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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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Form 10-K/A

AMENDMENT NO. 1
TO
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934

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For the fiscal year ended December 31, 2001
Commission file number 0-19728

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

Delaware(State of Incorporation)

13-3458782(I.R.S.Employer Identification No.)


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

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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

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 ý    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of
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. o

As
of March 22, 2002, 18,572,759 shares of Granite Broadcasting Corporation Common Stock (Nonvoting) were outstanding. The aggregate market value (based upon the last reported
sale price on the Nasdaq Small Cap Market on March 22, 2002) of the shares of Common Stock (Nonvoting) held by non-affiliates was approximately $39,002,794 (For purposes of
calculating the preceding amounts only, all directors and executive officers of the registrant are assumed to be affiliates.) As of March 22, 2002, 178,500 shares of Granite Broadcasting
Corporation Class A Voting Common Stock were outstanding, all of which were held by affiliates.

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DOCUMENTS INCORPORATED BY REFERENCE: None

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This Amendment No. 1 on Form 10-K/A is being filed by Granite Broadcasting Corporation, a Delaware corporation ("Granite" or the "Company"), to amend the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2001, filed with the Securities and Exchange Commission on April 1, 2002, by restating
Items 1, 7, 7A, 8 and 14 thereof, each in its entirety, as follows:

PART I

Item 1. Business

Granite 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. As of December 31, 2001, the Company owned and operated nine network-affiliated television stations: WTVH-TV, the CBS affiliate
serving Syracuse, New York ("WTVH"); KSEE-TV, the NBC affiliate serving Fresno-Visalia, California ("KSEE"); WPTA-TV, the ABC affiliate serving Fort Wayne, Indiana ("WPTA");
WEEK-TV, the NBC affiliate serving Peoria-Bloomington, Illinois ("WEEK-TV"); KBJR-TV, the NBC affiliate serving Duluth, Minnesota and Superior, Wisconsin ("KBJR");
WKBW-TV, the ABC affiliate serving Buffalo, New York ("WKBW"); WDWB-TV, the WB Network affiliate serving Detroit, Michigan ("WDWB"); KBWB-TV, the WB Network
affiliate serving San Francisco-Oakland-San Jose, California ("KBWB"); and KNTV, the NBC affiliate serving San Francisco-Oakland-San Jose, California ("KNTV"). The Company also
owns a sixty percent indirect interest in Channel 11 License, Inc., the permittee of television station KRII, Channel 11, International Falls, Minnesota. As discussed below, on April 30,
2002, the Company sold KNTV to NBC.

KBJR
and WEEK were acquired in separate transactions in October 1988, WPTA was acquired in December 1989, KNTV was acquired in February 1990, WTVH and KSEE were
acquired in December 1993, WKBW was acquired in June 1995, WDWB was acquired in January 1997 and KBWB was acquired in July 1998. The Company owns all but one of its
television stations through separate wholly owned subsidiaries (collectively, the "Subsidiaries"; references herein to the "Company" or to "Granite" include Granite Broadcasting Corporation and its
Subsidiaries). The Company received a permit to construct KRII, International Falls in September 2000, received authorization to reallocate Channel 11 from International Falls, Minnesota to
Chisholm, Minnesota in October 2001, and currently
has an application pending before the FCC to establish KRII as a satellite station of KBJR and to change the station's community of license from International Falls to Chisholm.

The
Company's long-term objective is to acquire additional television stations and to pursue acquisitions of other media and communications-related properties in the future.
The Company is committed to building its station Internet business consistent with the goal of using the unique technological capabilities of the Internet to deliver local news, weather and sports
information to viewer computers at home and at work. The Company's Internet strategy is based on the view that via the Internet the Company's stations can provide a high quality interactive
advertising environment in which local businesses can reach consumers at home and at work.

Recent Developments

Asset Disposition

On December 14, 2001, the Company entered into a definitive agreement with the National Broadcasting Company, Inc. ("NBC") to sell KNTV. The sale
transaction was completed on April 30, 2002. NBC paid the Company $230,000,000 plus a working capital and other adjustments of $14,545,000. In addition, NBC refunded the Company $20,473,000 of
the affiliation payment due to NBC on January 1, 2002 under the terms of the KNTV NBC affiliation agreement (the "San Francisco

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Affiliation Agreement"), which the Company prepaid on March 6, 2001. The Company repaid $170,000,000 of outstanding senior debt and $14,763,000 of deferred interest and other fees associated
with the senior credit facility and the amended credit agreement discussed below upon consummation of the sale. The San Francisco Affiliation Agreement terminated upon the closing of the sale and the
Company is not required to make any further affiliation payments to NBC. The warrants issued to NBC as part of the San Francisco Affiliation Agreement have been returned to the Company. The Company's
affiliation agreements for KSEE-TV, WEEK-TV, and KBJR-TV, which involve no payment obligations, will remain in effect until their expiration on December 31,
2011.

New Amended and Restated Senior Credit Agreement

Simultaneously with the closing of the sale of KNTV, the Company entered into an amended and restated senior credit agreement (the "Credit Agreement"). The Credit
Agreement consists of (i) a committed $60,000,000 Tranche A term loan facility, (ii) a committed $80,000,000 Tranche B term loan facility and (iii) an uncommitted $10,000,000
Tranche C supplemental term loan facility. The Tranche B loan commitment expires 120 days after the closing, unless previously canceled by the Company, and
may be extended at the lenders' option for an additional period of time. The terms of the Tranche C term loan have not been fully negotiated, and borrowing of the Tranche C loans will require
supplemental action by the Board of Directors of the Company. The obligations of the Company with respect to all of the loan facilities are secured by substantially all of the assets of the Company
and its subsidiaries.

Upon
entering into the Credit Agreement, the Company rolled over existing outstanding loans under the prior loan facility into an initial Tranche A borrowing in the amount of
$35,000,000. Proceeds from Tranche A and Tranche B term loans shall be used for working capital and general corporate purposes. The Tranche A loans bear interest at the greater of LIBOR plus 4.50% or
6.50% and the Tranche B loans bear interest at the greater of LIBOR plus 9% or 11%. All interest is payable monthly in arrears. The Credit Agreement matures on April 15, 2004, at which time the
Company must repay the principal amount of all outstanding loans and all other obligations then due and owing under the Credit Agreement. The Credit Agreement requires the Company, among other
matters, to maintain compliance with certain financial tests, including but not limited to, minimum net revenue, broadcast cash flow, EBITDA, working capital and cash balances.

