCC to eliminate or modify certain rules regarding the multiple
ownership of broadcast stations and other media on a national and local level.
Pursuant to this directive, the FCC has revised its rules to eliminate the limit
on the number of television stations that an individual or entity may own or
control nationally, provided that the audience reach of all television stations
owned does not exceed 35% of all U.S. households. The FCC also has initiated a
rulemaking proceeding, in accordance with the Telecommunications Act of 1996, to
determine whether to retain, eliminate, or modify its limitations on the number
of television stations (currently one in most instances) that an individual or
entity may own within the same geographic market.

            Pursuant to the Telecommunications Act of 1996, the FCC has
eliminated the limit on the number of radio broadcast stations that an
individual or entity may own or control nationally. The FCC also has relaxed its
local radio multiple ownership rules governing the common ownership of radio
broadcast stations in the same geographic market. In accordance with the
Telecommunications Act of 1996, the FCC's rules permit the common ownership of
up to eight commercial radio stations, not more than five of which are in the
same service (i.e., AM or FM), in markets with 45 or more commercial radio
stations. In markets with 30 to 44 commercial radio stations, an individual or
entity may own up to seven commercial radio stations, not more than four of
which are in the same service. In markets with 15 to 29 commercial radio
stations, an individual or entity may own up to six commercial radio stations,
not more than four of which are in the same service. In markets with 14 or fewer
commercial radio stations, an individual or entity may own up to five commercial
radio stations, not more than three of which are in the same service, provided
that the commonly owned stations represent no more than 50% of the stations in
the market.

            The Telecommunications Act of 1996 does not eliminate the FCC's
rules restricting the common ownership of a radio station and a television
station in the same geographic market ("one-to-a-market rule") and the common
ownership of a daily newspaper and a broadcast station located in the same
geographic market. The statute, however, does relax the FCC's one-to-a-market
rule by authorizing the FCC to extend its waiver policy to stations located in
the 50 largest television markets. As directed by the Telecommunications Act of
1996, the FCC has eliminated its prior restriction on the common ownership of a
cable system and a television network. Although the statute lifts the prior
statutory restriction on the common ownership of a cable television system and a
television station located in the same geographic market, the FCC is not
statutorily required to eliminate its regulatory restriction on such common
ownership. The FCC has initiated a proceeding to solicit comments on retaining,
modifying, or eliminating this regulatory restriction. The Telecommunications
Act of 1996 authorizes the FCC to permit the common ownership of multiple
television networks under certain circumstances. Furthermore, in accordance with
the statute, the FCC has initiated a review of all of its ownership rules to
determine whether they continue to serve the public interest.

            Ownership of television licensees generally is attributed to
officers, directors and shareholders who own 5% or more of the outstanding
voting stock of a licensee, except that certain institutional investors who
exert no control or influence over a licensee may own up to 10% of such
outstanding voting stock before attribution results. Under FCC regulations, debt
instruments, non-voting stock and certain limited partnership interests


                                      -10-
<PAGE>

(provided the licensee certifies that the limited partners are not "materially
involved" in the media-related activities of the partnership) and voting stock
held by minority shareholders where there is a single majority shareholder
generally will not result in attribution. Under the FCC's multiple and
cross-ownership rules, which have been or will be revised in accordance with the
Telecommunications Act of 1996, an officer or director of the Company or a
holder of the Company's voting common stock who has an attributable interest in
other broadcast stations, a cable television system or a daily newspaper may
violate the FCC regulations depending on the number and location of the other
broadcasting stations, cable television systems or daily newspapers attributable
to such person. In addition, the FCC's cross-interest policy, which precludes an
individual or entity from having an attributable interest in one media property
and a "meaningful" (but not attributable) interest in another media property in
the same area, may be invoked in certain circumstances to reach interests not
expressly covered by the multiple ownership rules. None of the Company's
officers, directors or holders of voting common stock have attributable or
non-attributable interests in broadcasting stations, cable television systems or
daily newspapers that violate the FCC's multiple and cross-ownership rules or
the cross-interest policy.

            Irrespective of the FCC rules, the Justice Department and the
Federal Trade Commission (together the "Antitrust Agencies") have the authority
to determine that a particular transaction presents antitrust concerns. The
Antitrust Agencies have recently increased their scrutiny of the television and
radio industries, and have indicated their intention to review matters related
to the concentration of ownership within markets (including local marketing
agreements ("LMAs")) even when the ownership or LMA in question is permitted
under the regulations of the FCC. There can be no assurance that future policy
and rulemaking activities of the Antitrust Agencies will not impact the
Company's operations.

            The Telecommunications Act of 1996 authorizes the FCC to issue
additional licenses for digital television ("DTV") services only to Existing
Broadcasters (as defined herein). DTV is a technology that will improve the
technical quality of television service. The Telecommunications Act of 1996
directs the FCC to adopt rules to permit Existing Broadcasters to use their DTV
channels for various purposes, including foreign language, niche, or other
specialized programming. The statute also authorizes the FCC to collect fees
from Existing Broadcasters who use their DTV channels to provide services for
which payment is received. See "Digital Television Service."

            In accordance with requirements of the Telecommunications Act of
1996, the FCC has approved a voluntary rating system proposed by the broadcast
industry to identify video programming that contains sexual, violent or such
other material about which parents should be informed prior to viewing by
children. The rating system also indicates the appropriateness of the
programming for children according to age and/or maturity. The rating system
applies to all television programming except news, sports and unedited movies
rated by the Motion Picture Association of America.

            In connection with this programming rating system, the FCC also has
established technical requirements of equipping new television receivers with a
device, termed a "V-chip," which will permit parents to block programming with a
common rating designation from their television sets. By July 1, 1999, one half
of all new television receiver models with picture screens 13 inches or greater
will be required to be equipped with this "V-chip." By January 1, 2000, the
V-chip will be required in all qualifying new receivers.

      The Cable Television Consumer Protection and Competition Act

            The Cable Television Consumer Protection and Competition Act of 1992
(the "Cable Act") and the FCC's implementing regulations give television
stations the right to control the use of their signals on cable television
systems. Under the Cable Act, at three year intervals beginning in June 1993,
each television station is required to elect whether it wants to avail itself of
must-carry rights or, alternatively, to grant retransmission consent. If a
television station elects to exercise its authority to grant retransmission
consent, cable systems are required to obtain the consent of that television
station for the use of its signal and could be required to pay the television
station for such use. The Cable Act further requires mandatory cable carriage of
all qualified local television stations electing their must-carry rights or not
exercising their retransmission rights. Under the FCC's rules, television
stations were required to make their election between must-carry and
retransmission consent status by 


                                      -11-
<PAGE>

October 1, 1996, for the period from January 1, 1997 through December 31, 1999.
Television stations that failed to make an election by the specified deadline
were deemed to have elected must-carry status for the relevant three year
period. Each of the Company's stations has either elected its must-carry rights
or entered into retransmission consent agreements with substantially all cable
systems in its DMA. KNTV has elected to exercise its must-carry rights in both
the Salinas-Monterey DMA and Santa Clara County. The Company's other stations
have elected to require retransmission consent in substantially all cases.
Approximately 60% of the households in the geographic areas with respect to
which the Company's stations have elected to exercise their retransmission
rights subscribe to cable television.

      Digital Television Service

            The FCC has adopted rules authorizing DTV service and intends to
adopt other rules to implement the new service. In 1996, the FCC adopted a
transmission standard for DTV which is consistent with a consensus agreement
voluntarily developed by a broad cross-section of parties, including the
broadcasting, equipment manufacturing and computer industries. This digital
standard should improve the quality of both the audio and video signals of
television stations. The FCC has "set aside" channels within the existing
television spectrum for DTV and limited initial DTV eligibility to existing
television stations and certain applicants for new television stations
("Existing Broadcasters"). The FCC has adopted a DTV table of allotments as well
as service and licensing rules to implement the service. The DTV allotment table
provides a channel for DTV operations for each Existing Broadcaster and is
intended to enable Existing Broadcasters to replicate their existing service
areas. The affiliates of CBS, NBC, ABC and Fox in the ten largest U.S.
television markets are required to initiate commercial DTV service with a
digital signal by May 1, 1999. Affiliates of these networks located in the 11th
through the 30th largest U.S. television markets must begin DTV operation by
November 1, 1999. All other commercial stations are required to begin DTV
broadcasts by May 1, 2002. All of the company-owned stations must meet the May
1, 2002 construction deadline. By 2006, broadcasters will have to convert to DTV
service, terminate their existing analog service and surrender their present
analog channel to the FCC. The FCC has begun issuing construction permits for
DTV operations to broadcast licensees. None of the Company's stations have yet
sought FCC authorization for DTV operation.

            Due to increased equipment requirements, implementation of DTV
service will impose substantial additional costs on television stations. It is
also possible that advances in technology may permit Existing Broadcasters to
enhance the picture quality of existing systems without the need to implement
DTV service. The Company does not know the effect the authorization of DTV
service will have on the company's business or capital expenditure requirements.

            The FCC has proposed other rules to implement DTV service. The FCC
proposes to impose certain fees on DTV licensees for the transmission of
non-broadcast services (e.g., paid subscription services) over their DTV
spectrum. The FCC also has announced its intention to initiate rulemaking
proceedings soon to examine: (1) whether, and the extent to which, "must carry"
obligations should be applied to DTV service; (2) the extent to which additional
public interest obligations should be imposed on DTV licensees; and (3) various
DTV tower siting issues.

      Proposed Legislation and Regulations

            The FCC currently has under consideration and the Congress and the
FCC may in the future consider and adopt new or modify existing laws,
regulations and policies regarding a wide variety of matters that could,
directly or indirectly, affect the operation, ownership, and profitability of
the Company's broadcast properties, result in the loss of audience share and
advertising revenues for the Company's stations, and affect the ability of the
Company to acquire additional stations or finance such acquisitions. Such
matters include: (i) spectrum use or other fees on FCC licensees; (ii) the FCC's
equal employment opportunity rules and other matters relating to minority and
female involvement in the broadcasting industry; (iii) rules relating to
political broadcasting and advertising; (iv) technical and frequency allocation
matters; (v) changes in the FCC's cross-interest, multiple ownership and
cross-ownership rules and policies; (vi) changes to broadcast technical
requirements; (vii) changes to the standards governing the evaluation and
regulation of television programming directed towards children, and 


                                      -12-
<PAGE>

violent and indecent programming; and (vii) restrictions on the advertisement of
certain alcoholic products. The Company cannot predict whether such changes will
be adopted or, if adopted, the effect that such changes would have on the
business of the Company.

            As an example of the above proposed changes, the FCC has initiated
rulemaking proceedings to solicit comments on its multiple ownership,
attribution and minority ownership rules. More particularly, the FCC has
initiated proceedings requesting comment on: (i) narrowing the geographic area
where common ownership restrictions would be triggered by limiting it to
overlapping "Grade A" contours rather than "Grade B" contours and by permitting
(or granting waivers or exceptions for) certain UHF or UHF/VHF station
combinations; (ii) relaxing the rules prohibiting cross-ownership of radio and
television stations in the same market to allow certain combinations where there
remain alternative outlets and suppliers to ensure diversity; (iii) treating
television LMAs the same as radio LMAs, which would currently preclude certain
television LMAs where the programmer owns or has an attributable interest in
another television station in the same market; (iv) establishing a
grandfathering policy for certain television LMAs in the event the FCC decides
to treat interests in such LMAs as attributable; and (v) treating a company's
interest in a joint sales agreement for a television station as an attributable
interest for purposes of the FCC's ownership rules. The FCC also has a
rulemaking proceeding pending where it seeks comment on whether it should relax
attribution and other rules to facilitate greater minority and female ownership.
This proceeding currently is being held in abeyance due to uncertainty created
by a 1995 Supreme Court decision which narrowed the legal basis for affirmative
action programs. The Telecommunications Act of 1996 requires the FCC to review
the broadcast ownership rules every two years and to repeal or modify any rules
that are determined to no longer be in the public interest. As a result of this
mandate, the FCC recently initiated an inquiry to review all of its broadcast
ownership rules. The Company cannot predict the outcome of the FCC's rulemaking
proceedings or how FCC changes in its multiple and cross-ownership rules, made
in accordance with the Telecommunications Act of 1996, will affect the Company's
business.

            The FCC also has initiated a notice of inquiry proceeding seeking
comment on whether the public interest would be served by establishing limits on
the amount of commercial matter broadcast by television stations. No prediction
can be made at this time as to whether the FCC will impose any limits on
commercials at the conclusion of its deliberation. The imposition of limits on
the commercial matter broadcast by television stations may have an adverse
effect on the Company's revenues.

      Seasonality

            The Company's operating revenues are generally lower in the first
calendar quarter and generally higher in the fourth calendar quarter than in the
other two quarters, due in part to increases in retail advertising in the fall
months in preparation for the holiday season, and in election years due to
increased political advertising.

      Employees

            The Company and its subsidiaries currently employ approximately
1,160 persons, of whom approximately 235 are represented by three unions
(including 11 bargaining units) pursuant to contracts expiring in 1998, 1999 and
2000 (and two of which are expired but which the Company is currently
renegotiating) at the Company's stations. The Company believes its relations
with its employees are good.

            Certain sections of this Form 10-K, including "Business" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contain various forward looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, which represent the
Company's expectations or beliefs concerning future events. The forward looking
statements include, without limitation, the renewal of the Company's FCC
licenses and the Company's ability to meet its future liquidity needs. The
Company cautions that these statements are further qualified by important
factors that could cause actual results to differ materially from those in the
forward looking statements. Such factors include, without limitation, general
economic conditions, competition in the markets in which the Company's stations
are located, technological change and innovation in the broadcasting industry
and proposed legislation.


                                      -13-
<PAGE>

Item 2. Properties

            The Company's principal executive offices are located in New York,
New York. The lease agreement, for approximately 6,800 square feet of office
space in New York, expires January 31, 2011.

            The types of properties required to support each of the Company's
stations include offices, studios, transmitter sites and antenna sites. A
station's studios are generally housed with its offices in downtown or business
districts. The transmitter sites and antenna sites are generally located so as
to provide maximum market coverage.


                                      -14-
<PAGE>

            The following table contains certain information describing the
general character of the Company's properties:

<TABLE>
<CAPTION>
           Metropolitan               Owned or                      Expiration
Station    Area and Use               Leased     Approximate Size    of Lease
-------    ------------               --------   ----------------   ----------
<S>      <C>                         <C>         <C>                <C>
KNTV      San Jose, California
            Office and Studio         Owned       26,469 sq. feet       -
            Tower Site                Leased       2,080 sq. feet      9/30/02
            Low Power 
              Transmission Site       Leased         100 sq. feet      1/1/01(1)

WTVH      Syracuse, New York
            Office and Studio         Owned       41,500 sq. feet       -

          Onondaga, New York
            Tower Site                Owned        2,300 sq. feet       -

KSEE      Fresno, California
            Office and Studio         Owned       32,000 sq. feet       -

          Bear Mountain, Fresno
          County, California
            Tower Site                Leased       9,300 sq. feet      3/22/34

WPTA      Fort Wayne, Indiana
            Office, Studio and 
              Tower Site              Owned       18,240 sq. feet       -

WEEK      Peoria, Illinois
            Office, Studio and 
              Tower Site              Owned       20,000 sq. feet       -

          Bloomington, Illinois
            Studio and Sales Office   Leased         617 sq. feet   12/31/97(2)

KBJR      Duluth, Minnesota, 
          Superior, Wisconsin
            Office and Studio         Owned       15,749 sq. feet       -
            Tower Site                Owned        3,125 sq. feet       -

KEYE      Austin, Texas
            Office and Studio         Owned       14,000 sq. feet       -
            Tower Site                Leased       1,600 sq. feet      5/1/98

WWMT      Kalamazoo, Michigan
            Office and Studio         Owned       45,000 sq. feet       -
          Gun Lake, Michigan
            Tower Site                Owned        3,580 sq. feet       -

WKBW      Buffalo, New York
            Office and Studio         Owned       32,000 sq. feet       -
          Colden, New York
            Tower Site                Owned        3,406 sq. feet       -

WDWB      Southfield, Michigan
            Office                    Leased       8,850 sq. feet     5/31/99
          Southfield, Michigan
            Studio and Tower Site     Leased(3)   30,000 sq. feet     9/30/06
</TABLE>

----------

(1) Assuming exercise of all of the Company's renewal options under such
    lease.
(2) This lease is in effect on a month-to-month basis and is currently being
    renegotiated by the Company.
(3) The Company owns a 3,400 square foot building on the property.


                                      -15-
<PAGE>

Item 3. Legal Proceedings

            Not Applicable

Item 4. Submission of Matters to a Vote of Security Holders

            Not Applicable


                                      -16-
<PAGE>

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

      The Company's Common Stock (Nonvoting) is traded over-the-counter on the
Nasdaq National Market under the symbol GBTVK. As of March 10, 1998, the
approximate number of record holders of Common Stock (Nonvoting) was 152.

      The range of high and low prices for the Common Stock (Nonvoting) for each
full quarterly period during 1996 and 1997 is set forth in Note 13 to the
Consolidated Financial Statements in Item 8 hereof. At March 10, 1998, the
closing price of the Common Stock (Nonvoting) was $12 per share.

      The Company's publicly traded Cumulative Convertible Exchangeable
Preferred Stock, par value $.01 per share (the "Cumulative Convertible
Exchangeable Preferred Stock") is traded over-the-counter on the Nasdaq National
Market under the symbol GBTVP. The range of high and low prices for each full
quarterly period during 1996 and 1997, is set forth in Note 13 to the
Consolidated Financial Statements in Item 8 hereof. As of March 10, 1998, the
closing price for the Cumulative Convertible Exchangeable Preferred Stock was
$59.75 per share.

      There is no established public trading market for the Company's Class A
Voting Common Stock, par value $.01 per share (the "Voting Common Stock;" the
Voting Common Stock and the Common Stock (Nonvoting) are referred to herein
collectively as the "Common Stock"). As of March 10, 1998, the number of record
holders of Voting Common Stock was 2.

      The Company has declared and paid quarterly cash dividends at a quarterly
rate of $.4844 per share on the Cumulative Convertible Exchangeable Preferred
Stock each quarter since its issuance and anticipates continuing to pay such
dividends. The Company has, however, never declared or paid a cash dividend on
its Common Stock and does not anticipate paying a dividend on its Common Stock
in the foreseeable future. The payment of cash dividends on Common Stock is
subject to certain limitations under the Indentures governing the Company's
10-3/8% Senior Subordinated Notes due May 15, 2005 and 9-3/8% Senior
Subordinated Notes due December 1, 2005, respectively, and is restricted under
the Company's credit agreement (the "Credit Agreement"). The Company is also
prohibited from paying dividends on any Common Stock until all accrued but
unpaid dividends on the Cumulative Convertible Exchangeable Preferred Stock and
the Company's Series A Convertible Preferred Stock, par value $.01 per share
(the "Series A Preferred Stock"), are paid in full. All outstanding shares of
Series A Preferred Stock were converted into Common Stock (Nonvoting) in August
1995. Accrued dividends on the Series A Preferred Stock, which totaled $262,844
at December 31, 1997, are payable on the later of December 31, 1999 or the date
on which such dividends may be paid under the Company's existing debt
instruments. If unpaid, dividends on outstanding shares of Cumulative
Convertible Exchangeable Preferred Stock will accrue at an annual rate of
$1.9375 per share.