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Company and Industry Overview

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

|Station       |  | Market
Area                           |  | Date of
Acquisition |  | Channel/
Frequency |  | Network
Affiliation |  | Market
Rank (1) |  | Other Commercial Stations
in DMA |     | Expiration
Date of
FCC
License
|------------- |  | ------------------------------------- |  | ------------------- |  | ------------------ |  | ------------------- |  | --------------- |  | -------------------------------- | --- | ------------------------------
|KBWB-TV       |  | San Francisco -Oakland -San Jose, CA  |  | 07/20/98            |  | 20/UHF             |  | WB                  |  | 5               |  | 17                               | (2) | 12/01/06                      
|WDWB-TV       |  | Detroit, MI                           |  | 01/31/97            |  | 20/UHF             |  | WB                  |  | 9               |  | 7                                |     | 10/01/05                      
|WKBW-TV       |  | Buffalo, NY                           |  | 06/29/95            |  | 7/VHF              |  | ABC                 |  | 44              |  | 8                                |     | 06/01/07                      
|KNTV (TV) (3) |  | San Francisco -Oakland  San Jose, CA |  | 02/05/90            |  | 11/VHF             |  | NBC                 |  | 5               |  | 17                               | (2) | 12/01/06                      
|KSEE-TV       |  | Fresno-Visalia, CA                    |  | 12/23/93            |  | 24/UHF             |  | NBC                 |  | 54              |  | 10                               | (4) | 12/01/06                      
|WTVH-TV       |  | Syracuse, NY                          |  | 12/23/93            |  | 5/VHF              |  | CBS                 |  | 80              |  | 5                                |     | 06/01/07                      
|WPTA-TV       |  | Fort Wayne, IN                        |  | 12/11/89            |  | 21/UHF             |  | ABC                 |  | 104             |  | 4                                |     | 08/01/05                      
|WEEK-TV       |  | Peoria  Bloomington, IL              |  | 10/31/88            |  | 25/UHF             |  | NBC                 |  | 112             |  | 4                                |     | 12/01/05                      
|KBJR-TV       |  | Duluth, MN -Superior, WI              |  | 10/31/88            |  | 6/VHF              |  | NBC                 |  | 132             |  | 5                                |     | 12/01/05                      

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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 that 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.

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GROSS REVENUES, BY CATEGORY,
FOR THE COMPANY'S STATIONS(1)
(dollars in thousands)

|                        |  | Years Ended December 31, |        
|----------------------- |  | ------------------------ | -------
|
|
|Local/Regional (2)      |  | $                        | 87,412 
|National (3)            |  |                          | 78,833 
|Network Compensation(4) |  |                          | 7,859  
|Political (5)           |  |                          | 1,036  
|Other Revenue (6)       |  |                          | 5,943  
|                        |  |                          |        
|Total                   |  | $                        | 181,083
|                        |  |                          |        

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Automobile advertising constitutes the Company's single largest source of gross revenues, accounting for approximately 20% of the Company's total
gross revenues in 2001. Gross revenues from restaurants, paid programming, and entertainment-related businesses accounted for approximately 24% of the Company's total gross revenues in 2001. Each
other category of advertising revenue represents less than 5% of the Company's total gross revenues.

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

KBWB: San Francisco-Oakland-San Jose, California

KBWB began operations in 1968 and commenced operating as a WB Network affiliate in 1995.

The
San Francisco-Oakland-San Jose economy is centered around apparel, banking and finance, biosciences, engineering and architecture, film and TV production, health care,
high technology, manufacturing, multimedia, telecommunications, tourism and wineries. The average household income in the DMA was $61,572, according to estimates provided in the BIA Investing in
Television 2001 Market Report (the "BIA Report"). Leading employers in the area include Safeway Supermarkets, Hewlett-Packard, Seagate Technology, The Gap, Intel, Chevron, Oracle, Kaiser-Permanente
and Levi-Strauss. The San Francisco-Oakland-San Jose DMA is also the home of several universities, including the University of California Berkeley, San Francisco State
University, San Jose State University, Stanford University, California State University-Hayward, Santa Clara University and the University of San Francisco, with aggregate enrollment estimated at over
122,000.

WDWB: Detroit, Michigan

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

Detroit
is the 9th largest DMA in the United States with a total of approximately 1,874,000 television households and a population of approximately 4,989,000 according to the BIA Report.
Detroit's economy is based on manufacturing, retail and health services. The largest employers are General Motors, Ford Motor Company, Daimler-Chrysler, Detroit Medical Center, Henry Ford Health

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System and Blue Cross Blue Shield of Michigan. The average household income in the DMA is $50,047 according to estimates provided in the BIA Report.

WKBW: Buffalo, New York

WKBW began operations in 1958 and is affiliated with ABC.

The
Buffalo economy is centered on manufacturing, government, health services and financial services. The average household income in the DMA was $39,630, 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, Tops Markets and DuPont.

KNTV: San Francisco-Oakland-San Jose, California

KNTV began operations in 1955 and was affiliated with ABC until July 1, 2000. KNTV was operated as an independent station until January 1, 2002,
when it became an NBC affiliate. (See the description of the San Francisco-Oakland-San Jose, California market above). On April 30, 2002, the Company sold KNTV to NBC.

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 $37,107, according to estimates provided in the BIA Report. The Fresno-Visalia DMA is also the home of several
universities, including Fresno State University, with aggregate enrollment estimated at over 40,000.

WTVH: Syracuse, New York

WTVH began operations in 1948 and is affiliated with CBS.

The
Syracuse economy is centered on manufacturing, education and government. The average income by household in the DMA was $40,426, 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 aggregate enrollment 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 $45,481, 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 aggregate
enrollment over 11,000 students.

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WEEK: Peoria-Bloomington, Illinois

WEEK began operations in 1953 and is affiliated with NBC.

The
Peoria economy is centered on agriculture and heavy equipment manufacturing but has achieved diversification with the growth of service-based industries such as conventions,
healthcare and higher technology manufacturing. Prominent corporations located in Peoria include Caterpillar, Bemis, Central Illinois Light Company, Commonwealth Edison Company, Komatsu-Dresser
Industries, IBM, Trans-Technology Electronics and Keystone Steel & Wire. In addition, the United States Department of Agriculture's second largest research facility is located in Peoria, and
the area has become a major regional healthcare center. The economy of Bloomington, on the other hand, is focused on insurance, education, agriculture and manufacturing. Prominent corporations located
in Bloomington include State Farm Insurance Company, Country Companies Insurance Company and Diamond-Star Motors Corporation (a subsidiary of Mitsubishi). The average income by household
in the DMA was $48,223, 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 aggregate enrollment 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 $34,895, according to
estimates provided in the BIA Report. Duluth is one of the major ports in the United States out of which iron ore, coal, limestone, cement, grain, paper and chemicals are shipped. Prominent
corporations located in the area include Northwest Airlines, Minnesota Power, U.S. West, Mesabi & Iron Range Railway Co., Wal-Mart, 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 aggregate enrollment over 12,000 students.

Network Affiliation

Whether or not a station is affiliated with one of the major networks, NBC, ABC, CBS, Fox (the "Traditional Networks"), the Warner Brothers Network (the "WB
Network") or United Paramount Networks ("UPN" and collectively with the WB Network and the Traditional Networks, the "Networks"), has a significant impact on the composition of the station's revenues,
expenses and operations. A typical Traditional Network affiliate receives a significant portion of its programming each day from the Network. The Traditional Network in exchange for a substantial
majority of the advertising inventory provides this programming, along with cash payments in some cases, to the affiliate during Network programs. The Traditional Network then sells this advertising
time and retains the revenues so generated. A typical WB Network or UPN affiliate receives prime time programming from the Network pursuant to arrangements agreed upon by the affiliate and the
Network.

In
contrast, a fully independent station purchases or produces all of the programming that it broadcasts, resulting in generally higher programming costs, although the independent
station is, in theory, able to retain its entire inventory of advertising and all of the revenue obtained there from. 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.

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Each
of the Company's stations is affiliated with a Network pursuant to an affiliation agreement. KSEE, WEEK, KBJR, and KNTV are affiliated with NBC; WPTA and WKBW are affiliated with
ABC; WTVH is affiliated with CBS; and KBWB and WDWB are affiliated with the WB Network.

In
substance, each Traditional Network affiliation agreement provides the Company's station with the right to broadcast all programs transmitted by the Network with which it is
affiliated. In exchange, the Network has the right to sell a substantial majority of the advertising time during such broadcast. In addition, for every hour that the station elects to broadcast
Traditional Network programming, generally 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. NBC's obligation to pay
such fees to KSEE, WEEK and KBJR terminated on December 31, 2001. In addition, the Company did not receive any such fees for KNTV, which became an NBC affiliate on January 1, 2002, and
was sold to NBC on April 30, 2002.

Under
each WB Network affiliation agreement, the Company's stations receive "prime-time" programming from the WB Network. KBWB and WDWB pay an affiliation fee for the
programming it receives pursuant to its affiliation agreement.

The
Network affiliation agreements provide for original contract terms of ten years (other than the WB Affiliation agreement for WDWB, which is seven years). Under each of the Company's
affiliation agreements, the Networks may, under certain circumstances, terminate the agreement upon advance written notice. Under the Company's ownership, none of its stations has received a
termination notice from its respective Network.

Competition

The financial success of the Company's television stations 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, the Internet, direct mail and local cable systems. Some competitors are part of larger companies with substantially greater financial
resources than the Company.

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

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

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 game devices), the Internet, multi-point distribution systems, multichannel multi-point distribution systems, video

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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. An additional challenge is posed by
wireless cable systems, including multichannel distribution services ("MDS"). Two four-channel MDS licenses have been granted in most television markets. MDS operations can provide
commercial programming on a paid basis. A similar service also can be offered using the instructional television fixed service ("ITFS"). The FCC allows the educational entities that hold ITFS licenses
to lease their excess capacity for commercial purposes. The multichannel capacity of ITFS could be combined with either an existing single channel MDS or a newer multichannel multi-point distribution
service to increase the number of available channels offered by an individual operator.

The
broadcasting industry is continuously faced with technological change and innovation, which could possibly have a material adverse effect on the Company's operations and results.
Video compression techniques, now in use with direct broadcast satellites and in development for cable, are expected to permit greater numbers of channels to be carried within existing bandwidth.
These compression techniques, as well as other technological developments, are applicable to all video delivery systems, including over-the-air broadcasting and other
non-broadcast commercial applications, and have the potential to provide vastly expanded programming to highly targeted audiences. Reduction in the cost of creating additional channel
capacity could lower entry barriers for new channels and encourage the development of increasingly specialized niche programming. This ability to reach very narrowly defined audiences may alter the
competitive dynamics for advertising expenditures. The Company is unable to predict the effect that technological changes will have on the Company. Commercial television broadcasting may face future
competition from interactive video and data services that provide two-way interaction with commercial video programming, along with information and data services that may be delivered by
commercial television stations, cable television, direct broadcast satellites, multi-point distribution systems, multichannel multi-point distribution systems or other video delivery systems. In
addition, recent actions by the FCC, Congress and the courts all presage significant future involvement in the provision of video services by telephone companies. The Telecommunications Act of 1996
lifts the prohibition on the provision of cable television services by telephone companies in their own telephone areas subject to regulatory safeguards and permits telephone companies to own cable
systems
under certain circumstances. It is not possible to predict the impact on the Company's television stations of any future relaxation or elimination of the existing limitations on the ownership of cable
systems by telephone companies. The elimination or further relaxation of the restriction, however, could increase the competition the Company's television stations face from other distributors of
video programming.

FCC Regulation of Television Broadcasting

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.

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License Issuance and Renewal

Television broadcasting licenses generally are granted and renewed for a period of eight years, but may be renewed for a shorter period upon a finding by the FCC
that the "public interest, convenience and necessity" would be served thereby. At the time application is made for renewal of a television license, parties in interest as well as members of the public
may apprise the FCC of the service the station has provided during the preceding license term and urge the grant or denial of the application. Under the Telecommunications Act of 1996 as implemented
in the FCC's rules, a competing application for authority to operate a station and replace the incumbent licensee may not be filed against a renewal application and considered by the FCC in deciding
whether to grant a renewal application. The statute modified the license renewal process to provide for the grant of a renewal application upon a finding by the FCC that the licensee (1) has
served the public interest, convenience, and necessity; (2) has committed no serious violations of the Communications Act or the FCC's rules; and (3) has committed no other violations of
the Communications Act or the FCC's rules which would constitute a pattern of abuse. If the FCC cannot make such a finding, it may deny a renewal application, and only then may the FCC accept other
applications to operate the station of the former licensee. In the vast majority of cases, the FCC renews broadcast licenses even when petitions to deny are filed against broadcast license renewal
applications. All of the Company's existing licenses are in effect and are subject to renewal at various times during 2005, 2006 and 2007. Although there can be no assurance that the Company's
licenses will be renewed, the Company is not aware of any facts or circumstances that would prevent the Company from having its licenses renewed.

Ownership Restrictions

The Communications Act also prohibits the assignment of a license or the transfer of control of a licensee without prior approval of the FCC. In its review
process, the FCC considers financial and legal qualifications of the prospective assignee or transferee and also determines whether the proposed transaction complies with rules limiting the common
ownership of certain attributable interests in broadcast, cable, and newspaper media on a local and national level. The FCC's restrictions on multiple ownership could limit the acquisitions and
investments that the Company makes or the investments other parties make in the Company, however, none of the Company's officers, directors or holders of voting common stock currently have
attributable or non-attributable interests that violate the FCC's ownership rules.

Attribution.

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 little or no control or influence over a licensee may own up to 20% of such outstanding voting stock before attribution results. Under
the FCC's "equity-debt plus" rule, a party's interest will be deemed to be attributable if the party owns equity (including all stockholdings, whether voting or non-voting,
common or preferred) and debt interests, in the aggregate, exceeding 33% of the total asset value (including debt and equity) of the licensee and it either provides 15% of the station's weekly
programming or owns an attributable interest in another broadcast station, cable system or daily newspaper in the market. In contrast, debt instruments, non-voting stock and certain
limited partnership interests (provided the licensee certifies that the limited partners are not "materially involved" in the media-related activities of the partnership) will not result in
attribution. In December 2000, the FCC revised its rules to eliminate the single majority shareholder exemption from the broadcast attribution rules. Under that exception, the interest of a
minority voting shareholder would not be attributable if one person or entity held more than 50% of the combined voting power of the common stock company holding or controlling a broadcast license.
Any minority voting stock interest in a company with a single majority shareholder was grand fathered as non-attributable if the

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interest was acquired before December 14, 2000. The FCC's decision eliminating the single majority shareholder exception as it applies to cable system ownership was appealed to the United
States Court of Appeals for the District of Columbia Circuit, and in March 2001, the court reversed the decision and remanded the case to the FCC. In December 2001, the FCC suspended its
repeal of the single majority shareholder exception for broadcast attribution rules, effectively reinstating the exception, until it could act on the court remand. Thus, the single majority
shareholder exception from the broadcast attribution rules currently is in effect.

In
addition, for purposes of its national and local multiple ownership rules, the FCC attributes local marketing agreements ("LMAs") that involve more than 15% of the brokered station's
weekly program time. Thus, if an entity owns one television station in a market and has a qualifying LMA with another station in the same market, this arrangement must comply with all of the FCC's
ownership rules including the television duopoly rule. LMA arrangements entered into prior to November 5, 1996 are
grand fathered until 2004, while LMAs entered into on or after November 5, 1996 were grand fathered temporarily until August 2001. The Company does not operate any stations pursuant to
an LMA. One broadcast entity has appealed the FCC's treatment of LMAs entered into after November 5, 1996 to the United States Court of Appeals for the District of Columbia Circuit. Oral
argument in that case was held in January 2002, however, the Company is unable to predict how the court will rule or how its ruling potentially could affect the Company.