                                      -17-
<PAGE>

Item 6. Selected Financial Data

      The information set forth below should be read in conjunction with the
consolidated financial statements and notes thereto included at Item 8 herein.
The selected consolidated financial data for the years ended December 31, 1993,
1994, 1995, 1996 and 1997 are derived from the Company's audited Consolidated
Financial Statements.

      The acquisitions by the Company of its operating properties during the
periods reflected in the following selected financial data materially affect the
comparability of such data from one period to another.

<TABLE>
<CAPTION>
                                                                              Years Ended December 31,
                                                           -------------------------------------------------------------
                                                              1993         1994         1995         1996         1997
                                                           ---------    ---------    ---------    ---------    ---------
Statement of Operations Data:                                      (Dollars in thousands except per share data)
<S>                                                        <C>          <C>          <C>          <C>          <C>      
Net revenue ............................................   $  37,499    $  62,856    $  99,895    $ 129,164    $ 153,512
Station operating expenses .............................      22,790       37,764       55,399       72,089       83,729
Time brokerage agreement fees ..........................          --           --           --          150          600
Depreciation ...........................................       2,398        3,420        4,514        6,144        5,718
Amortization ...........................................       3,359        3,873        7,592        9,737       13,824
Corporate expense ......................................       1,375        2,162        3,132        4,800        6,639
Non-cash compensation ..................................         123          282          363          496          986
                                                           ---------    ---------    ---------    ---------    ---------

Operating income .......................................       7,454       15,355       28,895       35,748       42,016

Other expenses .........................................         479          309          798        1,034        1,167
Equity in net loss (income) of investee ................          --           --         (439)         995        1,531
Interest expense, net ..................................      10,977       10,707       27,026       36,765       38,986
Non-cash interest expense ..............................         505          842        1,738        2,087        2,182
                                                           ---------    ---------    ---------    ---------    ---------
Income (loss) before income taxes and extraordinary item      (4,507)       3,497         (228)      (5,133)      (1,850)
(Provision) benefit for income tax .....................         472         (450)        (555)        (761)      (1,616)
                                                           ---------    ---------    ---------    ---------    ---------
Income (loss) before extraordinary item ................      (4,035)       3,047         (783)      (5,894)      (3,466)
Extraordinary loss on extinguishment of debt ...........      (1,007)          --           --       (2,891)      (5,569)
                                                           ---------    ---------    ---------    ---------    ---------

Net income (loss) ......................................   $  (5,042)   $   3,047    $    (783)   $  (8,785)   $  (9,035)
                                                           =========    =========    =========    =========    =========
Net loss attributable to common shareholders ...........   $  (5,278)   $    (688)   $  (4,368)   $ (12,310)   $ (31,207)
                                                           =========    =========    =========    =========    =========

Basic and diluted loss before extraordinary item
  per common share .....................................   $   (0.98)   $   (0.15)   $   (0.74)   $   (1.09)   $   (2.93)
                                                           =========    =========    =========    =========    =========
Basic and diluted net loss per common share ............   $   (1.21)   $   (0.15)   $   (0.74)   $   (1.43)   $   (3.57)
                                                           =========    =========    =========    =========    =========
Weighted average common shares outstanding .............       4,365        4,498        5,920        8,612        8,765

<CAPTION>
                                                                                    December 31,
                                                           -------------------------------------------------------------
                                                              1993         1994         1995         1996         1997
                                                           ---------    ---------    ---------    ---------    ---------
<S>                                                        <C>          <C>          <C>          <C>          <C>      
Total assets ...........................................   $ 191,517    $ 189,881    $ 452,221    $ 452,563    $ 633,614
Total debt .............................................      99,000       99,250      341,000      351,561      392,779
Redeemable preferred stock .............................      49,139       49,171       45,488       45,488      207,700
Stockholders' equity (deficit) .........................      12,075       11,729        8,868       (3,135)     (33,257)
</TABLE>


                                      -18-
<PAGE>

Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations

Introduction

      The consolidated financial statements of the Company reflect significant
increases between the years ended December 31, 1997 and 1996 in substantially
all line items. The principal reasons for such increases are the acquisition of
WDWB, the WB affiliate serving Detroit, Michigan, on January 31, 1997, the
operation of WLAJ, the ABC affiliate serving Lansing, Michigan, under a time
brokerage agreement which commenced in October 1996.

      The Company's revenues are derived principally from local and national
advertising and, to a lesser extent, from network compensation for the broadcast
of programming and revenues from studio rental and commercial production
activities. The primary operating expenses involved in owning and operating
television stations are employee salaries, depreciation and amortization,
programming and advertising and promotion. Amounts referred to in the following
discussion have been rounded to the nearest thousand.

      The following table sets forth certain operating data for the three years
ended December 31, 1995, 1996 and 1997:

<TABLE>
<CAPTION>
                                           Year ended December 31
                                  ---------------------------------------
                                      1995          1996          1997
                                      ----          ----          ----
<S>                               <C>           <C>           <C>
Operating income ..............   $28,896,000   $35,748,000   $42,016,000
Add:
  Time brokerage agreement fees            --       150,000       600,000
  Depreciation and amortization    12,105,000    15,881,000    19,542,000
  Corporate expense ...........     3,132,000     4,800,000     6,639,000
  Non-cash compensation .......       363,000       496,000       986,000
                                  -----------   -----------   -----------

Broadcast cash flow ...........   $44,496,000   $57,075,000   $69,783,000
                                  ===========   ===========   ===========
</TABLE>

      "Broadcast cash flow" means operating income plus time brokerage agreement
fees, depreciation, amortization, corporate expense and non-cash compensation.
The Company has included broadcast cash flow data because such data are commonly
used as a measure of performance for broadcast companies and are also used by
investors to measure a company's ability to service debt. Broadcast cash flow is
not, and should not be used as an indicator or alternative to operating income,
net loss or cash flow as reflected in the consolidated financial statements, is
not a measure of financial performance under generally accepted accounting
principles and should not be considered in isolation or as a substitute for
measures of performance prepared in accordance with generally accepted
accounting principles.

      In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive Income"
which is effective for fiscal periods beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components. The Company believes that this Statement will not have an
effect on the manner in which it currently reports its financial information.
Also in June 1997, the Financial Accounting Standards Board issued SFAS No. 131
"Disclosures About Segments of an Enterprise and Related Information" which is
also effective for fiscal periods beginning after December 15, 1997. SFAS No.
131 establishes standards for reporting information about operating segments and
for related disclosures about products, services, geographic areas and major
customers. The Company has not yet made a determination of the impact, if any,
that SFAS No. 131 will have on the manner in which it reports its financial
information.


                                      -19-
<PAGE>

Years ended December 31, 1996 and 1997

      Net revenue for the year ended December 31, 1997 totaled $153,512,000, an
increase of $24,348,000, or 19% compared to net revenue of $129,164,000 for the
year ended December 31, 1996. Of the increase, $19,287,000 resulted from the
inclusion of eleven months of operations of WDWB and an additional nine months
of operations of WLAJ. The remaining increase was primarily due to increases in
local and national advertising revenue as well as incremental revenue from the
Company's Internet ventures. Such increases exceeded the anticipated reduction
in political advertising revenue during a non-election year.

      Station operating expenses for the year ended December 31, 1997 totaled
$83,729,000, an increase of $11,640,000 or 16% compared to $72,089,000 for the
same period a year earlier. Of the increase, $7,868,000 was due to the inclusion
of eleven months of operations of WDWB and an additional nine months of
operations of WLAJ. The remaining increase was primarily due to increased news,
sales and administrative expenses.

      Depreciation and amortization increased $3,661,000 or 23% for the twelve
months ended December 31, 1997 as compared to the prior year primarily due to
the acquisition of WDWB in January of 1997. Corporate expense increased
$1,839,000, or 38% during the year ended December 31, 1997 compared to the same
period a year earlier, primarily due to higher administrative costs associated
with the expansion of the Company's corporate office to manage its expanded
station group. Non-cash compensation expense increased $490,000 or 99% during
the year ended December 31, 1997 compared to the same period a year earlier due
to the granting of additional awards payable in Common Stock (Nonvoting) to
certain executive employees under the Company's Management Stock Plan and to
members of the Company's Board of Directors under the Company's Non-Employee
Directors Stock Plan, which was adopted on April 29, 1997.

      As a result of the factors discussed above, operating income increased
$6,268,000 or 18% during the year ended December 31, 1997 compared to 1996.

      The equity in net loss of investee of $1,532,000 and $995,000 for the
years ended December 31, 1997 and 1996, respectively, resulted from the Company
recognizing its pro rata share of the losses of Datacast, LLC under the equity
method of accounting.

      Net interest expense was $38,986,000 compared to $36,765,000 a year
earlier, an increase of 6%. This increase was primarily due to higher levels of
outstanding indebtedness as a result of the acquisition of WDWB, offset in part,
by the results of the Company's strategic plan to reduce its cost of borrowing.
During the first quarter of 1997, the Company purchased $19,405,000 principal
amount of its 9 3/8% Senior Subordinated Notes, due December 1, 2005 (the "9
3/8% Notes"), at a discount. During the third quarter of 1997, the Company
exercised its option to redeem the entire outstanding $60,000,000 principal
amount of its 12.75% Senior Subordinated Debentures, due September 1, 2002 (the
"12.75% Debentures"), at a redemption price of 106.375%. The Company replaced
all of this subordinated debt with bank debt of a lower rate, thereby reducing
its cost of borrowing.

      During 1997, the Company incurred an extraordinary loss of $5,569,000 on
the early extinguishment of debt. See "--Liquidity and Capital Resources."

      Net loss totaled $9,036,000 during the year ended December 31, 1997
compared to net loss of $8,786,000 during the same period a year earlier, an
increase of $250,000. This change is primarily due to the changes in the line
items discussed above.

Years ended December 31, 1995 and 1996

      Net revenue for the year ended December 31, 1996 totaled $129,164,000, an
increase of $29,269,000, or 29% compared to net revenue of $99,895,000 for the
year ended December 31, 1995. Of this increase, $21,262,000 resulted from the
inclusion of one additional month of operations of KEYE, five additional months
of operations of WWMT and six additional months of operations of WKBW in 1996.
The remaining increase was 


                                      -20-
<PAGE>

primarily a result of increased local and national advertising, political
spending and increased network compensation.

      Station operating expenses for the year ended December 31, 1996 totaled
$72,089,000, an increase of $16,690,000, or 30% compared to station operating
expenses of $55,399,000 in the prior year. Of this increase, $10,648,000 was due
to the inclusion of one additional month of operating expenses of KEYE, five
additional months of operating expenses of WWMT and six additional months of
operating expenses of WKBW. The remaining increase was primarily due to higher
programming expenses and increased news expenses associated with the launch of a
news operation at KEYE.

      Depreciation and amortization increased by $3,776,000, or 31% during the
year ended December 31, 1996 compared to 1995 primarily due to the inclusion of
one additional month of operations of KEYE, five additional months of operations
of WWMT and six additional months of operations of WKBW. Corporate expense
increased $1,668,000, or 53% during the year ended December 31, 1996 compared to
1995, primarily due to higher administrative costs associated with the expansion
of the Company's corporate office to manage its expanded station group. Non-cash
compensation expense increased $133,000 during the year ended December 31, 1996
compared to 1995 due to the granting of additional awards payable in Common
Stock (Nonvoting) to certain executive employees under the Company's Management
Stock Plan.

      As a result of the factors discussed above, operating income increased
$6,852,000 or 24% during the year ended December 31, 1996 compared to 1995.

      The equity in net loss of investee of $995,000 for the year ended December
31, 1996 resulted from the Company recognizing its pro rata share of the losses
of Datacast LLC accounted for under the equity method of accounting. The equity
in net income of investee of $439,000 for the year ended December 31, 1995
resulted from the Company recognizing its pro rata share of the earnings of
Queen City III Limited Partnership, the ultimate parent of WKBW, under the
equity method of accounting. On June 29, 1995, the Company acquired the
remaining interest in Queen City III Limited Partnership.

      Net interest expense totaled $36,765,000 during the year ended December
31, 1996, an increase of $9,739,000, or 36% compared to net interest expense of
$27,026,000 during the year ended December 31, 1995, primarily due to higher
levels of outstanding indebtedness as a result of the acquisitions of WWMT and
WKBW in June of 1995.

      During 1996, the Company incurred an extraordinary loss of $2,891,000 on
the early extinguishment of debt.

      Net loss totaled $8,786,000 during the year ended December 31, 1996
compared to net loss of $783,000 during 1995, an increase of $8,003,000. This
change was primarily due to the changes in the line items discussed above.

Liquidity and Capital Resources

      In October 1996, the Company entered into agreements with the owner of
WLAJ, including a time brokerage agreement pursuant to which the Company
operates WLAJ and an agreement to acquire substantially all the assets used in
the operation of WLAJ for approximately $19,400,000 in cash and the assumption
of certain liabilities. In connection with these agreements, the Company agreed
to provide a loan guarantee of up to $12,000,000 in favor of the owner of WLAJ.

      On January 31, 1997, the Company acquired substantially all of the assets
of WDWB for $175,000,000 and the assumption of certain liabilities. The Company
financed the acquisition through the sale of 150,000 shares of its 12-3/4%
Cumulative Exchangeable Preferred Stock (the "12-3/4% Cumulative Exchangeable
Preferred Stock") at $1,000 per share and borrowings of $27,500,000 under the
Company's bank credit agreement (the "Credit Agreement").


                                      -21-
<PAGE>

      In March 1997, the Company purchased $19,405,000 principal amount of its
9-3/8% Notes at a discount. In September 1997, the Company exercised its option
to redeem the entire outstanding $60,000,000 principal amount of its 12.75%
Debentures at a redemption price of 106.375% of the principal amount thereof
plus accrued interest, for an aggregate consideration of $67,650,000. The
Company used borrowings under the Credit Agreement to fund these redemptions,
thereby reducing its cost of borrowing. In connection with the repurchase of its
9-3/8% Notes and its 12.75% Debentures, the Company recognized an extraordinary
loss, after the write-off of a portion of related deferred financing fees, of
$5,569,000 for the year ended December 31, 1997.

      On October 3, 1997, the Company entered into a definitive agreement to
acquire KOFY, the WB Network affiliated television station serving San
Francisco-Oakland-San Jose, California, the nation's fifth largest television
market, for $173,750,000. On February 19, 1998, the Company announced that it
had entered into a definitive agreement with Freedom Communications, Inc.,
whereby Freedom will acquire the assets of WWMT, the CBS affiliate serving Grand
Rapids-Kalamazoo-Battle Creek, Michigan and WLAJ, the ABC affiliate serving
Lansing, Michigan for $170,000,000, payable in cash at the closing of the
transaction. It is anticipated that proceeds from the sale will be used to fund
part of the purchase price of KOFY. The Company has sufficient net operating
loss carryforwards for federal tax purposes to offset the gain that will be
recognized on the sale of WWMT and WLAJ, however, the Company anticipates having
to pay federal alternative minimum taxes and certain other state taxes in
connection with the sale.

      The Company's Credit Agreement allows for revolving credit borrowings of
$200,000,000 and permits borrowings of up to $300,000,000 in the aggregate. The
revolving credit facility can be used to fund future acquisitions of broadcast
stations and for general corporate purposes. The Company was in technical
default of a financial covenant at September 30, 1997 and December 31, 1997,
which has been waived by the lenders. On February 17, 1998, the Company and its
lenders entered into an amendment to modify this covenant. As of February 28,
1998, subject to compliance with financial covenants, the Company had
$60,000,000 of the revolving credit facility borrowings available for
acquisitions and working capital purposes.

      Cash flows provided by operating activities were $10,345,000 during the
year ended December 31, 1997, compared to $13,291,000 during the year ended
December 31, 1996, and $8,806,000 during the year ended December 31, 1995. The
decrease from 1996 to 1997 was primarily a result of an increase in net
operating assets and higher cash interest expense, offset in part by higher
operating cash flow. The increase from 1995 to 1996 resulted primarily from
higher broadcasting flow offset, in part, by higher cash interest expense.

      Cash flows used in investing activities were $186,499,000 during the year
ended December 31, 1997, compared to $14,395,000 during the year ended December
31, 1996, and $236,343,000 during the year ended December 31, 1995. The increase
in cash flows used in investing activities from 1996 to 1997 related primarily
to the acquisition of WDWB. The decrease in cash flows used in investing
activities from 1995 to 1996 related primarily to the acquisition of KEYE, WWMT
and WKBW in 1995.

      Cash flows provided by financing activities were $177,769,000 during the
year ended December 31, 1997, compared to $1,565,000 during the year ended
December 31, 1996, and $225,685,000 during the year ended December 31, 1995. The
increase from 1996 to 1997 resulted primarily from a net increase in bank
borrowings, proceeds from the 12-3/4% Cumulative Exchangeable Preferred Stock
offering and a decrease in payments for deferred financing fees offset, in part,
by a net increase in repurchase of subordinated debt. The decrease from 1995 to
1996 resulted primarily from a decrease in net bank borrowings offset, in part,
by a decrease in payments for deferred financing fees.

      The computer applications which the Company utilizes in its operations are
not complex. Any modification of the Company's software that may be needed in
order to handle the upcoming change in the century is covered under the
software's licensing agreement. The Company has determined that there will be no
material costs incurred to modify its applications in order to handle the
upcoming change in the century.


                                      -22-
<PAGE>

      The Company believes that internally generated funds from operations, and
borrowings under its revolving working capital facility, if necessary, will be
sufficient to satisfy the Company's cash requirements for its existing
operations for the next twelve months and for the foreseeable future thereafter.


                                      -23-
<PAGE>

Item 8.  Financial Statements and Supplementary Data

Report of Independent Auditors

The Board of Directors and Stockholders
  Granite Broadcasting Corporation

We have audited the accompanying consolidated balance sheets of Granite 
Broadcasting Corporation as of December 31, 1997 and 1996, and the related 
consolidated statements of operations, stockholders' equity (deficit) and 
cash flows for each of the three years in the period ended December 31, 1997. 
Our audits also included the financial statement schedule listed in the Index 
at Item 14(a) of the Granite Broadcasting Corporation Form 10-K for the 
fiscal year ended December 31, 1997. These financial statements and the 
schedule are the responsibility of the Company's management. Our 
responsibility is to express an opinion on these financial statements and the 
schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Granite
Broadcasting Corporation at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.