National Ownership Rules

FCC rules provide that no individual or entity may have an attributable interest in television stations that reach more than 35% of the national television
viewing audience. For purposes of this calculation, stations in the UHF band, which covers channels 14 - 69, are attributed with only 50% of the households attributed to
stations in the VHF band, which covers channels 2 - 13. Under its recently revised ownership rules, if an entity has attributable interests in two television stations in the
same market, the FCC will count the audience reach of that market only once for purposes of applying the national ownership cap. In its most recent Biennial review of this restriction, the FCC decided
not to relax the 35% cap. In response to a judicial challenge of the FCC's decision, in February 2002, the United States Court of Appeals for the District of Columbia Circuit reversed the FCC's
decision and remanded the 35% broadcast ownership rule back to the FCC for further consideration. Specifically, the Court found that the FCC failed to adequately justify its decision not to repeal or
modify the national ownership cap rule as required by the Communications Act. The national television ownership cap remains in effect while the FCC reconsiders its decision in light of the federal
court directive. Further relaxation of the national television ownership rule could result in additional television station ownership consolidation.

Television Duopoly Rule

The FCC's television duopoly rule permits a party to have attributable interests in two television stations without regard to signal contour overlap provided the
stations are licensed to separate DMAs, as determined by Nielsen. In addition, the rule permits parties to own up to two television stations in the same DMA as long as at least eight independently
owned and operating full-power television stations remain in the market at the time of acquisition, and at least one of the two stations is not among the top four ranked stations in the
DMA based on specified audience share measures. Under the FCC's rules, once a company acquires a television station duopoly, the joint owner is not required to divest either station if subsequently
the number of operating television stations within the market falls below eight, or if either of the two jointly owned stations is later ranked among the top four stations in the market. The FCC also
may grant a waiver of the television duopoly rule if one of the two television stations is a "failed" or "failing" station, if the proposed transaction would result in the construction of an unbuilt
television station or if compelling public interest factors are present. With

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the changes in the FCC's rule on television duopolies, the Company's common ownership of KNTV and KBWB is fully consistent with the Commission's rules. As discussed above, on April 30, 2002,
the Company sold KNTV to NBC. Additionally, satellite stations authorized to rebroadcast the programming of a parent station located in the same DMA are exempt from the duopoly rule. Thus,
the Company's common ownership of KBJR and KRII is fully consistent with the television duopoly rule. Interested parties have challenged the duopoly rule in a proceeding currently pending before the
United States Court of Appeals for the District of Columbia Circuit in which oral argument was held in January 2002. The Company is unable to predict the outcome of this judicial proceeding and
thus cannot determine the effect, if any, it will have on the Company's business.

Cross-Ownership Rules

The FCC's rules prohibit the holder of an attributable interest in a television station from also holding an attributable interest in a daily newspaper or cable
television system serving a community located within the coverage area of that television station. In February 2002, the United States Court of Appeals for the District of Columbia Circuit
vacated the FCC's rule prohibiting the common ownership of a television station and a cable television system in the same market. Specifically, the court held that the FCC had no basis for not
repealing or modifying the broadcast/ cable cross-ownership restriction. The court's vacation of the rule has not gone into effect because the rehearing and appeals process has not concluded. The
Company cannot predict whether any of these future appeals will be sought and cannot determine the outcome of such appeals.

The
FCC further prohibits the common ownership of a broadcast television station and a daily newspaper in the same local market. The FCC has initiated a rulemaking seeking public comment
on whether to modify the broadcast/ newspaper cross-ownership provision. The FCC also restricts the common ownership of television and radio stations in the same market. One entity may now own up to
two television stations and six radio stations in the same market provided that: (1) 20 independent voices (including certain newspapers and a single cable system) will remain in the relevant
market following consummation of the proposed transaction, and (2) the proposed combination is consistent with the television duopoly and local radio ownership rules. If fewer than 20 but more
than 9 independent voices will remain in a market following a proposed transaction, and the proposed combination is otherwise consistent with the FCC's rules, a single entity may have attributable
interests in up to two television stations and four radio stations. If neither of these various "independent voices" tests are met, a party generally may have an attributable interest in no more than
one television station and one radio station in a market.

Antitrust Review

The Department of Justice 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 increased their scrutiny of the television and radio industries, and have indicated their intention to review matters related to the
concentration of ownership within markets (including LMAs) even when the ownership or LMA in question is permitted under the regulations of the FCC. In March 2002, the Antitrust Agencies
reached an agreement through which the Department of Justice would assume primary control over all merger reviews in the media and entertainment industry; however, the Senate Commerce committee has
stated an intention to formally review the Antitrust Agencies' decision to assign media mergers to the Department of Justice. There can be no assurance
that future policy and rulemaking activities of the Antitrust Agencies will not impact the Company's operations.

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Alien Ownership

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
Communications Act from having more than one-fourth of its capital stock owned by non-citizens, foreign governments or foreign corporations, but not from having an officer or
director who is a non-citizen restricts the Company.

Equal Employment Opportunity

In early 2000, the FCC revised its rules requiring broadcast licensees to maintain programs designed to promote equal employment opportunities ("EEO"). In
January 2001, the United States Court of Appeals for the District of Columbia Circuit held that the recruitment, outreach, and reporting requirements were unconstitutional. In response to the
court's ruling, the FCC suspended enforcement of its EEO rules on January 31, 2001. In December 2001, the Commission initiated a proceeding to seek public comment on proposed new EEO
rules. This rulemaking proceeding is pending and the Company cannot predict the outcome or its effect on the Company. Although the EEO rules struck down by the court are no longer in effect, the
general prohibition against employment discrimination remains applicable.

Must Carry/Retransmission Consent

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, every qualified television station is required to elect
whether it wants to avail itself of must-carry rights or,
alternatively, to grant retransmission consent. Whether a station is qualified depends on factors such as the number of activated channels on a cable system, the location and size of a cable system,
the amount of duplicative programming on a broadcast station and the signal quality of the station at the cable system's head end. If a television station elects retransmission consent, cable systems
are required to obtain the consent of that television station for the use of its signal and could be required to pay the television station for such use. The Cable Act further requires mandatory cable
carriage of all qualified local television stations electing their must-carry rights or not exercising their retransmission rights. Under the FCC's rules, television stations were required
to make their election between must-carry and retransmission consent status by October 1, 1999, for the period from January 1, 2000 through December 31, 2002.
Television stations that fail to make an election by the specified deadline are deemed to have elected must-carry status for the relevant three-year period. For the three year
period beginning January 1, 2000, each of the Company's stations has either elected its must-carry rights, entered into retransmission consent agreements, or obtained an extension
to permit the Company to continue negotiating a retransmission consent agreement with substantially all cable systems in its DMA. The FCC currently is conducting a rulemaking proceeding to determine
the scope of the cable systems' carriage obligations with respect to digital broadcast signals during and following the transition from analog to DTV service. In its initial order, the FCC tentatively
concluded that broadcasters would not be entitled to mandatory carriage of both their analog and DTV signals and that broadcasters with

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multiple DTV video programming streams would be required to designate a single primary video stream eligible for mandatory carriage. Alternatively, a broadcaster may negotiate with cable systems for
carriage of its DTV signal in addition to its analog signal under retransmission consent.

Satellite Home Viewer Improvement Act

Under the Satellite Home Viewer Improvement Act ("SHVIA") a satellite carrier generally must obtain retransmission consent before carrying a television station's
signal. Specifically, the SHVIA: (1) provides a statutory copyright license to enable satellite carriers to retransmit a local television broadcast station into the station's local market
(i.e., provide "local-into-local" service); (2) permits the continued importation of distant network signals (i.e., network signals that originate outside of a satellite
subscriber's local television market or designated market areas ("DMA") (1) for certain existing subscribers; (3) provides broadcast stations with retransmission consent rights in their
local markets; and (4) mandates carriage of broadcast signals in their local markets after a phase-in period. "Local markets" are defined to include both a station's DMA and its
county of license.

The
SHVIA permits satellite carriers to provide distant or nationally broadcast programming to subscribers in "unserved" households (i.e., households are unserved by a particular network
if they do not receive a signal of at least Grade B intensity from a station affiliated with that network) until December 31, 2004. However, satellite television providers can retransmit the
distant signals of no more than two stations per day for each television network. As of January 1, 2002, a satellite carrier retransmitting the signal of any local broadcast station into the
station's local market generally must carry all stations licensed to the carried station's local market upon request.

Pursuant
to the SHVIA, satellite carriers are beginning to offer local broadcast signals to subscribers in some of the nation's largest television markets. As of March 2002,
satellite carriers currently carry the signals of KNTV, KBWB and WDWB. As discussed above, on April 30, 2002, the Company sold KNTV to NBC. DirecTV announced plans to expand their
local-into-local broadcast offerings into ten new markets, but has not committed to any new markets in which the Company owns a station. EchoStar and DirecTV have stated that
if their proposed merger is approved and consummated, they intend to offer local-into-local service in every market; however, the Company cannot predict whether this announced
plan will go into effect.

Satellite
carriers have challenged the constitutionality of the satellite must carry requirements. In June 2001, the United States District Court of the Eastern District of
Virginia upheld the must carry provisions, and in December 2001, the United States Court of Appeals for the Fourth Circuit affirmed this decision. EchoStar recently petitioned the United States
Supreme Court for review of the Fourth Circuit's decision. The Company cannot predict whether the Supreme Court will agree to review the Fourth Circuit's decision or the outcome of the Supreme Court's
potential review.

Digital Television

Pursuant to the Telecommunications Act of 1996, the FCC has adopted rules authorizing and implementing DTV service, technology that 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 were required to initiate commercial DTV service with a digital signal by May 1, 1999. Affiliates of these networks located in
the 11th through the 30th largest U.S. television markets were required to begin DTV operation by November 1, 1999. All other commercial stations are

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required to begin DTV broadcasts by May 1, 2002. In November 2001, the FCC modified its digital television transition rules in an effort to ease the burden of the required build out.
Among other changes, the FCC relaxed its initial build out requirement. Under the new rules, a station will not have to replicate its entire analog service area until a date to be set in a later
proceeding. By 2006, broadcasters will have to convert to DTV service, terminate their existing analog service and surrender one of their two television channels to the FCC. This 2006 transition date
may be extended, however, upon the request of a station, in the event that: (i) one or more of the stations in the station's market that are licensed to or affiliated with one of the top four
largest national television networks are not broadcasting a digital television signal, and the FCC finds that each such station has exercised due diligence and satisfies the conditions for an
extension of the applicable construction deadlines for digital television service in that market; (ii) digital-to-analog converter technology is not generally available
in such market; or (iii) if 85% of television households in a market do not have television receivers capable of receiving the DTV signals of local stations.

The
FCC also has adopted rules that permit DTV licensees to offer ancillary or supplementary services on their DTV channels under certain circumstances. The FCC rules further require DTV
licensees to pay a fee of 5% of the gross revenues received from any ancillary or supplemental uses of the DTV spectrum for which the Company charges subscription fees or other specified compensation.
No fees will be due for commercial advertising revenues received from free over-the-air broadcasting services. The Commission also has initiated a notice of inquiry to examine
whether additional public interest obligations should be imposed on DTV licensees. Various proposals in this proceeding would require DTV stations to increase their program diversity, political
discourse, access for disabled viewers and to improve emergency warning systems.

Company-owned
stations KBWB and KNTV (which was sold to NBC on April 30, 2002) have constructed and begun operating their DTV facilities. Stations WDWB, WTVH, and WPTA filed
timely applications for DTV stations but have not yet received permits to construct their DTV stations. The pending DTV applications are delayed for various reasons, including alleged interference
with Canadian broadcast stations and a mutually exclusive application filed by another broadcasting station seeking DTV authority. In March 2002, stations WKBW, KSEE, WEEK, and KBJR each
applied for an extension of the DTV build out period, pursuant to the extension guidelines adopted by the FCC. Each station cited the Company's current financial conditions as a reason for delay.
Approximately forty percent of all broadcast stations applied for extensions of the DTV construction period. The FCC has not yet acted on the Company stations' requests.

Class A Television Stations.

In
November 1999, Congress enacted the Community Broadcasters Protection Act, which created a new "Class A" status for low power television stations. Under this statute, certain
LPTV stations which previously had secondary status to full power television stations are eligible for "Class A" status and are entitled to protection from future displacement by
full-power television stations under certain circumstances. The FCC has adopted rules governing the extent of interference protection that must be afforded to Class A stations and
the eligibility criteria for these stations. Because Class A stations are required to provide interference protection to full-power television stations, these new facilities are not
expected to adversely affect the operations of the Company's television stations.

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

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acquisitions. Such matters include but are not limited to: (i) fees imposed on FCC licensees; (ii) matters relating to minority and female involvement in the broadcasting industry;
(iii) political broadcasting and
advertising matters; (iv) technical and frequency allocation matters; (v) changes to broadcast technical requirements; (vi) changes to the standards governing the evaluation and
regulation of television programming directed towards children; (viii) an examination of whether the cable must-carry requirement mandates carriage of both analog and digital
television signals; (ix) an examination of legislation and FCC rules governing the ability of viewers to receive local and distant television network programming directly via satellite; and
(x) an examination of issues that have arisen during the transition from analog to digital television service. The Company cannot predict whether such changes will be adopted or, if adopted,
the effect that such changes would have on the business of the Company.

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 employed, as of April 1, 2002, approximately 936 persons, of whom approximately 262 are represented by three unions pursuant to
agreements expiring in 2002, 2003 and 2004 at the Company's stations. The Company believes its relations with its employees are good.

PART II

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

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

Introduction

Comparisons of the Company's consolidated financial statements between the years ended December 31, 2000 and 1999 have been affected by the sale of
WEEK-FM, which occurred on July 30, 1999, and the sale of KEYE, which occurred on August 31, 1999, the termination of the ABC affiliation agreement at KNTV on July 1,
2000, significant increases in news expense at KNTV in preparation for it becoming the NBC affiliate for the San Francisco-Oakland-San Jose market effective January 1, 2002, and
investments in syndicated programs at the Company's WB affiliates.