                                        ERNST & YOUNG LLP

New York, New York
February 6, 1998


                                      -24-
<PAGE>

                        GRANITE BROADCASTING CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                 For the Years Ended December 31,
                                                              1995             1996             1997
                                                         -------------    -------------    -------------
<S>                                                      <C>              <C>              <C>          
Net revenue ..........................................   $  99,894,627    $ 129,164,353    $ 153,511,540
Station operating expenses ...........................      55,398,930       72,089,368       83,728,786
Time brokerage agreement fees ........................              --          150,000          600,000
Depreciation .........................................       4,513,919        6,144,193        5,717,989
Amortization .........................................       7,590,885        9,737,136       13,824,248
Corporate expense ....................................       3,131,943        4,799,984        6,639,159
Non-cash compensation expense ........................         363,384          495,819          985,634
                                                         -------------    -------------    -------------

  Operating income ...................................      28,895,566       35,747,853       42,015,724

Other (income) expenses:
  Equity in net (income) loss of investee ............        (439,033)         995,019        1,531,542
  Interest expense, net ..............................      27,026,680       36,765,306       38,985,979
  Non-cash interest expense ..........................       1,738,559        2,086,639        2,181,686
  Other ..............................................         797,576        1,034,351        1,167,144
                                                         -------------    -------------    -------------
  Loss before income taxes and extraordinary item ....        (228,216)      (5,133,462)      (1,850,627)
  Provision for income taxes .........................         554,884          761,000        1,616,212
                                                         -------------    -------------    -------------

Loss before extraordinary item .......................        (783,100)      (5,894,462)      (3,466,839)
Extraordinary loss ...................................              --       (2,891,250)      (5,569,119)
                                                         -------------    -------------    -------------

    Net loss .........................................   $    (783,100)   $  (8,785,712)   $  (9,035,958)
                                                         =============    =============    =============

Net loss attributable to common shareholders .........   $  (4,368,497)   $ (12,310,993)   $ (31,207,468)
                                                         =============    =============    =============

    Per common share:
      Basic and diluted loss before extraordinary item   $       (0.74)   $       (1.09)   $       (2.93)
      Basic and diluted extraordinary loss ...........              --            (0.34)           (0.64)
                                                         -------------    -------------    -------------

        Basic and diluted net loss ...................   $       (0.74)   $       (1.43)   $       (3.57)
                                                         =============    =============    =============

Weighted average common shares outstanding ...........       5,920,294        8,611,606        8,764,705
</TABLE>

                             See accompanying notes.


                                      -25-
<PAGE>

                        GRANITE BROADCASTING CORPORATION
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                        December 31,
                                                               ------------------------------
         ASSETS                                                     1996             1997
         ------                                                -------------    -------------
<S>                                                            <C>              <C>          
CURRENT ASSETS:
  Cash and cash equivalents ................................   $     555,753    $   2,170,927
  Accounts receivable, less allowance for doubtful accounts
    ($391,910 in 1996 and $408,290 in 1997) ................      27,057,451       35,308,464
  Film contract rights .....................................       6,276,660       10,097,262
  Other current assets .....................................       9,784,966       10,958,742
                                                               -------------    -------------
          TOTAL CURRENT ASSETS .............................      43,674,830       58,535,395

PROPERTY AND EQUIPMENT, NET ................................      33,562,019       36,004,876
FILM CONTRACT RIGHTS AND OTHER NONCURRENT ASSETS ...........       4,284,578        7,041,000
DEFERRED FINANCING FEES, less accumulated amortization
  ($4,049,724 in 1996 and $4,747,664 in 1997) ..............      14,181,662       10,213,314
INTANGIBLE ASSETS, NET .....................................     356,860,115      521,819,428
                                                               -------------    -------------
                                                               $ 452,563,204    $ 633,614,013
                                                               =============    =============
         LIABILITIES AND STOCKHOLDERS' DEFICIT
         -------------------------------------

CURRENT LIABILITIES:
  Accounts payable .........................................   $   4,016,964    $   3,885,239
  Accrued interest .........................................       6,071,378        4,387,546
  Other accrued liabilities ................................       4,497,534        5,682,202
  Film contract rights payable and other current liabilities       9,578,365       13,779,691
                                                               -------------    -------------
         TOTAL CURRENT LIABILITIES .........................      24,164,241       27,734,678

LONG-TERM DEBT .............................................     351,560,900      392,779,025
FILM CONTRACT RIGHTS PAYABLE ...............................       3,383,428        6,905,486
DEFERRED TAX LIABILITY AND OTHER
  NONCURRENT LIABILITIES ...................................      31,102,272       31,751,733

COMMITMENTS

REDEEMABLE PREFERRED STOCK .................................      45,487,500      207,699,808

STOCKHOLDERS' DEFICIT:
  Common stock: 41,000,000 shares authorized consisting of
   1,000,000 shares of Class A Common Stock, $.01 par
   value, and 40,000,000 shares of Common Stock
   (Nonvoting), $.01 par value; 178,500 shares of Class A
   Common Stock and 8,676,157 shares of Common Stock
   (Nonvoting) (8,499,716 shares at December 31, 1996)
    issued and outstanding .................................          86,782           88,546
  Additional paid-in capital ...............................      45,547,145       24,529,712
  Accumulated deficit ......................................     (45,375,910)     (54,411,868)
  Less:  Unearned compensation .............................      (2,506,279)      (2,529,232)
         Treasury stock ....................................              --          (47,000)
         Note receivable from officer ......................        (886,875)        (886,875)
                                                               -------------    -------------
           TOTAL STOCKHOLDERS' DEFICIT .....................      (3,135,137)     (33,256,717)
                                                               -------------    -------------
                                                               $ 452,563,204    $ 633,614,013
                                                               =============    =============
</TABLE>

                             See accompanying notes.


                                      -26-
<PAGE>

                        GRANITE BROADCASTING CORPORATION
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

              For the Years Ended December 31, 1995, 1996 and 1997

<TABLE>
<CAPTION>
                                                       Class A        Common          Series B        Series C
                                                       Common          Stock         Preferred       Preferred
                                                       Stock        (Nonvoting)        Stock           Stock
                                                   ------------    ------------    ------------    ------------
<S>                                                <C>             <C>             <C>             <C>         
Balance at December 31, 1994 ...................   $      1,785    $     43,966    $      4,633    $     10,079

Accretion of and dividends on Series A
  Redeemable Preferred Stock ...................                                                       
Conversion of Series A Redeemable Preferred
  Stock and Series B and C Preferred
  Stock into Common Stock (Nonvoting) ..........                         36,069          (4,633)        (10,079)
Dividend on Cumulative Convertible
  Exchangeable Preferred Stock and
  Adjustable Rate Preferred Stock ..............             
Exercise of stock options ......................                          1,574
Issuance of Common Stock (Nonvoting) ...........                            573
Grant of stock award under Management Stock Plan                             
Stock expense related to Management Stock Plan .                             
Net loss .......................................       
                                                   ------------    ------------    ------------    ------------
Balance at December 31, 1995 ...................          1,785          82,182              --              -- 

Dividend on Cumulative Convertible
  Exchangeable Preferred Stock .................             
Exercise of stock options ......................                          2,008 
Issuance of Common Stock (Nonvoting) ...........                            807 
Grant of stock award under Management Stock Plan             
Stock expense related to Management Stock Plan .             
Net loss .......................................             
                                                   ------------    ------------    ------------    ------------
Balance at December 31, 1996 ...................          1,785          84,997              --              -- 

Dividends on redeemable preferred stock ........             
Accretion of offering costs related to
  Cumulative Exchangeable Preferred Stock ......             
Exercise of stock options ......................                            124
Conversion of redeemable preferred stock
  into Common Stock (Nonvoting) ................                            650
Issuance of Common Stock (Nonvoting) ...........                            990
Repurchase of redeemable preferred stock .......             
Grant of stock award under Management Stock Plan             
Stock expense related to Management Stock Plan .             
Net loss .......................................             
                                                   ------------    ------------    ------------    ------------
Balance at December 31, 1997....................   $      1,785    $     86,761    $         --    $         -- 
                                                   ============    ============    ============    ============
<CAPTION>

                                                    Additional                                         Note
                                                     Paid-in       (Accumulated      Unearned       Receivable   
                                                     Capital         Deficit)      Compensation    From Officer  
                                                   ------------    ------------    ------------    ------------
<S>                                                <C>             <C>             <C>             <C>          
Balance at December 31, 1994 ...................   $ 48,688,435    $(35,807,098)   $ (1,213,104)   $         -- 

Accretion of and dividends on Series A
  Redeemable Preferred Stock ...................        (35,116)
Conversion of Series A Redeemable Preferred
  Stock and Series B and C Preferred
  Stock into Common Stock (Nonvoting) ..........      1,200,518
Dividend on Cumulative Convertible
  Exchangeable Preferred Stock and
  Adjustable Rate Preferred Stock ..............     (3,550,281)
Exercise of stock options ......................         31,376 
Issuance of Common Stock (Nonvoting) ...........           (573)
Grant of stock award under Management Stock Plan        640,750                        (640,750)            
Stock expense related to Management Stock Plan .       (110,907)                        363,384             
Net loss .......................................                       (783,100)
                                                   ------------    ------------    ------------    ------------
Balance at December 31, 1995 ...................     46,864,202     (36,590,198)     (1,490,470)             -- 

Dividend on Cumulative Convertible
  Exchangeable Preferred Stock .................     (3,525,281)             
Exercise of stock options ......................        888,805                                        (886,875)
Issuance of Common Stock (Nonvoting) ...........           (807)             
Grant of stock award under Management Stock Plan      1,511,628                      (1,511,628)           
Stock expense related to Management Stock Plan .       (191,402)                        495,819
Net loss .......................................                     (8,785,712)
                                                   ------------    ------------    ------------    ------------
Balance at December 31, 1996 ...................     45,547,145     (45,375,910)     (2,506,279)       (886,875)

Dividends on redeemable preferred stock ........    (21,729,672)          
Accretion of offering costs related to
  Cumulative Exchangeable Preferred Stock ......       (441,838)          
Exercise of stock options ......................         58,164           
Conversion of redeemable preferred stock
  into Common Stock (Nonvoting) ................        324,350           
Issuance of Common Stock (Nonvoting) ...........           (990)          
Repurchase of redeemable preferred stock .......             
Grant of stock award under Management Stock Plan      1,008,587                      (1,008,587) 
Stock expense related to Management Stock Plan .       (236,034)                        985,634  
Net loss .......................................                     (9,035,958)            
                                                   ------------    ------------    ------------    ------------
Balance at December 31, 1997....................   $ 24,529,712    $(54,411,868)   $ (2,529,232)   $   (886,875)
                                                   ============    ============    ============    ============
<CAPTION>

                                                                           Total
                                                      Treasury        Stockholders'
                                                       Stock       Equity (Deficit)
                                                   ------------    ----------------
<S>                                                <C>                <C>         
Balance at December 31, 1994 ...................   $         --       $ 11,728,696
                                                                     
Accretion of and dividends on Series A                               
  Redeemable Preferred Stock ...................                           (35,116)
Conversion of Series A Redeemable Preferred                          
  Stock and Series B and C Preferred                                 
  Stock into Common Stock (Nonvoting) ..........                         1,221,875
Dividend on Cumulative Convertible                                   
  Exchangeable Preferred Stock and                                   
  Adjustable Rate Preferred Stock ..............                        (3,550,281)
Exercise of stock options ......................                            32,950
Issuance of Common Stock (Nonvoting) ...........                                --
Grant of stock award under Management Stock Plan                                --
Stock expense related to Management Stock Plan .                           252,477
Net loss .......................................                          (783,100)
                                                   ------------       ------------
Balance at December 31, 1995 ...................             --          8,867,501
                                                                     
Dividend on Cumulative Convertible                                   
  Exchangeable Preferred Stock .................                        (3,525,281)
Exercise of stock options ......................                             3,938
Issuance of Common Stock (Nonvoting) ...........                                --
Grant of stock award under Management Stock Plan                                --
Stock expense related to Management Stock Plan .                           304,417
Net loss .......................................                        (8,785,712)
                                                   ------------       ------------
Balance at December 31, 1996 ...................             --         (3,135,137)
                                                                     
Dividends on redeemable preferred stock ........                       (21,729,672)
Accretion of offering costs related to                               
  Cumulative Exchangeable Preferred Stock ......                          (441,838)
Exercise of stock options ......................                            58,288
Conversion of redeemable preferred stock                             
  into Common Stock (Nonvoting) ................                           325,000
Issuance of Common Stock (Nonvoting) ...........                                --
Repurchase of redeemable preferred stock .......        (47,000)           (47,000)
Grant of stock award under Management Stock Plan                                --
Stock expense related to Management Stock Plan .                           749,600
Net loss .......................................                        (9,035,958)
                                                   ------------       ------------
Balance at December 31, 1997....................   $    (47,000)      $(33,256,717)
                                                   ============       ============
</TABLE>

                             See accompanying notes.


                                      -27-
<PAGE>

                        GRANITE BROADCASTING CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                          For the Years Ended December 31,
                                                                          --------------------------------
                                                                       1995             1996             1997
                                                                  -------------    -------------    -------------
<S>                                                               <C>              <C>                 <C>        
Cash flows from operating activities:
 Net loss .....................................................   $    (783,100)   $  (8,785,712)      (9,035,958)
 Adjustments to reconcile net loss to net cash
   provided by operating activities:
   Extraordinary loss .........................................              --        2,891,250        5,569,119
   Amortization of intangible assets ..........................       7,590,885        9,737,136       13,824,248
   Depreciation ...............................................       4,513,919        6,144,193        5,717,989
   Non-cash compensation expense ..............................         363,384          495,819          985,634
   Non-cash deferred income taxes .............................       1,115,000          975,000        1,730,561
   Non-cash interest expense ..................................       1,738,559        2,086,639        2,181,686
   Deferred income taxes ......................................        (824,116)        (589,000)        (536,349)
   Equity in net loss (income) of investee ....................        (439,033)         995,019        1,531,542
Change in assets and liabilities net of effects from
   acquisitions of stations:
   Increase in accounts receivable ............................      (7,528,139)        (870,872)      (8,251,013)
   Increase (decrease) in accrued liabilities .................       2,307,778        1,473,236         (629,972)
   Increase (decrease) in accounts payable ....................       2,689,051       (1,268,655)        (131,725)
   Increase in film contract rights and other noncurrent assets      (3,448,429)        (517,279)      (4,981,012)
   Increase in film contract rights payable
    and other liabilities .....................................       3,222,796        1,193,223        4,086,757
   Increase in other assets ...................................      (1,712,859)        (668,776)      (1,716,398)
                                                                  -------------    -------------    -------------
Net cash provided by operating activities .....................       8,805,696       13,291,221       10,345,109
                                                                  -------------    -------------    -------------
Cash flows from investing activities:
  Deposit for station acquisition and other related costs .....              --       (5,957,000)      (5,960,000)
  Investment in Datacast, LLC .................................              --       (1,500,000)      (1,500,000)
  Payment for acquisitions of stations, net of cash acquired ..    (228,660,507)              --     (173,164,089)
  Capital expenditures ........................................      (7,682,188)      (6,938,477)      (5,874,633)
                                                                  -------------    -------------    -------------
    Net cash used in investing activities .....................    (236,342,695)     (14,395,477)    (186,498,722)
                                                                  -------------    -------------    -------------
Cash flows from financing activities:
  Proceeds from bank loan .....................................     174,250,000       34,000,000      138,500,000
  Retirement of senior subordinated notes .....................              --      (15,500,000)     (82,897,588)
  Repayment of bank borrowings ................................    (107,500,000)    (117,500,000)     (18,000,000)
  Redemption of Adjustable Rate Preferred Stock ...............      (2,000,000)              --               --
  Payment of deferred financing fees ..........................     (10,537,110)      (5,363,771)        (210,873)
  Proceeds from senior subordinated notes .....................     175,000,000      109,450,000               --
  Proceeds from Preferred Stock Offering, net .................              --               --      143,889,789
  Dividends paid ..............................................      (3,561,280)      (3,525,281)      (3,523,828)
  Other financing activities, net .............................          32,950            3,938           11,287
                                                                  -------------    -------------    -------------
    Net cash provided by financing activities .................     225,684,560        1,564,886      177,768,787
                                                                  -------------    -------------    -------------
Net (decrease) increase in cash and cash equivalents ..........      (1,852,439)         460,630        1,615,174
Cash and cash equivalents, beginning of year ..................       1,947,562           95,123          555,753
                                                                  -------------    -------------    -------------
Cash and cash equivalents, end of year ........................   $      95,123    $     555,753    $   2,170,927
                                                                  =============    =============    =============
Supplemental information:
  Cash paid for interest ......................................   $  24,699,248    $  36,451,009    $  40,711,506
  Cash paid for income taxes ..................................         149,751          112,532          193,000
  Non-cash investing and financing activities:
    Non-cash capital expenditures .............................         459,786          635,609          668,747
    Stock dividend ............................................              --               --       13,009,715
    Other non-cash financing activity .........................              --          886,875               --
</TABLE>

                             See accompanying notes.


                                      -28-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1 -- Summary of Significant Accounting Policies

      Financial statement presentation

            The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated. The Company accounts for its investment
in Datacast, LLC under the equity method of accounting.

      Revenue recognition

            The Company recognizes revenue from the sale of advertising at the
time the advertisements are aired.

      Intangibles

            Intangible assets at December 31 are summarized as follows:

<TABLE>
<CAPTION>
                                            1996             1997
                                       -------------    -------------
<S>                                   <C>              <C>
            Goodwill ...............   $  76,202,853    $ 219,891,911
            Network affiliations ...     247,941,641      256,691,641
            Broadcast licenses .....      67,896,861       94,219,861
                                       -------------    -------------
                                         392,041,355      570,803,413
            Accumulated amortization     (35,181,240)     (48,983,985)
                                       -------------    -------------

            Net intangible assets ..   $ 356,860,115    $ 521,819,428
                                       =============    =============
</TABLE>

            The intangible assets are characterized as scarce assets with long
and productive lives and are being amortized on a straight line basis over forty
years.

            The Company continually reevaluates the propriety of the carrying
amount of intangible assets as well as the related amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying value and/or revised estimates of useful lives. This evaluation is
based on the Company's projections of the undiscounted cash flows over the
remaining lives of the amortization period of the related intangible asset. To
the extent such projections indicate that the undiscounted cash flows are not
expected to be adequate to recover the carrying amounts of intangible assets,
such carrying amounts will be written down to their fair market value. At this
time, the Company believes that no significant impairment of intangible assets
has occurred and that no reduction of the estimated useful lives is warranted.

      Deferred financing fees

            The Company has incurred certain fees in connection with entering
into a bank credit agreement, the sale of 12.75% Debentures (as defined), the
sale of 10-3/8% Notes (as defined) and the sale of 9-3/8% Notes (as defined).
The deferred financing fees related to the bank credit agreement are being
amortized over seven years and ten years for the 10-3/8% Notes and the 9-3/8%
Notes. The deferred financing fees relating to the 12.75% Debentures were
completely written-off during 1997 in conjunction with the repurchase of those
debentures. See Note 6 -- "Long-Term Debt." Amortization of deferred financing
fees is classified as non-cash interest expense on the consolidated statement of
operations.


                                      -29-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

      Property and equipment

            Property and equipment are recorded at cost and depreciated on a
straight-line basis over their estimated useful lives ranging from three to 32
years.

      Film contract rights

            Film contract rights are recorded as assets at gross value when the
license period begins and the films are available for broadcasting, are
amortized on an accelerated basis over the estimated usage of the films, and are
classified as current or noncurrent on that basis. Film contract rights payable
are classified as current or noncurrent in accordance with the payment terms of
the various license agreements. Film contract rights are reflected in the
consolidated balance sheet at the lower of unamortized cost or estimated net
realizable value.