Comparisons
of the Company's consolidated financial statements between the years ended December 31, 2001 and 2000 have been affected by the termination of the ABC affiliation
agreement at KNTV on July 1, 2000, significant increases in news expense at KNTV and investments in syndicated programs at the Company's WB affiliates. The Company anticipates that comparisons
of the Company's

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consolidated financial statements between the years ended December 31, 2002 and 2001 will be impacted by significant increases in revenues and expenses at KNTV resulting from its switch to the
NBC affiliate and continued investment in programming at the WB affiliates.

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, 1999, 2000 and 2001:

|                                  |  | Year ended December 31, |            
|--------------------------------- |  | ----------------------- | -----------
|
|Operating income (loss)           |  | $                       | 15,054,000 
|Write-off of film contract rights |  |                         |           
|Depreciation and amortization     |  |                         | 32,122,000 
|Corporate expense                 |  |                         | 8,862,000  
|Non-cash compensation             |  |                         | 935,000    
|Program amortization              |  |                         | 15,245,000 
|Program payments                  |  |                         | (15,429,000
|                                  |  |                         |            
|Broadcast cash flow               |  | $                       | 56,789,000 
|                                  |  |                         |            

"Broadcast
cash flow," means operating income (loss) plus film write-offs, depreciation, amortization, corporate expense, non-cash compensation and program
amortization, less program payments. The Company has included broadcast cash flow data because such data is commonly used as a measure of performance for broadcast companies and is 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 accounting principles generally accepted in the United States and should not be considered in isolation or as a
substitute for measures of performance prepared in accordance with accounting principles generally accepted in the United States.

Years ended December 31, 2001 and 2000

Net revenue for the year ended December 31, 2001 totaled $113,075,000; a decrease of $26,995,000 or 19 percent compared to $140,070,000 for the
twelve months ended December 31, 2000. The decrease was primarily due to a weak advertising climate with local and national advertising down $24,631,000, a decrease in political advertising in
a non-election year of $9,246,000 and decreased revenue at KNTV of $4,660,000 as it operated as an independent television station for a full year in 2001.

Station
operating expenses totaled $116,374,000; an increase of $13,694,000 or 13 percent compared to $102,680,000 for the twelve months ended December 31, 2000. The
increase was primarily due to an increase in news expense at KNTV of $2,572,000, increased programming costs of $2,579,000 at the Company's WB affiliates, and the accelerated amortization of certain
syndicated programs totaling $6,806,000.

Corporate
expense totaled $9,687,000; a decrease of $705,000 or 7 percent compared to $10,392,000 for the twelve months ended December 31, 2000. The decrease was primarily
due to a decrease in professional fees. Non-cash compensation expense totaled $1,473,000; a decrease of $501,000 or 25 percent compared to $1,974,000 for the twelve months ended
December 31, 2000. The

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decrease was primarily due to a one-time charge to earnings taken in 2000 resulting from the rescission of the exercise of certain stock options exercised offset in part by increased
stock awards granted to certain executives.

Interest
expense totaled $47,482,000; an increase of $17,828,000 or 60 percent compared to $29,654,000 for the twelve months ended December 31, 2000. The increase was
primarily due to higher levels of outstanding indebtedness and a higher interest rate on the Company's current Credit Agreement. Included in interest expense for 2001 is approximately $4,671,000 of
deferred interest on the Credit Agreement payable on December 31, 2003. Interest income totaled $1,559,000; an increase of $881,000 or 130 percent compared to the twelve months ended
December 31, 2000 primarily due to higher cash balances, partially offset by lower interest rates. Non-cash interest expense totaled $7,951,000; an increase of $4,943,000 or
164 percent primarily due to increased deferred financing fees related to the current Credit Agreement.

During
2001, the Company recognized an extraordinary loss net of tax of $1,207,000 related to the repayment of all outstanding borrowings under the then existing bank credit agreement
and the write-off of related deferred financing fees.

Years ended December 31, 2000 and 1999

Net revenue for the year ended December 31, 2000 totaled $140,070,000, a decrease of $9,777,000 or 7 percent compared to $149,847,000 for the twelve
months ended December 31, 1999. The decrease was primarily due to reduced revenue of $10,352,000 resulting from the sale of the Austin station in August 1999 and a decline in
non-political local and national revenue of $2,060,000 and $4,535,000, respectively, offset, in part, by an increase of $8,092,000 in political advertising revenue.

Station
operating expenses totaled $102,680,000; an increase of $9,805,000 or 11 percent compared to $92,874,000 for the twelve months ended December 31, 1999. The increase
was primarily due to an increase in programming expense of $7,779,000 at the WB affiliates, an increase in news expense of $4,024,000 at KNTV and an increase in general and administrative expenses of
$1,352,000 driven by increases in bad debt reserves. These increases were offset, in part, by decreased operating expenses of $5,549,000 resulting from the sale of the Austin station in
August 1999.

Programming
expenses were also impacted by the transformation of KNTV. Nielsen Media Research reassigned KNTV from the Monterey/Salinas, California designated market area ("DMA"), the
118th largest, to the San Francisco-Oakland-San Jose, California DMA, the 5th largest, effective September 1, 2000. In connection with this change, KNTV
is no longer able to broadcast certain syndicated programs that are licensed to other stations in the San Francisco-Oakland-San Jose, California DMA. Consequently, the Company took a
one-time, charge and wrote-off the book value of these programs totaling $1,716,000.

Corporate
expense totaled $10,392,000; an increase of $1,531,000 or 17 percent compared to $8,862,000 for the twelve months ended December 31, 1999. The increase was
primarily due to an increase in professional fees, most of which are of a non-recurring nature.

Interest
expense totaled $29,654,000; a decrease of $7,963,000 or 21 percent compared to $37,617,000 for the twelve months ended December 31, 1999. The decrease was
primarily due to the use of a portion of the net proceeds from the sale of the Austin station in August 1999 to reduce outstanding indebtedness. In addition, during the first six months of 2000
the Company used bank borrowings to repurchase $89,338,000 face amount of its subordinated notes at various discounts, further reducing its debt outstanding. In connection with these repurchases
during 2000, the Company recognized an extraordinary gain after the write-off of related deferred financing fees, net of tax, of $3,710,000.

The
gain on the sale of assets of $101,292,000 in 1999 resulted from the sale of the Austin station.

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The
Company sustained severe damage to certain assets in Duluth, Minnesota as a result of a fire that occurred in 1997 and an ice storm that occurred in 1999. The Company
wrote-off the book balances of the destroyed assets and received insurance proceeds for replacement assets during 1999, resulting in a gain of $4,079,000. Additional insurance proceeds
were received in 2000 resulting in a gain of $1,247,000.

Liquidity and Capital Resources

On December 14, 2001, the Company entered into a definitive agreement with NBC to sell KNTV. The sale transaction was completed on April 30, 2002.
NBC paid the Company $230,000,000 plus a working capital and other adjustments of $14,545,000. In addition, NBC refunded the Company $20,473,000 of the affiliation payment due to NBC on
January 1, 2002 under the terms of the KNTV NBC affiliation agreement (the "San Francisco Affiliation Agreement"), which the Company prepaid on March 6, 2001. The Company repaid
$170,000,000 of outstanding senior debt and $14,763,000 of deferred interest and other fees associated with the senior credit facility and the amended credit agreement discussed below upon
consummation of the sale. The San Francisco Affiliation Agreement terminated upon the closing of the sale and the Company is not required to make any further affiliation payments to NBC. The warrants
issued to NBC as part of the San Francisco Affiliation Agreement have been returned to the Company. The Company's affiliation agreements for KSEE-TV, WEEK-TV, and
KBJR-TV, which involve no payment obligations, will remain in effect until their expiration on December 31, 2011.

Simultaneously
with the closing of the sale of KNTV, the Company entered into an amended and restated senior credit agreement (the "Credit Agreement"). The Credit Agreement consists of
(i) a committed $60,000,000 Tranche A term loan facility, (ii) a committed $80,000,000 Tranche B term loan facility and (iii) an uncommitted $10,000,000 Tranche C supplemental
term loan facility. The Tranche B loan commitment expires 120 days after the closing, unless previously canceled by the Company, and may be extended at the lenders' option for an additional
period of time. The terms of the Tranche C term loan have not been fully negotiated, and borrowing of the Tranche C loans will require supplemental action by the Board of Directors of the Company. The
obligations of the Company with respect to all of the loan facilities are secured by substantially all of the assets of the Company and its subsidiaries.

Upon
entering into the Credit Agreement, the Company rolled over existing outstanding loans under the prior loan facility into an initial Tranche A borrowing in the amount of
$35,000,000. Proceeds from Tranche A and Tranche B term loans shall be used for working capital and general corporate purposes. The Tranche A loans bear interest at the greater of LIBOR plus 4.50% or
6.50% and the Tranche B loans bear interest at the greater of LIBOR plus 9% or 11%. All interest is payable monthly in arrears. The Credit Agreement matures on April 15, 2004, at which time the
Company must repay the principal amount of all outstanding loans and all other obligations then due and owing under the Credit Agreement. The Credit Agreement requires the Company, among other
matters, to maintain compliance with certain financial tests, including but not limited to, minimum net revenue, broadcast cash flow, EBITDA, working capital and cash balances.

As
of May 3, 2002, the Company had approximately $73,214,000 of cash on hand, of which approximately $36,000,000 is reserved for the payment of income taxes and other expenses
related to the sale of KNTV.

Net
cash used in operating activities was $56,950,000 during the year ended December 31, 2001 compared to $3,584,000 during the year ended December 31, 2000 and $31,676,000
during the year ended December 31, 1999. The change from 2000 to 2001 was primarily the result of an increase in cash interest payments, the affiliation prepayment made to NBC and a decrease in
operating cash flow, offset in part by a decrease in net operating assets.

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Net
cash used in investing activities was $3,232,000 during the year ended December 31, 2001 compared to $7,710,000 during the year ended December 31, 2000 and net cash
provided by investing activities of $161,596,000 during the year ended December 31, 1999. The change from 2000 to 2001 was primarily the result of decreased capital expenditures.

Net
cash provided by financing activities was $80,400,000 during the year ended December 31, 2001 compared to $15,049,000 during the year ended December 31, 2000 and net
cash used in financing activities of $125,228,000 during the year ended December 31, 1999. The change from 2000 to 2001 primarily resulted from an increase in bank borrowings and a decrease in
debt repaid, offset in part by an increase in deferred financing fees.

The
Company expects to spend approximately $13,000,000 in 2002 and $22,000,000 in 2003 in capital expenditures, of which a total of approximately $2,300,000 is associated with the
initial implementation of digital technology pursuant to the FCC's relaxed digital television build-out rules. The Company requested a six-month extension from the FCC to
effect a portion of such initial implementation because of the Company's financial situation. The Company anticipates it will need an additional $10,700,000 to effect the full build-out of
digital television. The Company believes that borrowings under its amended senior credit facility together with internally generated funds from operations and cash on hand 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. Under the terms of the Certificate of Designations for the
Company's 123/4% Cumulative Exchangeable Preferred Stock, the Company is required to make the semi-annual dividends on such shares in cash beginning October 1, 2002.
The cash payment of dividend is restricted by the terms of the indentures governing the Company's senior subordinated bonds and is prohibited under the terms of the Credit Agreement. The Company does
not anticipate paying cash dividends on its exchangeable preferred stock in the foreseeable future.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("Statement 142"), effective January 1, 2002. Under the new rules, goodwill and other indefinite lived intangible assets deemed to have indefinite lives will no longer be
amortized but will be subject to annual impairment tests in accordance with Statement 142. The Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the
first quarter of 2002. Application of the non-amortization provisions of Statement 142 is expected to result in a decrease in amortization expense of approximately $16,900,000 in 2002. The
Company will test goodwill for impairment using the two-step process prescribed in Statement 142. The first step is a screen for potential impairment, while the second step measures the
amount of the impairment, if any. Based on steps the Company has taken to prepare for the adoption of Statement 142, it is likely that a portion of goodwill or other indefinite lived intangible assets
will be impaired using the impairment test required by Statement 142. The Company currently evaluates goodwill and other indefinite lived intangible assets for impairment by comparing the entity level
unamortized balance of goodwill to projected undiscounted cash flows, which does not result in an indicated impairment. An impairment that is required to be recognized when adopting Statement 142 will
be reflected as the cumulative effect of a change in accounting principle in the first quarter of 2002. The Company has not yet determined the amount of the potential impairment loss.

Critical Accounting Policies

Our accounting policies are described in Note 1 of the consolidated financial statements in Item 8. We prepare our consolidated financial statements in
conformity with accounting principles generally accepted in the United States, which require us to make estimates and assumptions that effect the

19

---

reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
year. Actual results could differ from those estimates. We consider the following policies to be most critical in understanding the judgments involved in preparing our financial statements and the
uncertainties that could affect our results of operations, financial condition and cash flows.

Goodwill and Intangible Assets

The Company has made acquisitions in the past for which a significant portion of the purchase price was allocated to goodwill and other identifiable intangible
assets. Under accounting principles generally accepted in the United States through December 31, 2001, these assets are being amortized over their estimated useful lives and were tested
periodically to determine if they are recoverable from undiscounted cash flows over their useful lives.

In
accordance with Statement 142, goodwill and other intangible assets deemed to have indefinite lives will no longer be amortized, but instead will be subject to annual impairment
tests. The Company will apply the new rule on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. During 2002, the Company will perform the first of the
required impairment tests of goodwill and indefinite-lived assets as of January 1, 2002, and has not yet determined what effect, if any, applying those tests will have on the Company's
financial position and results of operations. The annual impairment testing required by Statement 142 will also require us to use our judgment and could require us to write down the carrying value of
our goodwill and other intangible assets in future periods. As of December 31, 2001, the Company had $620,324,000 in goodwill and other intangible assets with indefinite lives. We expect
amortization expense to decrease by approximately $16,900,000 as a result of this pronouncement.

Allowance for Doubtful Accounts

We must make estimates of the uncollectibility of our accounts receivable. We specifically review historical write-off activity by market, large
customer concentrations, customer credit worthiness, and changes in our customer payment terms when evaluating the adequacy of the allowance for doubtful accounts. If circumstances change, such as
higher than expected defaults or an unexpected material adverse change in an agency's ability to meet its financial obligation to the Company, the Company's estimates of the recoverability of amounts
due the Company could be reduced by a material amount.

Impact of Inflation

We believe that inflation has not had a material impact on our results of operations for each of the three years in the period ended December 31, 2001.
However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.

Seasonality

Seasonal net revenue fluctuations are common in the television broadcast industry and are due primarily to fluctuations in advertising expenditures by local and
national advertisers. The Company's first calendar quarter generally produces the lowest net revenue for the year.