            At December 31, 1997, the obligation for programming that had not
been recorded because the program rights were not available for broadcasting
aggregated $23,918,632.

      Barter transactions

            Revenue from barter transactions is recognized when advertisements
are broadcast and merchandise or services received are charged to expense when
received or used.

      Use of estimates

            The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

      Cash and cash equivalents

            Cash and cash equivalents include funds invested overnight in
Eurodollar deposits.

      Net loss per common share

            In 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share." Statement 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented to conform to the Statement 128 requirements.

            Net loss per common share for each of the three years in the period
ended December 31, 1997 is calculated by dividing net loss attributable to
common stockholders by the weighted average number of common shares outstanding.
The inclusion of additional shares assuming the exercise of outstanding stock
options and the conversion of convertible preferred stock in the diluted
earnings per share calculation would have been antidilutive in all three years.


                                      -30-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 2 - Acquisitions and Dispositions

            On January 31, 1997 the Company acquired substantially all the
assets used in the operation of WDWB-TV (formerly known as WXON-TV), the WB
affiliate serving Detroit, Michigan for $175,000,000 in cash and the assumption
of certain liabilities. The acquisition has been accounted for under the
purchase method of accounting and the results of operations are included in the
Company's consolidated statement of operations from the date of acquisition.

            The following comprises the allocation of the purchase price:

<TABLE>
           <S>                                              <C>
            Purchase price                                   $ 175,000,000
            Net tangible assets acquired, principally film
              contract rights and property and equipment        (1,080,000)
            Broadcast license                                  (26,250,000)
            Network affiliation agreement                       (8,750,000)
                                                             -------------

            Goodwill                                         $ 138,920,000
                                                             =============
</TABLE>

            On October 3, 1997, the Company entered into a definitive agreement
to acquire KOFY-TV, the WB affiliate serving San Francisco-Oakland-San Jose,
California, for $173,750,000 in cash and the assumption of certain liabilities.

            On February 19, 1998, the Company announced that it had entered into
a definitive agreement with Freedom Communications, Inc. whereby Freedom will
acquire the assets of WWMT-TV, the CBS affiliate serving Grand
Rapids-Kalamazoo-Battle Creek, Michigan and WLAJ-TV, the ABC affiliate serving
Lansing, Michigan for $170,000,000, payable in cash at the closing of the
transaction. It is anticipated that proceeds from the sale will be used to fund
part of the purchase price of KOFY-TV.

            The following table summarizes the unaudited consolidated pro forma
results of operations for the years ended December 31, 1996 and 1997 assuming
the acquisition of WDWB-TV had occurred as of January 1, 1996 and the
acquisition of KOFY-TV and the disposition of WWMT-TV and WLAJ-TV had occurred
as of January 1, 1997:

<TABLE>
<CAPTION>
                                                      1996             1997
                                                 -------------    -------------
           <S>                                  <C>              <C>
            Net revenue                          $ 147,231,000    $ 148,711,000
            Station operating expenses              78,577,000       84,925,000
            Loss before extraordinary item          (1,544,000)     (18,237,000)
            Loss before extraordinary item per
              common share                       $       (2.81)   $       (4.81)
</TABLE>

            The Company currently operates WLAJ-TV pursuant to a time brokerage
agreement. The terms of the agreement require the Company to pay a monthly fee
and reimburse certain expenses in exchange for the right to provide station
programming and sell related advertising time. Nevertheless, as the holder of
the FCC license, the owner-operator retains full control and responsibility for
the operation of the station, including control over all programming broadcast
on the station. The time brokerage agreement terminates on the earlier of the
date the Company exercises its option to acquire WLAJ-TV or October 17, 2001.
The agreement to acquire substantially all of the assets used in the operation
of WLAJ-TV is for $19,400,000 in cash and the assumption of certain liabilities.
In connection with this agreement, the Company agreed to provide a loan
guarantee of up to 


                                      -31-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

$12,000,000 in favor of the owner of WLAJ-TV. The loan guarantee is
collateralized by all of the assets of WLAJ-TV.

Note 3-- Property and Equipment

            The major classifications of property and equipment are as follows:

<TABLE>
<CAPTION>
                                                     December 31,
                                              -------------------------
                                                  1996          1997
                                              -----------   -----------
           <S>                               <C>           <C>
            Land ..........................   $ 2,527,708   $ 2,537,708
            Buildings and improvements ....    16,607,496    17,563,498
            Furniture and fixtures ........     5,691,019     6,794,548
            Technical equipment and other .    31,924,360    37,684,627
                                              -----------   -----------
                                               56,750,583    64,580,381
            Less:  Accumulated depreciation    23,188,564    28,575,505
                                              -----------   -----------

            Net property and equipment ....   $33,562,019   $36,004,876
                                              ===========   ===========
</TABLE>

Note 4 -- Other Accrued Liabilities

            Other accrued liabilities are summarized below:

<TABLE>
<CAPTION>
                                                   December 31,
                                             -----------------------
                                                 1996         1997
                                             ----------   ----------
           <S>                              <C>          <C>
            Compensation and benefits ....   $2,367,808   $2,328,753
            Other ........................    2,129,726    3,353,449
                                             ----------   ----------

            Total ........................   $4,497,534   $5,682,202
                                             ==========   ==========
</TABLE>

Note 5 -- Other Current Assets

            Other current assets are summarized below:

<TABLE>
<CAPTION>
                                                           December 31,
                                                    -------------------------
                                                        1996          1997
                                                    -----------   -----------
           <S>                                     <C>           <C>
            Barter and other receivables ........   $ 2,400,386   $ 2,650,070
            Escrow deposit related to station
              acquisition and other related costs     5,957,000     6,470,000
            Other ...............................     1,427,580     1,838,672
                                                    -----------   -----------

            Total ...............................   $ 9,784,966   $10,958,742
                                                    ===========   ===========
</TABLE>

                                      -32-
<PAGE>

Note 6 -- Long-term Debt

            The carrying amounts and fair values of the Company's long-term debt
are as follows:

<TABLE>
<CAPTION>
                                         December 31, 1996             December 31, 1997
                                    ---------------------------   ---------------------------
                                  Carrying Amount   Fair Value  Carrying Amount   Fair Value
                                    ------------   ------------   ------------   ------------
<S>                                 <C>            <C>            <C>            <C>         
Senior Bank Debt ................   $ 22,500,000   $ 22,500,000   $143,000,000   $143,000,000
9-3/8% Senior Subordinated Notes,
  net of unamortized discount ...     96,060,900     94,087,500     76,779,025     78,058,700
10-3/8% Senior Subordinated
  Notes .........................    173,000,000    178,622,500    173,000,000    181,217,500
12.75% Senior Subordinated
  Notes .........................     60,000,000     65,625,000             --             --
                                    ------------   ------------   ------------   ------------

Total ...........................   $351,560,900   $360,835,000   $392,779,025   $402,276,200
                                    ============   ============   ============   ============
</TABLE>

            The fair value of the Company's Senior Subordinated Notes is
estimated based on quoted market prices. The carrying amount of the Company's
borrowings under its credit facility approximates fair value.

      Senior bank debt

            The Company's existing bank credit agreement was amended and
restated on September 4, 1996 (as amended and restated the "Third Amended and
Restated Credit Agreement") to create a reducing revolving credit facility of up
to $200,000,000 and permits borrowings of up to $300,000,000 in the aggregate.
The proceeds from this facility are available for acquisitions and for general
working capital purposes as defined in the agreement.

            Outstanding principal balances under the Third Amended and Restated
Credit Agreement bear interest at floating rates equal to LIBOR (the "LIBOR
Rate") plus marginal rates between 1.125% and 2.375% or the prime rate plus
marginal rates between 0.0% and 1.125%. The LIBOR Rate was 5.6875% plus a
marginal rate of 2.375% at December 31, 1996. The LIBOR Rate was 5.1825% plus a
marginal rate of 2.375% at December 31, 1997. The marginal rate is subject to
change based upon changes in the ratio of outstanding principal balances to
operating cash flow. The principal amount of the revolving loans are subject to
reduction in installments commencing December 31, 1998 through December 31,
2003, when the final payment is due.

            The Third Amended and Restated Credit Agreement is secured by
substantially all of the assets of the Company, as well as a pledge of all
issued and outstanding shares of capital stock of the Company's present and
future subsidiaries and guaranteed by all present and future subsidiaries of the
Company. The Third Amended and Restated Credit Agreement requires the Company to
maintain compliance with certain financial ratios. The Company was in technical
default of a financial covenant at September 30, 1997 and December 31, 1997
which has been waived by the lenders. On February 17, 1998, the Company and its
lenders entered into an amendment to modify this covenant. Other provisions
place limitations on the incurrence of additional debt, payments for capital
expenditures, prepayment of subordinated debt, merger or consolidation with or
acquisition of another entity, the declaration or payment of cash dividends
other than on the Cumulative Convertible Exchangeable Preferred Stock and other
transactions by the Company.

      Senior Subordinated Debentures

            The Company had outstanding $60,000,000 aggregate principal amount
of its 12.75% Senior Subordinated Debentures (the "12.75% Debentures") due
September 1, 2002.


                                      -33-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

            On September 1, 1997, the Company exercised its option to redeem the
entire outstanding $60,000,000 principal amount of its 12.75% Debentures at a
redemption price of 106.375% of the principal amount thereof, plus accrued
interest. As a result, the Company recognized an extraordinary loss, including
the write-off of a portion of related deferred financing fees, of $5,248,315.

      Senior Subordinated Notes

            The Company issued $175,000,000 aggregate principal amount of its
10-3/8% Senior Subordinated Notes (the "10-3/8% Notes") due May 15, 2005. On May
6, 1996, the Company purchased $2,000,000 face amount of its 10-3/8% Notes at a
discount and recognized an extraordinary loss, after the write-off of a portion
of related deferred financing fees, of $44,150.

            The 10-3/8% Notes will be redeemable in the event that on or before
May 15, 1998 the Company receives net proceeds from the sale of its Capital
Stock (other than Disqualified Stock (each as defined in the Indenture governing
the 10-3/8% Notes)), in which case the Company may, at its option and from time
to time, use all or a portion of any such net proceeds to redeem certain amounts
of the 10-3/8% Notes with certain limitations. In addition, the 10-3/8% Notes
are redeemable at any time on or after May 15, 2000, at the option of the
Company, in whole or in part from time to time, at certain prices declining
annually to 100% of the principal amount on or after May 15, 2002, plus accrued
interest. The Company is required to offer to purchase all outstanding 10-3/8%
Notes at 101% of the principal amount plus accrued interest in the event of a
Change of Control (as defined in the Indenture governing the 10-3/8% Notes).

            The 10-3/8% Notes are subordinated in right of payment to the Third
Amended and Restated Credit Agreement and to future Senior Debt (as defined in
the Indenture governing the 10-3/8% Notes) and rank pari passu with all senior
subordinated debt and senior to all subordinated debt of the Company. The
Indenture governing the 10-3/8% Notes contains certain covenants that, among
other things, limit the ability of the Company and its subsidiaries to incur
debt, pay cash dividends on or repurchase capital stock, enter into agreements
prohibiting the creation of liens or restricting the ability of a subsidiary to
pay money or transfer assets to the Company, enter into certain transactions
with their affiliates, dispose of certain assets and engage in mergers and
consolidations.

            On February 22, 1996, the Company completed an offering of
$110,000,000 principal amount of its 9-3/8% Senior Subordinated Notes (the
"9-3/8% Notes") due December 1, 2005. Proceeds from the sale of the 9-3/8% Notes
were used to repay all outstanding term loan and revolving credit borrowings
under the Company's then existing bank credit agreement and for general working
capital purposes. In connection with the repayment of the term loan, the Company
incurred an extraordinary loss on the early extinguishment of debt of $3,510,152
related to the write-off of deferred financing fees. In June 1996, the Company
purchased $13,500,000 face amount of its 9-3/8% Notes at a discount and
recognized an extraordinary gain, after the write-off of a portion of related
deferred financing fees, of $663,052. In March 1997, the Company purchased
$19,405,000 face amount of its 9-3/8% Notes at a discount and recognized an
extraordinary loss, after the write-off of a portion of related deferred
financing fees, of $320,804.

            The 9-3/8% Notes will be redeemable in the event that on or before
February 22, 1999, the Company receives proceeds from any sale of its Capital
Stock (other than Disqualified Stock) in one or more offerings, in which case
the Company may, at its option and from time to time, use all or a portion of
any such net proceeds within 75 days of receipt to redeem certain amounts of the
9-3/8% Notes with certain limitations. In addition, the 9-3/8% Notes are
redeemable at any time on or after December 1, 2000, at the option of the
Company, in whole or in part, at certain prices declining annually to 100% of
the principal amount on or after December 1, 2002, plus accrued interest. The
Company is required to offer to purchase all outstanding 9-3/8% Notes at 101% of
the principal amount plus accrued interest in the event of a Change of Control
(as defined in the Indenture governing the 9-3/8% Notes).


                                      -34-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

            The 9-3/8% Notes are subordinate in right of payment to all existing
and future Senior Debt (as defined in the Indenture) and rank pari passu with
all senior subordinated debt and senior to all subordinated debt. The provisions
of the Indenture contains certain covenants that, among other things, limit the
ability of the Company and its subsidiaries to incur debt, make certain
restricted payments, enter into certain transactions with their affiliates,
dispose of certain assets, incur liens securing subordinated debt of the
Company, engage in mergers and consolidations and restrict the ability of the
subsidiaries of the Company to make distributions and transfers to the Company.

            There are no scheduled principal maturities on all long-term debt
for the five years subsequent to December 31, 1997.

Note 7 -- Commitments

            Future minimum lease payments under long-term operating leases as of
December 31, 1997 are as follows:

<TABLE>
           <S>                                                    <C>
            1998..............................................     $  1,151,000
            1999..............................................          930,000
            2000..............................................          647,000
            2001..............................................          518,000
            2002 .............................................          403,000
            2003 and thereafter...............................        2,530,000
                                                                   ------------
                                                                   $  6,179,000
                                                                   ============
</TABLE>

            Rent expense, including escalation charges, was $559,000, $929,000
and $1,038,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.

Note 8 -- Redeemable Preferred Stock

      Series A Preferred Stock

            The Company authorized 100,000 shares of its Series A Convertible
Preferred Stock ("Series A Stock"), par value $.01 per share, which were issued
at an aggregate price of $1,210,000. All outstanding shares of the Series A
Stock were converted into shares of the Company's Common Stock (Nonvoting), par
value $.01 per share (the "Common Stock (Nonvoting)") in August 1995. Prior to
conversion, dividends accrued on the Series A Stock at an annual rate of $.40
per share which accumulated, without interest, if unpaid. Accrued but unpaid
dividends on the Series A Stock totaled $262,844 at December 31, 1996 and 1997.
Accrued dividends are due and payable on the later of December 31, 1999 or the
date on which such dividends may be paid under the Company's debt instruments.

      Cumulative Convertible Exchangeable Preferred Stock

            The Company has authorized 3,000,000 shares of its Cumulative
Convertible Exchangeable Preferred Stock (the "Cumulative Convertible
Exchangeable Preferred Stock"), par value $.01 per share, of which 1,520,000
shares were issued on December 23, 1993 at a price of $25.00 per share. The
Company also issued on December 23, 1993 300,000 shares of its Cumulative
Convertible Exchangeable Preferred Stock valued at $7,500,000 as consideration
for acquiring certain outstanding securities of Queen City III Limited
Partnership, the ultimate parent of WKBW-TV. Holders of the Cumulative
Convertible Exchangeable Preferred Stock are entitled to receive cash dividends
at an annual rate of $1.9375 per share, payable quarterly on each March 15, June
15, September 15 and December 15 in each year, when, as and if declared by the
Company's Board of Directors. 


                                      -35-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Dividends on the Cumulative Convertible Exchangeable Preferred Stock are
cumulative and accrue without interest, if unpaid.

            Each share of Cumulative Convertible Exchangeable Preferred Stock is
convertible, at the option of the holder, into shares of Common Stock
(Nonvoting). The Cumulative Convertible Exchangeable Preferred Stock is
convertible into Common Stock (Nonvoting) on a 5 for 1 share basis. The current
conversion price of the Cumulative Convertible Exchangeable Preferred Stock is
$5.00 per share, subject to adjustment upon the occurrence of certain events.
The Cumulative Convertible Exchangeable Preferred Stock is entitled to a
preference of $25.00 per share plus accrued and unpaid dividends in the event of
liquidation, dissolution or winding up of the Company ($45,162,500 liquidation
value at December 31, 1997). The Company is required, to the extent permitted by
loan agreements or indentures to which the Company is then a party, the
obligations of which are senior in priority to the Cumulative Convertible
Exchangeable Preferred Stock, to redeem the Cumulative Convertible Exchangeable
Preferred Stock at a price of $25.00 per share plus accrued and unpaid dividends
on December 15, 2005.

            The Cumulative Convertible Exchangeable Preferred Stock is
exchangeable in whole, but not in part, at the option of the Company, for the
Company's 7.75% Junior Subordinated Convertible Exchange Debentures (the
"Exchange Debentures") on any dividend payment date beginning on December 15,
1995 at the rate of $25.00 principal amount of Exchange Debentures for each
share of Cumulative Convertible Exchangeable Preferred Stock outstanding at the
time of the exchange. The Company may only effect such exchange if accrued and
unpaid dividends on the Cumulative Convertible Exchangeable Preferred Stock have
been paid in full.

12-3/4% Cumulative Exchangeable Preferred Stock

            In January 1997, the Company authorized 400,000 shares of its
12-3/4% Cumulative Exchangeable Preferred Stock (the "12-3/4% Cumulative
Exchangeable Preferred Stock"), par value $.01 per share. In connection with the
Company's acquisition of WDWB-TV, 150,000 shares of the 12-3/4% Cumulative
Exchangeable Preferred Stock were issued in January 1997 at a price of $1,000
per share. Holders of the 12-3/4% Cumulative Exchangeable Preferred Stock are
entitled to receive dividends at an annual rate of 12-3/4% per share payable
semi-annually on April 1 and October 1 of each year. The Third Amended and
Restated Credit Agreement currently prohibits the payment of cash dividends on
the 12-3/4% Cumulative Exchangeable Preferred Stock. The Company may elect to
pay dividends prior to April 1, 2002 in additional shares of 12-3/4% Cumulative
Exchangeable Preferred Stock. Dividends on the 12-3/4% Cumulative Exchangeable
Preferred Stock are cumulative and accrue without interest, if unpaid.

            The 12-3/4% Cumulative Exchangeable Preferred Stock is entitled to a
preference of $1,000 per share initially, plus accumulated and unpaid dividends
in the event of liquidation or winding up of the Company ($163,009,715
liquidation value at December 31, 1997). The Company is required, subject to
certain conditions, to redeem all of the 12-3/4% Cumulative Exchangeable
Preferred Stock outstanding on April 1, 2009, at a redemption price equal to
100% of the then effective liquidation preference thereof, plus, without
duplication, accumulated and unpaid dividends to the date of redemption.

            Subject to certain conditions, each share of the 12-3/4% Cumulative
Exchangeable Preferred Stock is exchangeable, in whole or in part, at the option
of the Company, for the Company's 12-3/4% Exchange Debentures (the "12-3/4%
Exchange Debentures") on any scheduled dividend payment date at the rate of
$1,000 principal amount of 12-3/4% Exchange Debentures for each share of 12-3/4%
Cumulative Exchangeable Preferred Stock outstanding at the time of the exchange.


                                      -36-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 9 -- Stockholders' Equity

      Stock option plans

            The Company has a stock option plan (the "Stock Option Plan") for
officers and certain key employees. On April 29, 1997, the Stock Option Plan was
amended to increase the shares of Common Stock (Nonvoting) subject to options
available for grant to 3,000,000 from 2,000,000. Options may be granted under
the Stock Option Plan at an exercise price (for tax-qualified incentive stock
options) of not less than 100% of the fair market value of the Common Stock
(Nonvoting) on the date the option is granted, or 110% of such fair market value
for option recipients who hold 10% or more of the Company's voting stock. The
exercise price for nonqualified stock options may be less than, equal to or
greater than the fair market value of the Common Stock (Nonvoting) on the date
the option is granted. Options are normally exercisable at a rate of 20% per
year beginning on the date of grant (or the next preceding January 1) and expire
ten years after the date of grant, except for incentive stock options granted to
recipients who also own 10% or more of the Company's voting stock. At December
31, 1995, 1996 and 1997, 467,850, 521,000 and 762,550, respectively, options
were exercisable.

            On March 1, 1994, the Company adopted a Director Stock Option Plan
(the "Director Option Plan") providing for the grant, from time to time, of
nonqualified stock options to non-employee directors of the Company to purchase
an aggregate of 300,000 shares of Common Stock (Nonvoting). As of December 31,
1996 and 1997, options granted under the Director Option Plan were outstanding
for the purchase of 97,200 and 265,100 shares of Common Stock (Nonvoting),
respectively. Under the Director Option Plan as amended in 1995, at the end of
the current triennial option period and each third anniversary thereafter all
directors will automatically receive an option to purchase 18,000 shares of
Common Stock (Nonvoting) ("Automatic Director Service Awards") as compensation
for attendance at each regular quarterly meeting ("Regular Quarterly Meeting")
during the triennial option period subsequent to the grant in lieu of cash
compensation. In addition, under the Director Option Plan, directors receive
options ("Automatic Committee Awards") for service on certain of the committees
of the Board of Directors (each a "Committee"). Options become exercisable one
year (or immediately in the case of Automatic Director Service Awards, or
Automatic Committee Awards granted after February 27, 1997) from the date of
attendance by a director at a Regular Quarterly Meeting or a Committee meeting,
as applicable.

            The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123"). Accordingly, no compensation expense has been
recognized for the stock option plans. For purposes of SFAS 123 pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the options' vesting period; therefore, the impact on pro forma net loss in
1996 and 1997 may not be representative of the impact in future years. The
Company's pro forma information for years ended December 31, follows:

<TABLE>
<CAPTION>
                                             1996              1997
                                           --------           -------
           <S>                         <C>               <C>
            Pro forma net loss ......   $   (9,473,649)   $  (10,301,413)
            Pro forma loss per share:
              Basic .................   $        (1.51)   $        (3.70)
              Diluted ...............   $        (1.51)   $        (3.70)
</TABLE>

            The fair value for each option grant was estimated at the date of
grant using a binomial option pricing model with the following weighted-average
assumptions for the various grants made during 1996 and 1997: risk-free interest
rate of 5.77% and 5.92% in 1996 and 5.67% in 1997; no dividend yield; expected
volatility of 25% in 1996 and 38% in 1997; and expected lives of two to three
years in 1996 and three years in 1997.

            The binomial option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the


                                      -37-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

input of highly subjective assumptions including the expected stock price
volatility. The Company's employee stock options have characteristics
significantly different from those of traded options and changes in the
subjective input assumptions can materially affect the fair value estimate.

<TABLE>
<CAPTION>
                                                1996                           1997
                                     --------------------------    --------------------------
                                               Weighted-Average              Weighted-Average
                                      Options    Exercise Price    Options     Exercise Price
                                      -------    --------------    -------     --------------
<S>                                  <C>             <C>          <C>             <C>   
Outstanding at beginning of year     1,048,950       $ 5.22       1,872,700       $10.22
Granted .........................    1,029,000        14.19         481,000         8.89
Exercised .......................     (200,750)        4.44         (12,350)        4.72
Forfeited .......................       (4,500)        7.10          (4,500)        9.75
                                     ---------                    ---------       
Outstanding at end of year ......    1,872,700        10.22       2,336,850         9.98
                                     =========                    =========       
Exercisable at end of year ......      573,200         5.27         883,950         6.11
Weighted-average fair value of                                                    
  options granted during the year       $ 3.01                       $ 2.84       
</TABLE>

<TABLE>
<CAPTION>
                                     Options  Outstanding                                 Options Exercisable
                      ---------------------------------------------------------      ----------------------------------
                        Number          Weighted-Average       Weighted-Average         Number         Weighted-Average
    Range of          Outstanding           Remaining              Exercise          Outstanding           Exercise
 Exercise Prices       @ 12/31/97        Contractual Life           Price             @ 12/31/97            Price
 ---------------       ----------        ----------------           -----             ----------            -----
<S>                   <C>                   <C>                     <C>                 <C>                 <C>          
    $3-$7               788,150             6.9 years               $5.07               698,150             $4.82
$8.38-$16             1,548,700             5.6 years               $12.48              185,800             $10.96
                      ---------                                                         -------
                      2,336,850                                                         883,950
</TABLE>

      Management Stock Plan

            In April 1993, the Company adopted a Management Stock Plan providing
for the grant from time to time of awards denominated in shares of Common Stock
(Nonvoting) (the "Bonus Shares") to salaried executive employees of the Company.
The Company has set aside a reserve of 750,000 shares of Common Stock
(Nonvoting) for grant under the Management Stock Plan. Shares generally vest
over a five-year period. As of December 31, 1997, the Company has allocated a
total of 694,150 Bonus Shares pursuant to the Management Stock Plan, 437,600 of
which had vested through December 31, 1997. For the years ended December 31,
1995, 1996 and 1997, 124,500, 216,875 and 95,275 shares were granted pursuant to
the Management Stock Plan. The weighted-average grant-date fair value of those
shares is $7.38, $10.17 and $10.10, respectively.

Non-Employee Directors' Stock Plan

            In April of 1997, the Company adopted a Non-Employee Directors'
Stock Plan (the "Director Stock Plan"), providing an annual grant of the
Company's Common Stock (Nonvoting) to each eligible non-employee director of a
number of shares equal to $20,000 divided by the fair market value of the Common
Stock (Nonvoting) on the date of grant. The Company has set aside a reserve of
100,000 shares of Common Stock (Nonvoting) for grant under the Director Stock
Plan. Shares granted vest immediately. For the year ended December 31, 1997,
16,716 shares were granted pursuant to the Director Stock Plan. The
weighted-average grant date fair value of those shares is $8.38.


                                      -38-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

      The total number of common shares outstanding at December 31, 1997
assuming conversion of all outstanding convertible preferred stock and exercise
of all outstanding stock options is as follows:

<TABLE>
     <S>                                                           <C>
      Class A Common Stock......................................      178,500
      Common Stock (Nonvoting)..................................    8,676,157
      Conversion of Cumulative Convertible
        Exchangeable Preferred Stock............................    9,032,500
      Stock option plans........................................    2,336,850
                                                                  -----------
                                                                   20,224,007
                                                                  ===========
</TABLE>

Note 10 -- Income Taxes

      The Company files a consolidated federal income tax return for its
entities with the exception of the subsidiary that holds the investment in
WKBW-TV. For all periods presented, the Company provides for income taxes as
required under Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS No. 109"). Under SFAS No. 109, the Company records
income taxes using a liability approach for financial accounting and reporting
which results in the recognition and measurement of deferred tax assets based on
the likelihood of realization of tax benefits in future years.

      The provision for income taxes for the years ended December 31 consists of
the following:

<TABLE>
<CAPTION>
                                            1995          1996          1997
                                          --------      --------     ----------
<S>                                      <C>           <C>            <C>
Current taxes:
   Federal.............................   $     --      $     --       $     --
   State...............................    264,000       375,000        422,000
                                          --------      --------     ----------
                                           264,000       375,000        422,000

Deferred taxes:
   Federal.............................    154,400       285,700        844,212
   State...............................    136,484       100,300        350,000
                                          --------      --------     ----------
                                           290,884       386,000      1,194,212
                                          --------      --------     ----------
Provision for income taxes.............   $554,884      $761,000     $1,616,212
                                          ========      ========     ==========
</TABLE>

      The provision for income taxes for the years ended December 31, 1996 and
1997 is comprised of a non-cash provision for income taxes, relating to WKBW-TV
of $975,000 and $1,730,561, respectively, partially offset by the deferred tax
benefit recorded on companies included in the Granite Broadcasting Corporation
U.S. consolidated income tax return. Also included are the provisions for state
and local taxes.

      During 1995, the Company utilized approximately $2,800,000 of net
operating loss carryforwards relating to WKBW-TV to eliminate its income tax
liability. This tax benefit of approximately $1,100,000 reduced goodwill. The
Company has remaining net operating loss carryforwards relating to WKBW-TV of
approximately $19,900,000, which expire no sooner than December 31, 2004. The
net operating loss carryforwards are restricted to offsetting future years' U.S.
federal income tax liabilities of that subsidiary. If realized, the benefit will
be used to further reduce goodwill.


                                      -39-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

      Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Components of the
Company's deferred tax asset and liability as of December 31 are as follows:

<TABLE>
<CAPTION>
                                                                    December 31,
                                                            ----------------------------
                                                                1996            1997
                                                            ------------    ------------
<S>                                                         <C>             <C>         
Deferred tax liability from excess carrying value
  of non-goodwill intangible assets over tax basis......... $ 39,648,565    $ 46,918,623
Deferred tax assets:
  Net operating loss carryforward .........................   24,293,786      33,183,110
  Other....................................................      304,862         187,122
                                                            ------------    ------------
Total deferred tax assets..................................   24,598,648      33,370,232
Valuation allowance........................................   (7,554,878)    (10,254,066)
                                                            ------------    ------------
Net deferred tax assets....................................   17,043,770      23,116,166
                                                            ------------    ------------

Net deferred tax liability................................. $ 22,604,795    $ 23,802,457
                                                            ============    ============
</TABLE>

      The difference between the U.S. federal statutory tax rate and the
Company's effective tax rate for the years ended December 31 is as follows:

<TABLE>
<CAPTION>
                                               1995       1996      1997
                                               -----      -----     -----
<S>                                            <C>        <C>       <C>
U.S. statutory rate..........................  (35.0%)    (35.0%)   (35.0%)
Nondeductible amortization...................  201.4       22.2      35.5
State and local taxes........................  160.8        9.3      35.1
(Decrease) increase in valuation allowance...  (84.1)      18.3      51.7
                                               -----      -----     -----

Effective tax rate...........................  243.1%      14.8%     87.3%
                                               =====      =====     =====
</TABLE>

      At December 31, 1997, the Company had a net operating loss carryforward
for federal tax purposes of approximately $73,000,000 that will expire no sooner
than December 31, 2004. The future utilization of the net operating losses may
be subject to limitation under Section 382 of the Internal Revenue Code. This
possible limitation has been reflected in the valuation allowance. The Company
has provided a valuation allowance against a portion of the net deferred tax
asset as the past history of the Company makes realization of taxable income
uncertain. During 1995, 1996 and 1997, the change in valuation allowance relates
to the utilization of or increase in net operating loss carryforwards.

Note 11 -- Defined Contribution Plan

      The Company has a trusteed profit sharing and savings plan (the "Plan")
covering substantially all of its employees. Contributions by the Company to the
Plan are based on a percentage of the amount of employee contributions to the
Plan and are made at the discretion of the Board of Directors. Company
contributions, which are funded quarterly, amounted to $499,000, $642,000 and
$718,000 for the years ended December 31, 1995, 1996 and 1997, respectively.


                                      -40-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

Note 12 -- Related Party

      In 1995, the Company lent two of its officers an aggregate of $570,000 to
pay certain personal taxes. The terms of the loans provide for an annual
interest rate of 9% payable annually in April of each year, with all principal
and remaining interest due on December 29, 2004.

      In 1996, the Company lent one of its officers $886,875 to pay the exercise
price incurred in connection with exercising options and $409,000 to pay related
personal income taxes. The loans are term loans which provide for an annual
interest rate of 8%, payable annually in April of each year, with all principal
and remaining interest due on April 23 and December 31, 2001, respectively. The
amount of the loan made in connection with exercising options is shown in the
balance sheet at December 31, 1996 and 1997 as a reduction to stockholders'
equity.

      In 1997, the Company lent one of its officers $441,530 to pay certain
personal taxes. The loan is a term loan which provides for an annual interest
rate of 8%, payable annually on April 16 of each year with all principal and
remaining interest due April 16, 2001.

Note 13 -- Price Range of Common Stock (Nonvoting) and Cumulative Convertible
           Exchangeable Preferred Stock (unaudited)

      The Company's Common Stock (Nonvoting) is traded in the over-the-counter
market and is quoted on the Nasdaq National Market under the symbol "GBTVK". The
following table sets forth the market price ranges per share of Common Stock
(Nonvoting) during 1996 and 1997, as reported by Nasdaq:

<TABLE>
<CAPTION>
1996                                                           High          Low
----                                                           ----          ---
<S>                                                        <C>           <C>
First Quarter....................................           $12-1/8       $9-1/4
Second Quarter...................................            13-1/2       11-1/4
Third Quarter....................................              15         11-1/2
Fourth Quarter...................................              14          9-7/8

1997
----
First Quarter....................................           $11-1/4       $9-1/2
Second Quarter...................................            10-7/8        8-1/8
Third Quarter....................................            12-7/8        9-7/8
Fourth Quarter...................................            11-1/2        8-7/8
</TABLE>

      As of February 27, 1998, the closing price per share for the Company's
Common Stock (Nonvoting), as reported by Nasdaq was $11-13/16 per share.


                                      -41-
<PAGE>

                        GRANITE BROADCASTING CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)

      The Cumulative Convertible Exchangeable Preferred Stock is traded
over-the-counter and is quoted on the Nasdaq National Market under the symbol
"GBTVP". The following table sets forth the market price ranges per share of
Cumulative Convertible Exchangeable Preferred Stock during 1996 and 1997, as
reported by Nasdaq:

<TABLE>
<CAPTION>
1996                                                           High        Low
----                                                           ----        ---
<S>                                                         <C>         <C>
First Quarter.............................................   $61-7/8     $48-1/8
Second Quarter............................................    68-5/8        60
Third Quarter.............................................    75-1/2        60
Fourth Quarter............................................    75-1/2        50

<CAPTION>
1997
----
<S>                                                         <C>         <C>
First Quarter.............................................    $58         $49
Second Quarter............................................    56-7/8      43-3/8
Third Quarter.............................................    64-3/4      50-1/8
Fourth Quarter............................................    58-7/8       45
</TABLE>

      As of February 27, 1998, the closing price for the Company's Cumulative
Convertible Exchangeable Preferred Stock, as reported by Nasdaq, was $59-1/2 per
share.


                                      -42-
<PAGE>

                                   SCHEDULE II
                        GRANITE BROADCASTING CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
                                          Balance at      Acquired       Amount charged                   Balance
       Allowance for                      beginning     allowance for       to costs        Amount         at end
     Doubtful Accounts                     of year    doubtful accounts   and expenses   written off(1)   of year
     -----------------                     -------    -----------------   ------------   --------------   -------
<S>                                       <C>            <C>               <C>            <C>            <C>      
For the year ended December 31, 1995....  $ 255,827      $ 229,171         $ 402,619      $ 381,858      $ 505,759

For the year ended December 31, 1996....    505,759             --           212,665        326,514        391,910

For the year ended December 31, 1997....    391,910            134           396,829        380,583        408,290
</TABLE>

----------
(1) Net of recoveries.


                                      -43-
<PAGE>

Item 9. Changes and Disagreements With Accountants on Accounting and Financial
        Disclosure

        None.


                                      -44-
<PAGE>

                                    PART III

Item 10. Directors and Executive Officers of the Registrant

      The following table sets forth information concerning the executive
officers and directors of the Company as of February 1, 1998:

<TABLE>
<CAPTION>
         Name                    Age                 Position
         ----                    ---                 --------
<S>                             <C>  <C>
W. Don Cornwell(1).............  50   Chairman of the Board, Chief Executive
                                        Officer and Director
Stuart J. Beck(1)..............  51   President, Treasurer, Secretary and
                                        Director
Robert E. Selwyn, Jr...........  54   Chief Operating Officer
Lawrence I. Wills..............  37   Vice President-Finance and Controller
Ellen McClain..................  33   Vice President-Corporate Development and
                                        Treasurer
James L. Greenwald(2)..........  70   Director
Vickee Jordan Adams............  38   Director
Martin F. Beck(2)..............  80   Director
Edward Dugger, III(2)..........  48   Director
Thomas R. Settle(1)(3).........  57   Director
Charles J. Hamilton, Jr.(3)....  50   Director
Mikael Salovaara(3)............  44   Director
</TABLE>

----------

(1) Member of the Stock Option Committee.

(2) Member of the Audit Committee.

(3) Member of the Compensation Committee and Management Stock Plan Committee.

      Mr. Cornwell is a founder of the Company and has been Chairman of the
Board of Directors and Chief Executive Officer of the Company since February
1988. Mr. Cornwell served as President of the Company, which office then
included the duties of chief executive officer, until September 1991 when he was
elected to the newly-created office of Chief Executive Officer. Prior to
founding the Company, Mr. Cornwell served as a Vice President in the Investment
Banking Division of Goldman, Sachs & Co. ("Goldman Sachs") from May 1976 to July
1988. In addition, Mr. Cornwell was the Chief Operating Officer of the Corporate
Finance Department of Goldman Sachs from January 1980 to August 1987. Mr.
Cornwell is a director of Hershey Trust Company, the Milton S. Hershey School,
Pfizer, Inc. and CVS Corporation. Mr. Cornwell received a Bachelor of Arts
degree from Occidental College in 1969 and a Masters degree in Business
Administration from Harvard Business School in 1971.

      Mr. Stuart Beck is a founder of the Company and has been a member of 
the Board of Directors and Secretary of the Company since February 1988 and 
President of the Company since September 1991. Prior to founding the Company, 
Mr. Beck was an attorney in private practice of law in New York, New York and 
Washington, DC. Mr. Beck is a member of the Board of The American Women in 
Radio and Television Society and of the Board of The Advertising Council. Mr. 
Beck received a Bachelor of Arts degree from Harvard College in 1968 and a 
Juris Doctor degree from Yale Law School in 1971. Mr. Beck is the son of 
Martin F. Beck.

      Mr. Selwyn has been Chief Operating Officer of the Company since September
19, 1996. Prior to joining the Company, Mr. Selwyn was employed by New World
Communications, Inc. from May 1993 to June 1996 serving as Chairman and Chief
Executive Officer of the New World Television Station Group. Mr. Selwyn


                                      -45-
<PAGE>

received a bachelor of science degree from the University of Tennessee in 1968.
From 1990 until 1993, Mr. Selwyn was the President of Broadcasting for SCI
Television, Inc. Mr. Selwyn was an officer of SCI Television, Inc. at the time
that company filed a petition under Federal bankruptcy laws.

      Mr. Wills has been Vice President-Finance and Controller of the Company
since June 25, 1990. Prior to joining the Company, Mr. Wills was employed by
Ernst & Young LLP from July 1982 to May 1990 in various capacities, the most
recent of which was as audit manager responsible for managing and supervising
audit engagements. Mr. Wills is a director of the Broadcast Cable Financial
Management Association. Mr. Wills received a bachelors degree in Business
Administration from Iona College in 1982.

      Ms. McClain has been Vice President - Corporate Development and Treasurer
of the Company since January 1994. Prior to joining Granite, Ms. McClain
attended Harvard Business School, where she received a Masters degree in
Business Administration in June 1993. From 1990 to 1991, Ms. McClain was an
Assistant Vice President with Canadian Imperial Bank of Commerce, where she
served as a lender in the Bank's Media Group and from 1986 to 1990 was employed
by Bank of New England, N.A. in various capacities including as a lender in the
Communications Group. Ms. McClain is a director of the National Association of
Black Owned Broadcasters. Ms. McClain received a Bachelor of Arts Degree in
Economics from Brown University in 1986.

      Mr. Greenwald has been a member of the Board of Directors of the 
Company since December 1988. Mr. Greenwald was the Chairman and Chief 
Executive Officer of Katz Communications, Inc. from May 1975 to August 1994 
and has been Chairman Emeritus since August 1994. Mr. Greenwald has served as 
President of the Station Representatives Association and the International 
Radio and Television Society and Vice President of the Broadcast Pioneers. 
Mr. Greenwald is a director of Paxson Communications Corp. and Source Media 
Inc. Mr. Greenwald received a Bachelor of Arts degree from Columbia 
University in 1949 and an Honorary Doctorate Degree in Commercial Science 
from St. Johns University in 1980.

      Ms. Adams has been a member of the Board of Directors of the Company 
since August 1988. Ms. Adams has been Senior Vice President, Director of 
Communications Training with Ketchum Public Relations, a New York City-based 
public relations firm, since October 1992. From February 1990 to September 
1992, Ms. Adams was Vice President, Manager Communications Training with 
Burson-Marsteller, a New York City-based public relations firm. From December 
1983 to February 1990, Ms. Adams served in various capacities in 
Burson-Marsteller's Communications Training section. Ms. Adams is a director 
of WNYC Radio, a member of the Board of Advisers for the Wildlife 
Conservation Society and an Advisory Council Member of the New York 
Zoological Society. She also serves on the Board of Women Executives in 
Public Relations. Ms. Adams received a Bachelor of Arts degree from the 
University of Pennsylvania in 1981.

      Mr. Martin Beck has been a member of the Board of Directors of the Company
since December 1988. Mr. Beck has served as Chairman of Beck-Ross
Communications, Inc., a New York-based group owner of FM radio stations, from
June 1966 until April 1995, at which time he retired. Mr. Beck has served as
President of the New York State Broadcasters Association, the Long Island
Broadcasters Association and the National Association of Broadcasters Radio
Board. Mr. Beck received a Bachelor of Arts degree from Cornell University in
1938. Mr. Beck is the father of Stuart J. Beck.

      Mr. Dugger has been a member of the Board of Directors of the Company
since December 1988. Mr. Dugger has been President and Chief Executive Officer
of UNC Ventures, Inc., a Boston-based venture capital firm, since January 1978,
and its investment management company, UNC Partners, Inc., since June 1990. Mr.
Dugger is a director of the Federal Reserve Bank of Boston and Envirotest
Systems Corp. Mr. Dugger received a Bachelor of Arts degree from Harvard
College in 1971 and a Masters degree in Public Administration and Urban Planning
from Princeton University in 1973.

      Mr. Hamilton has been a member of the Board of Directors of the Company 
since July 1992. Mr. Hamilton has been a partner in the New York law firm of 
Battle Fowler LLP since 1983. Mr. Hamilton received a Bachelor of Arts degree 
from Harvard College in 1969 and a Juris Doctor degree from Harvard Law 
School in 1975. Mr. Hamilton is a trustee of the National Urban League, Inc. 
and the Environmental Defense Fund. Mr.

                                      -46-
<PAGE>

Hamilton is a member of the Board of Directors of the Phoenix House Foundation,
Inc. He is a member of the Committee on Policy for Racial Justice of the Joint
Center for Political and Economic Studies, Inc. in Washington, DC and is
Chairman of the Board of Directors of the Higher Education Extension Service.

      Mr. Settle has been a member of the Board of Directors of the Company
since July 1992. Mr. Settle founded and has been the President of The Winchester
Group, Inc., an investment advisory firm, since 1990. Mr. Settle was the chief
investment officer at Bernhard Management Corporation from 1985 to 1989. He was
a Managing Director of Furman Selz Capital Management from 1979 until 1985. Mr.
Settle received a Bachelor of Arts Degree from Muskingum College in 1963 and a
Masters degree in Business Administration from Wharton Graduate School in 1965.

      Mr. Salovaara has been a member of the Board of Directors since March
1994. Mr. Salovaara has been a General Partner of Greycliff Partners, an
investment firm, since 1991 and was a Limited Partner of the Blackstone Group
from 1994 until 1996. Mr. Salovaara worked at Goldman, Sachs & Co. from 1980 to
1991 where he was a General Partner from 1988 to 1991. Mr. Salovaara is a
trustee of Playwrights Horizons in New York City and Wooster College and a
visitor and governor of St. John's College. Mr. Salovaara is a director of
Circuit City Stores, Inc. Mr. Salovaara received a Bachelor of Arts degree from
Dartmouth College in 1974, a Juris Doctor degree and Masters degree in Business
Administration from the University of Virginia in 1980 and a Masters of Arts
degree from Cambridge University in 1986.

      All members of the Board of Directors hold office until the next annual
meeting of shareholders of the Company or until their successors are duly
elected and qualified. All officers are elected annually and serve at the
discretion of the Board of Directors.

      Members of the Board of Directors were entitled to receive a fee of $2,500
for each Board of Directors meeting attended in person that was held prior to
February 25, 1997. Pursuant to and in accordance with the terms and conditions
of the Company's Director Stock Option Plan (the "Director Option Plan"),
however, once every three years, each director was permitted to elect (a
"Triennial Election") to receive options to purchase shares of the Company's
Common Stock (Nonvoting) ("Options"), in lieu of cash compensation, for
attendance at regularly scheduled quarterly meetings of the Board ("Regular
Quarterly Meetings") during the three years subsequent to the Triennial Election
or until their earlier termination (the "Triennial Option Period"). At the end
of the last Triennial Option Period, February 25, 1997, however, all directors
automatically received (and will receive on each third year anniversary
thereafter), an option to purchase 18,000 shares of Common Stock (Nonvoting)
("Automatic Director Service Awards") as compensation for attendance at Regular
Quarterly Meetings during the Triennial Option Period subsequent to the grant,
in lieu of cash compensation. Directors elected or appointed during the
Triennial Option Period receive Options, in lieu of cash compensation, for the
remaining portion of the Triennial Option Period.

      During the Triennial Option Period, Options to purchase shares of Common
Stock (Nonvoting) become exercisable one year (or immediately in the case of
Automatic Director Service Awards) from the date of attendance by a director at
a Regular Quarterly Meeting in the following amounts: (i) 1,500 shares for
attendance in person; or (ii) 500 shares for attendance by telephonic means. The
exercise price of all Options is the fair market value of the Common Stock
(Nonvoting) on the date of grant. The following directors elected to receive
Options, in lieu of cash compensation, for the Triennial Option Period completed
in February 1997: James L. Greenwald, Vickee Jordan Adams, Martin F. Beck,
Thomas R. Settle, Charles J. Hamilton, Jr. and Mikael Salovaara. See "Executive
Compensation -- Director Stock Option Plan."

      Under the Director Option Plan, directors receive Options ("Automatic
Committee Awards") to purchase shares of Common Stock (Nonvoting) for service on
certain of the committees of the Board of Directors (each a "Committee").
Automatic Committee Awards to purchase 1,500 shares of Common Stock (Nonvoting)
become exercisable one year (or immediately for Automatic Committee Awards
granted on or after February 25, 1997) from the date of attendance, in person,
at each regularly scheduled Committee meeting.


                                      -47-
<PAGE>

      In addition, under the Non-Employee Directors Stock Plan (as defined),
non-employee directors of the Company shall receive a number of shares of Common
Stock (Nonvoting) equal to $20,000 divided by the fair market value per share on
the date of grant. As of December 31, 1997, 16,716 shares had been granted under
the Non-Employee Directors Stock Plan.

      Directors are separately reimbursed by the Company for their travel
expenses incurred in attending Board or committee meetings.

Section 16(a) Beneficial Ownership Reporting Compliance

      Each director and officer of the Company who is subject to Section 16 of
the Securities Exchange Act of 1934, as amended, is required to report to the
Securities and Exchange Commission, by a specified date, his or her beneficial
ownership of, or certain transactions in, the Company's securities. Except as
noted below, based solely upon a review of such reports, the Company believes
that all filing requirements under Section 16 were complied with on a timely
basis.

      For fiscal year 1997, Mr. Cornwell did not report, on a timely basis, four
transactions on two Form 4s. Mr. Selwyn did not report, on a timely basis, three
transactions on two Form 4s. Mr. Martin Beck did not report, on a timely basis,
two transactions on one Form 4. All of the reports referred to above have been
filed.


                                      -48-
<PAGE>

Item 11. Executive Compensation

      The following table sets forth the cash compensation paid by the Company
to its Chief Executive Officer and each of its most highly compensated executive
officers whose total cash compensation exceeded $100,000 during the fiscal year
ended December 31, 1997, for each of the three years in the period ended
December 31, 1997:

                           Summary Compensation Table

<TABLE>
<CAPTION>
                                                             Long-Term Compensation
                                  Annual Compensation                Awards
                             -------------------------------  -----------------------
                                                                          Securities
                                                             Restricted   Underlying      All Other
   Name and                                                    Stock       Options/     Compensation
Principal Position           Year   Salary ($)    Bonus ($)    Awards      SARs (#)         ($)(1)
------------------           ----  ------------   ---------  ----------   ----------    -------------
<S>                          <C>     <C>          <C>        <C>            <C>            <C>   
W. Don Cornwell              1997    $500,000     $100,000       --         166,000        $4,750
Chief Executive              1996     483,000       46,000       --         484,000         4,750
  Officer                    1995     460,000         --         --         165,000         4,620

Stuart J. Beck               1997    $500,000     $100,000       --         135,000        $4,750
President                    1996     483,000       46,000       --         395,000         4,750
                             1995     460,000         --         --         135,000         4,620

Robert E. Selwyn, Jr.        1997    $350,000     $ 70,000       --            --           $4,750
Chief Operating              1996     102,083(2)      --      373,140(3)    150,000           --
  Officer                    1995        --           --         --            --             --

Lawrence I. Wills            1997    $130,000     $ 26,000       --            --           $3,250
Vice President -             1996     125,000       25,000    150,438(4)       --            3,125
  Finance and Controller     1995     115,000       28,000       --            --            2,875

Ellen McClain                1997    $130,000     $ 26,000       --            --           $3,250
Vice President - Corporate   1996     125,000       25,000    155,625(5)       --            3,125
  Development and Treasurer  1995      85,000       45,000     41,438(6)       --            2,125
</TABLE>

----------
(1)   Represents matching Company contributions under the Company's Employees'
      Profit Sharing and Savings (401(k)) Plan.

(2)   Represents salary received from September 19, 1996, Mr. Selwyn's date of
      hire. Mr. Selwyn's annual salary under his employment contract with the
      Company is $350,000.

(3)   Represents the market value on the date of award of 30,000 Bonus Shares
      awarded under the Company's Management Stock Plan on October 22, 1996. On
      December 31, 1997, 10,000 shares vested. An additional 10,000 shares will
      vest on December 31, 1998 and December 31, 1999. Shares of Common Stock
      (Nonvoting) subject to an Award of Bonus Shares are not deemed issued and
      outstanding until such Bonus Shares vest, and no shareholder rights,
      including the right to receive dividends, if any, will arise with respect
      thereto until the Bonus Shares vest.

(4)   Represents the market value on the date of award of 14,500 Bonus Shares
      awarded under the Company's Management Stock Plan on July 25, 1996. On
      December 31, 1996 and 1997, 1,500 Bonus Shares vested. An additional 1,500
      Bonus Shares will vest on December 31, 1998, and 5,000 Bonus Shares will
      vest on


                                      -49-
<PAGE>

      each of December 31, 1999 and 2000. Shares of Common Stock (Nonvoting)
      subject to an Award of Bonus Shares are not deemed issued and outstanding
      until such Bonus Shares vest, and no shareholder rights, including the
      right to receive dividends, if any, will arise with respect thereto until
      such Bonus Shares vest.

(5)   Represents the market value on the date of award of 15,000 Bonus Shares
      awarded under the Company's Management Stock Plan on July 25, 1996. On
      December 31, 1996 and 1997, 2,500 Bonus Shares vested. An additional 2,500
      Bonus Shares will vest on December 31, 1998 and December 31, 1999, and
      5,000 Bonus Shares will vest on December 31, 2000. Shares of Common Stock
      (Nonvoting) subject to an Award of Bonus Shares are not deemed issued and
      outstanding until such Bonus Shares vest, and no shareholder rights,
      including the right to receive dividends, if any, will arise with respect
      thereto until such Bonus Shares vest.

(6)   Represents the market value on the date of award of 6,500 Bonus Shares
      awarded under the Company's Management Stock Plan on July 1, 1995. On each
      of December 31, 1995, 1996 and 1997, 1,000 Bonus Shares vested. An
      additional 1,000 Bonus Shares will vest on December 31, 1998 and 2,500
      Bonus Shares will vest on December 31, 1999. Shares of Common Stock
      (Nonvoting) subject to an Award of Bonus Shares are not deemed issued and
      outstanding until such Bonus Shares vest, and no shareholder rights,
      including the right to receive dividends, if any, will arise with respect
      thereto until such Bonus Shares vest.

Employment Agreements and Compensation Arrangements

      Mr. Cornwell and Mr. Stuart Beck each have an employment agreement with
the Company. The agreements provide for a two year employment term which is
automatically renewed for subsequent two year terms unless advance notice of
nonrenewal is given (the current term under such agreements, which were renewed
in 1997, expires September 19, 1999). The base salary determined by the
Compensation Committee of the Board of Directors was $460,000 for 1995, $483,000
for 1996 and $500,000 for 1997. The agreements stipulate that Mr. Cornwell and
Mr. Beck will devote their full time and efforts to the Company and will not
engage in any business activities outside the scope of their employment with the
Company unless approved by a majority of the Company's independent directors.
Under the agreements, Mr. Cornwell and Mr. Beck are permitted to exchange any or
all of their shares of Voting Common Stock for shares of Common Stock
(Nonvoting), provided that such exchange does not jeopardize the Company's
status as a minority-controlled entity under FCC regulations and that, after
such exchange is effected, there will continue to be shares of voting stock of
the Company outstanding. In addition to the compensation set forth in the
employment agreements, Mr. Cornwell and Mr. Beck are eligible to receive
incentive bonus payments under the Company's incentive bonus plan and stock
options under certain of the Company's stock option plans. See "--Stock Option
Plan," "--Management Stock Plan" and "--Target Cash Flow Stock Option Plan."

      Mr. Selwyn has an employment agreement with the Company. The current
employment term expires January 31, 2000, which term may be extended by mutual
written agreement of the parties. The annual base salary determined by the
Compensation Committee of the Board of Directors was $350,000 for 1996 and 1997.
The agreement stipulates that Mr. Selwyn will devote his full time and effort to
the Company and will not engage in any business activities outside of the scope
of his employment with the Company other than permitted thereunder. In addition
to his base salary, Mr. Selwyn is eligible to receive shares of the Company's
Common Stock (Nonvoting) under the Management Stock Plan, has been granted
options to purchase shares of Common Stock (Nonvoting) under the Stock Option
Plan and is eligible to participate in the Company's Employee Stock Purchase
Plan. See"--Employee Stock Purchase Plan," "--Stock Option Plan" and
"--Management Stock Plan."

      Under an employment arrangement with the Company, Mr. Wills is eligible to
receive an annual cash bonus based upon the Company's financial performance
during that year, such bonus to be determined by Messrs. Cornwell and Beck. Mr.
Wills's 1997 base salary was fixed at $130,000.


                                      -50-
<PAGE>

      Under an employment arrangement with the Company, Ms. McClain is eligible
to receive an annual cash bonus based upon the Company's financial performance
during that year, such bonus to be determined by Messrs. Cornwell and Beck. Ms.
McClain's 1997 base salary was fixed at $130,000.

401(k) Profit Sharing and Savings Plan

      Effective January 1990, the Company adopted the Granite Broadcasting
Corporation Employees' Profit Sharing and Savings (401(k)) Plan for the purpose
of providing retirement benefits for substantially all of its employees.
Contributions to the Plan are made by both the employee and the Company. The
Company matches 50% of that part of an employee's deferred compensation which
does not exceed 5% of such employee's salary. Company-matched contributions vest
at a rate of 20% for each year of an employee's service to the Company.

      A contribution to the Plan of $718,000 was charged to expense for 1997.

Employee Stock Purchase Plan

      On February 28, 1995, the Company adopted the Granite Broadcasting
Corporation Employee Stock Purchase Plan (the "Stock Purchase Plan") for the
purpose of enabling its employees to acquire ownership of Common Stock
(Nonvoting) at a discount, thereby providing an additional incentive to promote
the growth and profitability of the Company. The Stock Purchase Plan enables
employees of the Company to purchase up to an aggregate of 1,000,000 shares of
Common Stock (Nonvoting) at 85% of the then current market price through
application of regularly made payroll deductions. The Stock Purchase Plan is
administered by a Committee consisting of not less than two directors who are
ineligible to participate in the Stock Purchase Plan. The members of the
Committee are currently Mr. Cornwell and Mr. Stuart J. Beck. At the discretion
of the Committee, purchases under the Stock Purchase Plan may be effected
through issuance of authorized but previously unissued shares, treasury shares
or through open market purchases. The Committee has engaged a brokerage company
to administer the day-to-day functions of the Stock Purchase Plan. Purchases
under the Stock Purchase Plan commenced on June 1, 1995.

Stock Option Plan

      In April 1990, the Company adopted a Stock Option Plan (the "Stock Option
Plan") providing for the grant, from time to time, of Options to key employees,
officers and directors of the Company or its affiliates (collectively, the
"Participating Persons") to purchase shares of Common Stock (Nonvoting). On
April 25, 1995, 165,000 Options were granted to Mr. Cornwell and 135,000 Options
were granted to Mr. Stuart Beck. On April 23, 1996, 166,000 Options were granted
to Mr. Cornwell and 135,000 Options were granted to Mr. Stuart Beck. On April
25, 1996, 318,000 Options were granted to Mr. Cornwell and 260,000 Options were
granted to Mr. Stuart Beck. On September 19, 1996, 150,000 Options were granted
to Mr. Selwyn. On April 29, 1997, the Stock Option Plan was amended to increase
the shares of Common Stock (Nonvoting) subject to Options available for grant
under the Plan to 3,000,000 from 2,000,000. On April 29, 1997, 166,000 Options
were granted to Mr. Cornwell and 135,000 Options were granted to Mr. Stuart
Beck. As of December 31, 1997, Options granted under the Plan were outstanding
for the purchase of 2,071,750 shares of Common Stock (Nonvoting).

      The Stock Option Plan provides for the grant of (i) Options intended to
qualify as Incentive Stock Options ("ISOs") as defined in Section 422 of the
Code, to certain key employees of the Company or its affiliates (including
employees who are officers or directors, but excluding directors who are not
employees) who have substantial responsibility in the direction and management
of the Company or an affiliate ("Key Employees") and (ii) Options which do not
qualify as ISOs ("NQSOs") to Key Employees and other officers and directors of
the Company or its affiliates who have substantial responsibility in the
direction and management of the Company or an affiliate. No Participating Person
may be granted ISOs which, when first exercisable in any calendar year (combined
with all incentive stock option plans of the Company and its affiliates) will
permit such person to purchase stock of the Company having an aggregate fair
market value (determined as of the time the ISO was granted) of more than
$100,000.


                                      -51-
<PAGE>

      The Stock Option Plan is administered by a committee consisting of not
less than three members of the Board of Directors appointed by the Board.
Subject to the provisions of the Stock Option Plan, the committee is empowered
to, among other things, grant Options under the Stock Option Plan; determine
which employees may be granted Options under the Stock Option Plan, the type of
Option granted (ISO or NQSO), the number of shares subject to each Option, the
time or times at which Options may be granted and exercised and the exercise
price thereof; construe and interpret the Stock Option Plan; determine the terms
of any option agreement pursuant to which Options are granted (an "Option
Agreement"), and amend any Option Agreement with the consent of the recipient of
Options (the "Optionee"). Notwithstanding the foregoing, grants under the Stock
Option Plan to officers of the Company and holders of 10% or more of the Voting
Common Stock are made by the disinterested members of the Board of Directors of
the Company. The Board of Directors may amend or terminate the Stock Option Plan
at any time, except that approval of the holders of a majority of the
outstanding Voting Common Stock of the Company is required for amendments which
decrease the minimum option price for ISOs, extend the term of the Stock Option
Plan beyond 10 years or the maximum term of the Options granted beyond 10 years,
withdraw the administration of the Stock Option Plan from the committee, change
the class of eligible employees, officers or directors or increase the aggregate
number of shares which may be issued pursuant to the provisions of the Stock
Option Plan. Notwithstanding the foregoing, the Board of Directors may, without
the need for shareholder approval, amend the Stock Option Plan in any respect to
qualify ISOs as Incentive Stock Options under Section 422 of the Code.

      Options granted to each of Mr. Cornwell and Mr. Stuart Beck in April 1997
will vest as follows: (i) 40% of the Options granted will become exercisable on
April 29, 1998; (ii) 30% will become exercisable on April 29, 1999; and (iii)
10% will become exercisable on each of April 29, 2000, 2001 and 2002. Options
granted to each of Mr. Cornwell and Mr. Stuart Beck in 1996 vest as follows: (i)
of the Options granted on April 23, 1996, approximately 6% became exercisable on
December 1, 1996, approximately 27% became exercisable on April 23, 1997,
approximately 6% became exercisable on December 1, 1997 and the remainder become
exercisable in varying percentages on various dates from April 23, 1998 through
April 23, 2001; (ii) of the Options granted on April 25, 1996, 50% became
exercisable on October 23, 1997 and the remaining 50% of such Options become
exercisable on April 23, 1998. Of the Options granted to Mr. Selwyn in 1996,
approximately 5% became exercisable on December 30, 1996, approximately 47%
became exercisable on December 30, 1997 and the remaining options become
exercisable in varying percentages from December 31, 1998 through January 1,
2000.

      The exercise price per share for all ISOs may not be less than 100% of the
fair market value of a share of Common Stock (Nonvoting) on the date on which
the Option is granted (or 110% of the fair market value on the date of grant of
an ISO if the Optionee owns more than 10% of the total combined voting power of
all classes of voting stock of the Company or any of its affiliates (a "10%
Holder")). The exercise price per share for NQSOs may be less than, equal to or
greater than the fair market value of a share of Common Stock (Nonvoting) on the
date such NQSO is granted. Options are not assignable or transferable other than
by will or the laws of descent and distribution.

      Unless sooner terminated by the Board of Directors, the Stock Option Plan
will terminate on April 1, 2000, 10 years after its effective date. Unless
otherwise specifically provided in an Optionee's Option Agreement, each Option
granted under the Stock Option Plan expires no later than 10 years after the
date such Option is granted (5 years for ISO's granted to 10% Holders). Options
may be exercised only during the period that the original Optionee has a
relationship with the Company which confers eligibility to be granted Options
and (i) for a period of 30 days after termination of such relationship, (ii) for
a period of 3 months after retirement by the Optionee with the consent of the
Company, or (iii) for a period of 12 months after the death or disability of the
Optionee.

Management Stock Plan

      In April 1993, the Company adopted a Management Stock Plan (the
"Management Stock Plan") providing for the grant from time to time of awards
denominated in shares of Common Stock (Nonvoting) (the "Bonus Shares") to all
salaried executive employees of the Company. The purpose of the Management Stock
Plan is to keep senior executives in the employ of the Company and to compensate
such executives for their


                                      -52-
<PAGE>

contributions to the growth and profits of the Company and its subsidiaries. The
Company has set aside a reserve of 750,000 shares of Common Stock (Nonvoting)
for grant under the Management Stock Plan (which reserve may be adjusted from
time to time). All salaried executive employees (including officers and
directors, except for persons serving as directors only) are eligible to receive
a grant under the Management Stock Plan. The Management Stock Plan is
administered by a committee appointed by the Board of Directors which consists
of not less than two members of the Board of Directors (the "Management Stock
Plan Committee"). Pursuant to Board resolution, the members of the Compensation
Committee constitute the members of the Management Stock Plan Committee. The
Management Stock Plan Committee, from time to time, selects eligible employees
to receive a discretionary bonus of Bonus Shares based upon such employee's
position, responsibilities, contributions and value to the Company and such
other factors as the Management Stock Plan Committee deems appropriate. The
Management Stock Plan Committee has discretion to determine the date on which
the Bonus Shares allocated to an employee will be issued to such employee. The
Management Stock Plan Committee may, in its sole discretion, determine what part
of an award of Bonus Shares is paid in cash and what part of an award is paid in
the form of Common Stock (Nonvoting). Any cash payment will be made to such
employee as of the date the corresponding Bonus Shares would otherwise be issued
to such employee and shall be in an amount equal to the fair market value of
such Bonus Shares on that date.

      As of December 31, 1997, the Company has allocated a total of 694,150
Bonus Shares pursuant to the Management Stock Plan, 437,600 of which had vested
through December 31, 1997. Each allocation provides for the vesting of a
percentage of the award on each December 31 after the date of the allocation.

Target Cash Flow Option Plan

      On October 31, 1988, the Company entered into a Target Cash Flow Option
Plan and Agreement (the "Target Cash Flow Option Plan") with W. Don Cornwell and
Stuart J. Beck (collectively, the "Recipients"). The Target Cash Flow Option
Plan granted to the Recipients non-qualified options ("Options") to purchase an
aggregate of not more than 150,000 shares of Common Stock (Nonvoting) at an
exercise price of $.01 per share. The Options vested and became exercisable upon
certain cash flow targets being met by the Company during each fiscal year
through 1992. Options have vested for the purchase of 150,000 shares of Common
Stock (Nonvoting), and on April 19, 1995, were exercised as follows: Mr.
Cornwell: 82,500; Mr. Beck: 67,500.

Director Stock Option Plan

      On March 1, 1994, the Company adopted a Director Stock Option Plan (the
"Director Option Plan") providing for the grant, from time to time, of Options
to non-employee directors of the Company ("Director Participants") to purchase
Common Stock (Nonvoting). The number of shares of Common Stock (Nonvoting)
allocated for grant under the Director Option Plan is 300,000. As of December
31, 1997, Options granted under the Director Option Plan were outstanding for
the purchase of 265,100 shares of Common Stock (Nonvoting).

      The Director Option Plan provides for the grant of NQSOs to Director
Participants. Under the Plan, once every three years, each director was
permitted to make an irrevocable Triennial Election to receive Options, in lieu
of cash compensation, for attendance in person at each Regular Quarterly Meeting
during the Triennial Option Period covered by such election. On February 25,
1997, the end of the last Triennial Option Period, however, all directors
automatically received (and each third year anniversary thereafter will receive)
an option to purchase 18,000 shares of Common Stock (Nonvoting) as compensation
for attendance at Regular Quarterly Meetings during the Triennial Option Period
subsequent to the grant in lieu of cash compensation. Directors elected or
appointed during the course of a Triennial Option Period receive Options, in
lieu of a cash compensation, for the remaining portion of such Triennial Option
Period. In addition, under the Director Option Plan, directors receive Automatic
Committee Awards for each Committee of the Board of Directors on which they
serve.

      During the Triennial Option Period, Options to purchase shares of Common
Stock (Nonvoting) become exercisable one year (or immediately in the case of
Automatic Director Service Awards) from the date of attendance by director at a
Regular Quarterly Meeting in the following amounts: (i) 1,500 shares for
attendance in


                                      -53-
<PAGE>

person; or (ii) 500 shares for attendance by telephonic means. Automatic Awards
to purchase 1,500 shares of Common Stock (Nonvoting) become exercisable one year
(or immediately for Automatic Awards granted on or after February 25, 1997) from
the date of attendance in person at each regularly scheduled Committee meeting.
The exercise price per share of all Options is the fair market value on the date
of grant.

Non-Employee Directors Stock Plan

      On April 29, 1997, the Company adopted a Non-Employee Directors Stock Plan
(the "Non-Employee Directors Stock Plan") for the purpose of providing a means
to attract and retain highly qualified persons to serve as non-employee
directors of the Company and to enable such persons to acquire or increase a
proprietary interest in the Company. The Non-Employee Directors Stock Plan
provides that on April 29, 1997, and on the date of the second quarterly meeting
of the Board of Directors of each subsequent calendar year during the term of
the Non-Employee Directors Stock Plan, non-employee directors of the Company
("Directors Stock Plan Participants") shall receive a number of shares of Common
Stock (Nonvoting) equal to $20,000 divided by the fair market value per share on
the date of grant. The number of shares of Common Stock (Nonvoting) available
for issuance under the Non-Employee Directors Stock Plan is 100,000. Each
Directors Stock Plan Participant may elect to defer the payment of shares of
Common Stock (Nonvoting) by filing an irrevocable written election with the
Secretary of the Company.

      The Non-Employee Directors Stock Plan, unless earlier terminated by action
of the Board of Directors, will terminate at such time as no shares remain
available for issuance under the Non-Employee Directors Stock Plan and the
Company and the Directors Stock Plan Participants have no further rights or
obligations under the Non-Employee Directors Stock Plan.

      As of February 1, 1998, 16,716 shares had been granted under the
Non-Employee Directors Stock Plan.


                                      -54-
<PAGE>

      The following table sets forth information with respect to Options granted
to the executive officers of the Company during 1997. 

                     Option/SAR Grants in Last Fiscal Year

<TABLE>
<CAPTION>
                                                                        Potential Realizable Value
                                                                        at assumed Annual Rates of
                                                                         Stock Price Appreciation
                                        Individual Grants                    for Option Term
                 -----------------------------------------------------  --------------------------
                  Number of     % of Total
                  Securities   Options/SARs
                  Underlying    Granted to
                 Options/SARs  Employees in   Exercise or
                   Granted        Fiscal      Base Price    Expiration
     Name            (#)          Year       ($ Per Share)     Date         5%($)          10%($) 
---------------  ------------  ------------  -------------  ----------    --------      ----------
<S>                <C>            <C>            <C>         <C>          <C>           <C>       
W. Don Cornwell    166,000        55.1%          $8.375      4/29/2007    $874,321      $2,215,700

Stuart J. Beck     135,000        44.9%           8.375      4/29/2007     711,044       1,801,925
</TABLE>

      The following table sets forth, as of December 31, 1997, the number of
options and the value of unexercised options held by the Company's executive
officers who held options as of that date, and the options exercised and the
consideration received therefor by such persons during fiscal 1997.

                         Aggregated Option/SAR Exercises
                             In Last Fiscal Year And
                            FY-End Option/SAR Values

<TABLE>
<CAPTION>
                                                                 Number of
                                                           Securities Underlying      Value of Unexercised
                                                            Unexercised Options       in-the-Money Options
                                                            at December 31, 1997     at December 31, 1997($)
                                                         -------------------------  -------------------------
                          Shares Acquired     Value
          Name            on Exercise (#)  Realized ($)  Exercisable/Unexercisable  Exercisable/Unexercisable
------------------------  ---------------  ------------  -------------------------  -------------------------
<S>                            <C>            <C>             <C>                       <C>              
W. Don Cornwell                 --              --            460,900/474,100           $965,130/$215,680

Stuart J. Beck                  --              --            541,000/386,500           1,549,170/83,430

Robert E. Selwyn, Jr.           --              --             79,000/71,000                 --/--

Lawrence I. Wills               --              --              3,750/--                  14,288/--

Ellen McClain                   --              --                 --/--                     --/--
</TABLE>

Compensation Committee Interlocks and Insider Participation

      During 1997, Thomas R. Settle, Charles J. Hamilton, Jr. and Mikael
Salovaara served as members of the Compensation Committee of the Board of
Directors of the Company.


                                      -55-
<PAGE>

Item 12. Security Ownership of Certain Beneficial Owners and Management

      The following table sets forth certain information, as of February 1,
1998, regarding beneficial ownership of the Company's Voting Common Stock by
each shareholder who is known by the Company to own beneficially more than 5% of
the outstanding Voting Common Stock, each director, each executive officer and
all directors and officers as a group, and beneficial ownership of: (i) the
Company's Common Stock (Nonvoting) (assuming conversion of all preferred stock
and exercise of all options for the purchase of Common Stock (Nonvoting), which
conversion or exercise is at the option of the holder within sixty (60) days);
and (ii) the Company's Cumulative Convertible Exchangeable Preferred Stock, by
each director, each executive officer and all directors and officers as a group.
The Company also has 153,241 shares of its 12 3/4% Cumulative Exchangeable
Preferred Stock outstanding, none of which are owned by any officers or
directors of the Company. Except as set forth in the footnotes to the table,
each shareholder listed below has informed the Company that such shareholder has
(i) sole voting and investment power with respect to such shareholder's shares
of stock, except to the extent that authority is shared by spouses under
applicable law and (ii) record and beneficial ownership with respect to such
shareholder's shares of stock.

<TABLE>
<CAPTION>
                                                                                                Cumulative
                                                                                                Convertible
                                                                                               Exchangeable
                       Voting Common Stock             Common Stock (Nonvoting)               Preferred Stock
                       -------------------  -----------------------------------------------  ------------------
                             Shares                                Percent of Shares               Shares
                       Beneficially Owned    Number of Shares      Beneficially Owned        Beneficially Owned
                        Number    Percent   Beneficially Owned  Actual(1)  Fully Diluted(2)  Number     Percent
                        ------    -------   ------------------  ---------  ----------------  ------     -------
<S>                     <C>        <C>          <C>               <C>          <C>            <C>         <C>
W. Don Cornwell.......  98,250     55.0%        821,500 (3)       8.3%         4.3%           3,500        *

Stuart J. Beck........  80,250     45.0%        758,462 (4)       7.6%         4.0%          10,000        *

Robert E. Selwyn,
Jr. ..................                          118,578 (5)       1.3%           *             --          *

Lawrence I. Wills.....                           14,086 (6)         *            *             --          *

Ellen McClain.........                            8,951             *            *             --          *

Martin F. Beck........                          106,202 (7)       1.1%           *            3,950        *

James J. Greenwald....                          111,815 (8)       1.2%           *            1,000        *

Vickee Jordan Adams...                           16,425 (9)         *            *             --          *

Edward Dugger III.....                            8,388 (10)        *            *             --          *

Thomas R. Settle......                           84,700 (11)        *            *            3,000        *

Charles J. Hamilton,
Jr. ..................                           30,338 (12)        *            *             --          *

Mikael Salovaara......                          123,038 (13)      1.3%           *           14,950        *

All directors and
  officers as a
  group(12) .......... 178,500    100.0%      2,202,483          20.4%        11.5%          36,400      2.2%
</TABLE>

----------

*     Less than 1%.

(1)   Actual percentage figures assume the conversion of such shareholder's
      preferred stock into Common Stock (Nonvoting) and the exercise of options
      for the purchase of Common Stock (Nonvoting) held by such shareholder,
      which conversion or exercise is at the option of the holder within sixty
      (60) days.


                                      -56-
<PAGE>

(2)   Fully diluted percentage figures assume conversion of all outstanding
      shares of preferred stock into Common Stock (Nonvoting), and exercise of
      all options for the purchase of Common Stock (Nonvoting), which are
      convertible or exercisable at the option of the holder within sixty (60)
      days.

(3)   Includes 460,900 shares issuable upon exercise of options granted to Mr.
      Cornwell under the Stock Option Plan which are exercisable at the option
      of the holder within sixty (60) days, 17,500 shares issuable upon the
      conversion of 3,500 shares of Cumulative Convertible Exchangeable
      Preferred Stock which are convertible at the option of the holder within
      sixty (60) days, and a total of 3,900 shares held by Mr. Cornwell's
      immediate family. Mr. Cornwell disclaims beneficial ownership with respect
      to such 3,900 shares. The business address of Mr. Cornwell is Granite
      Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York, New
      York, 10017.

(4)   Includes 541,000 shares issuable upon exercise of options granted to
      Stuart J. Beck under the Stock Option Plan which are exercisable at the
      option of the holder within sixty (60) days, and 50,000 shares issuable
      upon the conversion of 10,000 shares of Cumulative Convertible
      Exchangeable Preferred Stock which are convertible at the option of the
      holder within sixty (60) days. The business address of Mr. Stuart Beck is
      Granite Broadcasting Corporation, 767 Third Avenue, 34th Floor, New York,
      New York, 10017.

(5)   Includes 79,000 shares issuable upon exercise of options to Mr. Selwyn
      under the Stock Option Plan which are exercisable at the option of the
      holder within sixty (60) days.

(6)   Includes 3,750 shares issuable upon the exercise of options granted to Mr.
      Wills under the Stock Option Plan which are exercisable at the option of
      the holder within sixty (60) days.

(7)   Includes 19,750 shares issuable upon the conversion of 3,950 shares
      (including 450 shares of such stock held by Mr. Beck's wife) of Cumulative
      Convertible Exchangeable Preferred Stock which are convertible at the
      option of the holder within sixty (60) days, 6,000 shares held by Mr.
      Beck's wife, and 18,600 shares issuable upon exercise of options granted
      under the Directors' Stock Option Plan which are exercisable at the option
      of the holder within sixty (60) days. Mr. Beck disclaims beneficial
      ownership with respect to shares held by his spouse.

(8)   Includes 5,000 shares issuable upon the conversion of 1,000 shares of
      Cumulative Convertible Exchangeable Preferred Stock which are convertible
      at the option of the holder within sixty (60) days and 28,900 shares
      issuable upon exercise of options granted under the Directors' Stock
      Option Plan which are exercisable at the option of the holder within sixty
      (60) days.

(9)   Includes 11,700 shares issuable upon the exercise of Options granted under
      the Directors' Stock Option Plan which are exercisable at the option of
      the holder within sixty (60) days.

(10)  Includes 6,000 shares issuable upon exercise of Options granted under the
      Directors' Stock Option Plan which are exercisable at the option of the
      holder within sixty (60) days.

(11)  Includes 15,000 shares issuable upon the conversion of 3,000 shares of
      Cumulative Convertible Exchangeable Preferred Stock which are convertible
      at the option of the holder within sixty (60) days, 4,500 shares held by
      Mr. Settle's wife as custodian for his children, and 28,800 shares
      issuable upon exercise of options granted under the Directors' Stock
      Option Plan which are exercisable at the option of the holder within sixty
      (60) days. Mr. Settle disclaims beneficial ownership with respect to the
      shares held by his spouse as custodian for his children.

(12)  Includes 27,700 shares issuable upon exercise of options granted under the
      Directors' Stock Option Plan, which are exercisable at the option of the
      holder within sixty (60) days.


                                      -57-
<PAGE>

(13)  Includes: (i) 3,500 shares, and 5,000 shares issuable upon the conversion
      of 1,000 shares of Cumulative Convertible Exchangeable Preferred Stock,
      which are convertible at the option of the holder within sixty (60) days,
      held in Trust for the benefit of one of Mr. Salovaara's children for which
      Mr. Salovaara is the Trustee; (ii) 3,500 shares, and 5,000 shares issuable
      upon the conversion of 1,000 shares of Cumulative Convertible Exchangeable
      Preferred Stock, which are convertible at the option of the holder within
      sixty (60) days, held in Trust for the benefit of one of Mr. Salovaara's
      children for which Mr. Salovaara's wife is the Trustee; (iii) 59,750
      shares issuable upon the conversion of 11,950 shares of Cumulative
      Convertible Exchangeable Preferred Stock, which are convertible at the
      option of the holder within sixty (60) days; (iv) 23,400 shares issuable
      upon exercise of options granted under the Directors' Stock Option Plan
      which are exercisable at the option of the holder within sixty (60) days;
      and (v) 5,000 shares issuable upon conversion of 1,000 shares of
      Cumulative Convertible Exchangeable Preferred Stock, which are convertible
      at the option of the holder, held in Trust for the benefit of
      nonaffiliates of Mr. Salovaara, for which Mr. Salovaara and Mr.
      Salovaara's wife are among the Trustees and as to which Mr. Salovaara
      disclaims beneficial ownership.

Item 13. Certain Relationships and Related Transactions

      In 1995, the Company made a loan to Mr. Cornwell, Chief Executive Officer
and Chairman of the Board of Directors, in the amount of $348,660 and a loan to
Mr. Stuart Beck, President and a member of the Board of Directors, in the amount
of $221,200 to pay for certain personal taxes. Both loans are term loans
providing for an annual interest rate of 9%, payable annually on April 1 of each
year, with all principal and remaining interest due on December 29, 2004. As of
March 10, 1998, the amount outstanding on such loans, including accrued
interest, to Messrs. Cornwell and Beck was $386,139 and $244,980, respectively.
Up to that date, the largest amount outstanding on such loans, including accrued
interest, to Messrs. Cornwell and Beck was $387,882 and $246,086, respectively,
as of March 31, 1997.

      In April 1996, the Company made a loan to Mr. Cornwell in the amount of
$886,875 to pay the exercise price incurred in connection with exercising
options. In December 1996, the Company made a loan to Mr. Cornwell in the amount
of $409,000 to pay certain personal taxes in connection with the exercise of
such options. Each loan is a term loan which provides for an annual interest
rate of 8%, payable annually, with all principal and remaining interest due on
April 23 and December 31, 2001, respectively. In April 1997, the Company made a
loan to Mr. Cornwell in the amount of $441,530 to pay certain personal taxes.
The loan is a term loan which provides for an annual interest rate of 8%,
payable annually, with all principal and remaining interest due on April 16,
2001. As of March 10, 1998 (i) the amount outstanding under the April 1996 loan,
including accrued interest, was $971,621, which amount represented the largest
amount outstanding thereunder up to that date, (ii) the amount outstanding under
the December 1996 loan, including accrued interest, was $448,174, which amount
represented the largest amount outstanding thereunder up to that date and (iii)
the amount outstanding under the April 1997 loan, including accrued interest,
was $470,475, which amount represented the largest amount outstanding thereunder
up to that date.

     Mr. Hamilton, a director of the Company since July 1992, is a partner in 
the New York law firm of Battle Fowler LLP, which provided legal services to 
the Company during 1997.

                                      -58-
<PAGE>

                                     PART IV

Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K

      (a)1 Financial Statements

           GRANITE BROADCASTING CORPORATION
            Report of Independent Auditors
            Consolidated Statements of Operations for the Years
              Ended December 31, 1995, 1996 and 1997
            Consolidated Balance Sheets as of December 31, 1996 and 1997
            Consolidated Statements of Stockholders' Equity (Deficit)
              for the Years Ended December 31, 1995, 1996 and 1997
            Consolidated Statements of Cash Flows for the Years
              Ended December 31, 1995, 1996 and 1997
            Notes to Consolidated Financial Statements

      (a)2 Financial Statement Schedule

           Schedule II -- Granite Broadcasting Corporation:
            Valuation and Qualifying Accounts

      (a)3 Exhibits

2.1(m)  Stock Purchase Agreement, dated as of October 3, 1997, by and among
        Granite Broadcasting Corporation, Pacific FM Incorporated, James J.
        Gabbert and Michael P. Lincoln.

2.2(n)  Purchase and Sale Agreement, dated as of February 18, 1998, among
        Granite Broadcasting Corporation, Freedom Communications, Inc., WWMT-TV,
        Inc., WLAJ, Inc. and WWMT License, Inc.

3.1(g)  Third Amended and Restated Certificate of Incorporation of the Company,
        as amended.

3.2(g)  Amended and Restated Bylaws of the Company, as amended.

3.3(k)  Certificate of Designations of the Powers, Preferences and Relative,
        Participating, Optional and Other Special Rights of the Company's
        12 3/4%, Cumulative Exchangeable Preferred Stock and Qualifications,
        Limitations and Restrictions Thereof.

4.27(2) Indenture dated as of September 1, 1992 between Granite Broadcasting
        Corporation and The United States Trust Company of New York, as Trustee,
        relating to the Company's $60,000,000 Principal Amount 12.75% Senior
        Subordinated Debentures due September 1, 2002.

4.28(2) Form of 12.75% Senior Subordinated Debenture due September 1, 2002.

4.30(3) Form of Indenture relating to the Company's Junior Subordinated
        Convertible Debentures issuable upon the exchange of the Company's
        Cumulative Convertible Exchangeable Preferred Stock.


                                      -59-
<PAGE>

4.31(3)  Form of Junior Subordinated Convertible Debenture.

4.35(i)  Third Amended and Restated Credit Agreement, dated as of September 4,
         1996, among Granite Broadcasting Corporation, the Lenders named
         therein, Bankers Trust Company, as Agent, and The Bank of New York,
         First Union National Bank of North Carolina, Goldman Sachs Credit
         Partners L.P. and Union Bank of California, as Co-Agents.

4.37(4)  Indenture, dated as of May 19, 1995, between Granite Broadcasting
         Corporation and United States Trust Company of New York for the
         Company's $175,000,000 Principal Amount 10-3/8% Senior Subordinated
         Notes due May 15, 2005.

4.38(5)  Form of 10-3/8% Senior Subordinated Note due May 15, 2005.

4.39(g)  Exchange and Registration Rights Agreement, dated as of February 22,
         1996, by and between Granite Broadcasting Corporation and Goldman Sachs
         & Co., BT Securities Corporation and Lazard Freres & Co. LLC.

4.41(g)  Indenture, dated as of February 22, 1996, between Granite Broadcasting
         Corporation and The Bank of New York relating to the Company's
         $110,000,000 Principal Amount 9-3/8% Series A Senior Subordinated Notes
         due December 1, 2005.

4.42(g)  Form of 9-3/8% Series A Senior Subordinated Note due December 1, 2005.

4.43(k)  Exchange and Registration Rights Agreement, dated as of January 31,
         1997, by and between Granite Broadcasting Corporation and Goldman,
         Sachs & Co., BT Securities Corporation, Lazard Freres & Co. LLC and
         Salomon Brothers Inc.

4.44(k)  Indenture, dated as of January 31, 1997, between Granite Broadcasting
         Corporation and The Bank of New York for the Company's 12 3/4% Series A
         Exchange Debentures and 12 3/4 Exchange Debentures due April 1, 2009.

4.45(k)  Form of 12 3/4% Exchange Debenture due April 1, 2009 (included in the
         Exhibit 4.4 Indenture filed herewith).

4.46(l)  First Amendment, dated June 6, 1997, to the Third Amended and Restated
         Credit Agreement, dated as of September 4, 1996, and amended on June 6,
         1997, among Granite Broadcasting Corporation, the Lenders named
         therein, Bankers Trust Company, as Agent, and The Bank of New York,
         First Union National Bank of North Carolina, Goldman Sachs Credit
         Partners L.P. and Union Bank of California, as Co-Agents.

4.47     Second Amendment, dated February 17, 1998, to the Third Amended and
         Restated Credit Agreement, dated as of September 4, 1996, among Granite
         Broadcasting Corporation, the Lenders named therein, Bankers Trust
         Company, as Agent, and The Bank of New York, First Union National Bank
         of North Carolina, Goldman Sachs Credit Partners L.P. and Union Bank of
         California, as Co-Agents.

10.1     Granite Broadcasting Corporation Stock Option Plan, as amended on April
         29, 1997.

10.2(1)  Target Cash Flow Option Plan and Agreement dated as of October 31, 1988
         among Granite Broadcasting Corporation, W. Don Cornwell and Stuart J.
         Beck.

10.9(5)  Network Affiliation Agreement (KBJR-TV).

10.10(5) Network Affiliation Agreement (WEEK-TV).


                                      -60-
<PAGE>

10.11(g) Network Affiliation Agreement (KNTV(TV)).

10.12(g) Network Affiliation Agreement (WPTA-TV).

10.13(1) Employment Agreement dated as of September 20, 1991 between Granite
         Broadcasting Corporation and W. Don Cornwell.

10.14(1) Employment Agreement dated as of September 20, 1991 between Granite
         Broadcasting Corporation and Stuart J. Beck.

10.15(h) Granite Broadcasting Corporation Management Stock Plan, as amended July
         24, 1996.

10.16(a) Purchase and Sale Agreement between the Company and Meredith
         Corporation, dated June 15, 1993.

10.17(b) Letter Agreement between the Company and the Sellers (as defined
         therein) to acquire certain securities of Queen City III Limited
         Partnership dated as of October 20, 1993.

10.18(3) Letter Agreement, dated December 7, 1993, between Granite and Meredith
         Corporation, amending the Purchase and Sale Agreement dated June 15,
         1993.

10.19(k) Granite Broadcasting Corporation Directors' Stock Option Plan, as
         amended on February 25, 1997.

10.20(4) Network Affiliation Agreement (WTVH-TV).

10.21(5) Network Affiliation Agreement (KSEE-TV).

10.22(c) Purchase and Sale Agreement among Granite Broadcasting Corporation,
         Austin Television, a Texas general partnership, Cannan Communications,
         Inc. and Beard Management, Inc. dated as of October 2, 1994.

10.23(d) Purchase and Sale Agreement, dated as of February 20, 1995, among
         Granite Broadcasting Corporation, Busse Broadcasting Corporation and
         WWMT, Inc.

10.24(4) Network Affiliation Agreement (KEYE-TV).

10.25(d) Granite Broadcasting Corporation Employee Stock Purchase Plan, dated
         February 28, 1995.

10.26(4) Network Affiliation Agreement (WWMT).

10.27(e) Purchase Agreement, dated May 15, 1995, among Granite Broadcasting
         Corporation, Queen City III Limited Partnership, Queen City
         Broadcasting of New York, Inc. and the General Partners of Queen City
         III Limited Partnership.

10.28(f) Network Affiliation Agreement (WKBW).

10.29(j) Purchase and Sale Agreement, dated as of December 2, 1996, by and
         between Granite Broadcasting Corporation and WBWB-TV, Inc.

10.30(k) Employment Agreement dated as of September 19, 1996 between Granite
         Broadcasting Corporation and Robert E. Selwyn, Jr.


                                      -61-
<PAGE>

10.31(6) Non-Employee Directors Stock Plan of Granite Broadcasting Corporation
         dated April 29, 1997.

11.      Statement of Computation of Per Share Earnings.

21.(k)   Subsidiaries of the Company.

23.      Consent of Independent Auditors (Ernst & Young LLP).

27.1     Financial Data Schedule.

27.2     Restated Financial Data Schedule.

----------
(1)      Incorporated by reference to the similarly numbered exhibits to the
         Company's Registration Statement No. 33-43770 filed on November 5,
         1991.

(2)      Incorporated by reference to the similarly numbered exhibits to the
         Company's Registration Statement No. 33-52988 filed on October 6, 1992.

(3)      Incorporated by reference to the similarly numbered exhibits to
         Amendment No. 2 to Registration Statement No. 33-71172 filed December
         16, 1993.

(4)      Incorporated by reference to the similarly numbered exhibits to the
         Company's Registration Statement No. 33-94862 filed on July 21, 1995.

(5)      Incorporated by reference to the similarly numbered exhibits to
         Amendment No. 2 to Registration Statement No. 33-94862 filed on October
         6, 1995.

(6)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Amendment No. 1 to the Registration Statement on Form S-4
         (Registration No. 333-24907) filed on June 10, 1997.

(a)      Incorporated by reference to Exhibit 10.1 to the Company's Current
         Report on Form 8-K, filed on June 25, 1993.

(b)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1993, Commission File No. 0-19728, filed on November 15, 1993.

(c)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1994, Commission File No. 0-19728, filed on November 14, 1994.

(d)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Annual Report on Form 10-K for the fiscal year ended December
         31, 1994, filed on March 29, 1995.

(e)      Incorporated by reference to Exhibit Number 3 to the Company's Current
         Report on Form 8-K, filed on May 19, 1995.

(f)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Current Report on Form 8-K filed on July 14, 1995.


                                      -62-
<PAGE>

(g)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Annual Report on Form 10-K for the fiscal year ended December
         31, 1995, filed on March 28, 1996.

(h)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Quarterly Report on Form 10-Q for the quarter ended June 30,
         1996, as filed on August 13, 1996.

(i)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Quarterly Report on Form 10-Q for the quarter ended September
         30, 1996, filed on November 14, 1996.

(j)      Incorporated by reference to Exhibit Number 1 to the Company's Current
         Report on Form 8-K, filed on December 17, 1996.

(k)      Incorporated by reference to the similarly numbered exhibit to the
         Company's Annual Report on Form 10-K for the fiscal year ended December
         31, 1996, filed on March 21, 1997.

(l)      Incorporated by reference to Exhibit 3.4 to the Company's Quarterly
         Report on Form 10-Q for the quarter ended June 30, 1997, filed on
         August 8, 1997.

(m)      Incorporated by reference to Exhibit Number 1 to the Company's Current
         Report on Form 8-K, filed on October 17, 1997.

(n)      Incorporated by reference to Exhibit Number 1 to the Company's Current
         Report on Form 8-K, filed on March 2, 1998.


                                      -63-
<PAGE>

                  (b) Reports on Form 8-K.

                  1.    Current Report on Form 8-K filed October 17, 1997,
                        reporting a definitive agreement entered into by and
                        between the Company and Pacific FM Incorporated, a
                        California corporation ("Pacific"), James J. Gabbert and
                        Michael P. Lincoln, whereby the Company would acquire
                        51% of the outstanding stock of Pacific, the owner of
                        KOFY-TV, the WB Network affiliated station serving the
                        San Francisco-Oakland-San Jose, California television
                        market. At the closing of this purchase, it is
                        contemplated that the company will acquire the remaining
                        49% of the stock of Pacific. The total purchase price
                        for all the stock of Pacific will be $143.75 million in
                        cash, subject to certain adjustments. In addition,
                        Granite will pay $30 million to the principal
                        shareholders of Pacific for a covenant not to compete in
                        the San Francisco-San Jose television market for a
                        period of five years from the closing of Granite's
                        acquisition. No financial statements were filed at such
                        time.

                  2.    Current Report on Form 8-K filed January 26, 1998,
                        reporting an agreement in principle entered into by and
                        between the Company and Freedom Communications, Inc., a
                        California corporation ("Freedom"), whereby Freedom
                        would acquire the assets of WWMT-TV ("WWMT"), the CBS
                        affiliate serving the Grand Rapids-Kalamazoo-Battle
                        Creek, Michigan television market and WLAJ-TV ("WLAJ"),
                        the ABC affiliate serving the Lansing, Michigan
                        television market, for a total purchase price of $170
                        million in cash. No financial statements were filed at
                        such time.

                  3.    Current Report on Form 8-K filed March 2, 1998,
                        reporting a definitive agreement entered into by and
                        between the Company and Freedom, whereby Freedom would
                        acquire the assets of WWMT and WLAJ, for a total
                        purchase price of $170 million in cash. No financial
                        statements were filed at such time.


                                      -64-
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 26th day of March, 1998.

                                        GRANITE BROADCASTING CORPORATION


                                        By: /s/ W. DON CORNWELL
                                           -------------------------------------
                                           W. Don Cornwell
                                           Chief Executive Officer and Chairman
                                           of the Board of Directors

      Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated:

         Signature                         Title                      Date
         ---------                         -----                      ----


/s/ W. DON CORNWELL             Chief Executive Officer           March 26, 1998
------------------------------  (Principal Executive Officer)
(W. Don Cornwell)               and Chairman of the Board of
                                Directors


/s/ STUART J. BECK              President and Secretary           March 26, 1998
------------------------------  (Principal Financial Officer)
(Stuart J. Beck)                and Director


/s/ LAWRENCE I. WILLS           Vice President - Finance and      March 26, 1998
------------------------------  Controller (Principal Accounting
(Lawrence I. Wills)             Officer)


/s/ MARTIN F. BECK              Director                          March 26, 1998
------------------------------
(Martin F. Beck)                


/s/ JAMES L. GREENWALD          Director                          March 26, 1998
------------------------------
(James L. Greenwald)            


/s/ VICKEE JORDAN ADAMS         Director                          March 26, 1998
------------------------------
(Vickee Jordan Adams)


/s/ EDWARD DUGGER III           Director                          March 26, 1998
------------------------------
(Edward Dugger III)


/s/ THOMAS R. SETTLE            Director                          March 26, 1998
------------------------------
(Thomas R. Settle)


/s/ CHARLES J. HAMILTON, JR.    Director                          March 26, 1998
------------------------------
(Charles J. Hamilton, Jr.)


/s/ MIKAEL SALOVAARA            Director                          March 26, 1998
------------------------------
(Mikael Salovaara)