20

---

Capital and Commercial Commitments

The following table and discussion reflect the Company's significant contractual obligations and other commercial commitments as of December 31, 2001:

|                  |  | Payment Due by Period (1)
|----------------- |  | -------------------------
|
|
|Long term debt    |  | $                        
|Operating leases  |  |                          
|Program contracts |  |                          

---

We anticipate that we will fund such obligations and commitments with cash flow from operations and borrowings under Credit Agreement.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The Company's earnings may be affected by changes in short-term interest rates as a result of its Credit Agreement. Under the Credit Agreement, the
Company pays interest at the greater of LIBOR plus 4.50% or 6.50%, currently 6.50%. As of May 2, 2002, the three-month LIBOR rate was 1.92%. The Company has not entered into any agreements to
hedge such risk. A 2% increase in the LIBOR rate would increase interest expense on an annual basis by approximately $672,000. This analysis does not consider the effects of the reduced level of
overall economic activity that could exist in such environment.

21

---



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, 2001 and 2000 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, 2001. Our audits also included the financial statement schedule listed in
the Index at Item 14(a). These financial statements and the schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and
the schedule based on our audits.

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

Since
the date of completion of our audit of the accompanying financial statements and initial issuance of our report thereon dated February 20, 2002, which report contained an
explanatory paragraph regarding the Company's ability to continue as a going concern, the Company, as discussed in Note 17, has sold KNTV and the proceeds were used to satisfy its obligations
under its bank credit agreement, and the Company entered into an amended and restated credit agreement. Therefore, the conditions
that raised substantial doubt about whether the Company will continue as a going concern no longer exist.

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, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with
accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a
whole, presents fairly in all material respects the information set forth therein.



New
York, New York
February 20, 2002
Except for Note 17, as to which the date is
April 30, 2002

22

---



GRANITE BROADCASTING CORPORATION  CONSOLIDATED STATEMENTS OF OPERATIONS

|                                                                                                                                                                  |                                                          | For the Years Ended December 31,                |                          
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------- | -------------------------
|
|Net revenue                                                                                                                                                       |                                                          | $                                               | 149,846,955              
|Station operating expenses                                                                                                                                        |                                                          |                                                 | 92,874,454               
|Write-off of film contract rights                                                                                                                                 |                                                          |                                                 |                         
|Depreciation                                                                                                                                                      |                                                          |                                                 | 5,454,819                
|Amortization of intangible assets                                                                                                                                 |                                                          |                                                 | 26,666,719               
|Corporate expense                                                                                                                                                 |                                                          |                                                 | 8,861,640                
|Non-cash compensation expense                                                                                                                                     |                                                          |                                                 | 935,142                  
|                                                                                                                                                                  |                                                          |                                                 |                          
|                                                                                                                                                                  | Operating income (loss)                                  |                                                 |                          
|Other (income) expenses:                                                                                                                                          |                                                          |                                                 |                          
|                                                                                                                                                                  | Equity in net loss of investee                           |                                                 |                          
|                                                                                                                                                                  | Interest expense                                         |                                                 |                          
|                                                                                                                                                                  | Interest income                                          |                                                 |                          
|                                                                                                                                                                  | Non-cash interest expense                                |                                                 |                          
|                                                                                                                                                                  | Gain on sale of assets                                   |                                                 |                          
|                                                                                                                                                                  | Gain from insurance claim                                |                                                 |                          
|                                                                                                                                                                  | Other                                                    |                                                 |                          
|                                                                                                                                                                  |                                                          |                                                 |                          
|                                                                                                                                                                  | Income (loss) before income taxes and extraordinary item |                                                 |                          
|                                                                                                                                                                  | Provision (benefit) for income taxes                     |                                                 |                          
|                                                                                                                                                                  |                                                          |                                                 |                          
|Income (loss) before extraordinary item                                                                                                                           |                                                          |                                                 | 47,514,489               
|Extraordinary (loss) gain, net of tax benefit of $256,655 and tax expense of $2,473,470 in 1999 and 2000, respectively and net of tax benefit of $804,720 in 2001 |                                                          |                                                 | (384,983                 
|                                                                                                                                                                  |                                                          |                                                 |                          
|                                                                                                                                                                  | Net income (loss)                                        |                                                 | $                        
|                                                                                                                                                                  |                                                          |                                                 |                          
|Net income (loss) attributable to common shareholders                                                                                                             |                                                          | $                                               | 19,912,092               
|                                                                                                                                                                  |                                                          |                                                 |                          
|                                                                                                                                                                  | Per common share:                                        |                                                 |                          
|                                                                                                                                                                  |                                                          | Basic income (loss) before extraordinary item   |                          
|                                                                                                                                                                  |                                                          | Basic extraordinary (loss) gain                 |                          
|                                                                                                                                                                  |                                                          |                                                 |                          
|                                                                                                                                                                  |                                                          |                                                 | Basic net income (loss)  
|                                                                                                                                                                  |                                                          |                                                 |                          
|Weighted average common shares outstanding                                                                                                                        |                                                          |                                                 | 13,968,611               
|Net income (loss) attributable to common shareholders  assuming dilution                                                                                         |                                                          | $                                               | 21,588,040               
|                                                                                                                                                                  |                                                          |                                                 |                          
|                                                                                                                                                                  | Per common share:                                        |                                                 |                          
|                                                                                                                                                                  |                                                          | Diluted income (loss) before extraordinary item |                          
|                                                                                                                                                                  |                                                          | Diluted extraordinary (loss) gain               |                          
|                                                                                                                                                                  |                                                          |                                                 |                          
|                                                                                                                                                                  |                                                          |                                                 | Diluted net income (loss)
|                                                                                                                                                                  |                                                          |                                                 |                          
|Weighted average common shares outstanding  assuming dilution                                                                                                    |                                                          |                                                 | 19,011,795               

See
accompanying notes.

23

---



GRANITE BROADCASTING CORPORATION  CONSOLIDATED BALANCE SHEETS

|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                | December 31,         |            
|-------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------- | -----------
|
|ASSETS                                                                                             |                                                                                                                                                                                                                                                                                                                                                |                      |            
|CURRENT ASSETS:                                                                                    |                                                                                                                                                                                                                                                                                                                                                |                      |            
|                                                                                                   | Cash and cash equivalents                                                                                                                                                                                                                                                                                                                      |                      | $          
|                                                                                                   | Accounts receivable, less allowance for doubtful accounts ($648,862 in 2000 and $530,273 in 2001)                                                                                                                                                                                                                                              |                      |            
|                                                                                                   | Film contract rights                                                                                                                                                                                                                                                                                                                           |                      |            
|                                                                                                   | Other current assets                                                                                                                                                                                                                                                                                                                           |                      |            
|                                                                                                   | Net assets held for sale                                                                                                                                                                                                                                                                                                                       |                      |            
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                |                      |            
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                | TOTAL CURRENT ASSETS |            
|PROPERTY AND EQUIPMENT, NET                                                                        |                                                                                                                                                                                                                                                                                                                                                |                      | 42,682,736 
|FILM CONTRACT RIGHTS                                                                               |                                                                                                                                                                                                                                                                                                                                                |                      | 8,513,655  
|OTHER NONCURRENT ASSETS                                                                            |                                                                                                                                                                                                                                                                                                                                                |                      | 15,343,241 
|DEFFERED FINANCING FEES, less accumulated amortization ($5,772,069 in 2000 and $9,656,214 in 2001) |                                                                                                                                                                                                                                                                                                                                                |                      | 5,027,846  
|INTANGIBLE ASSETS, NET                                                                             |                                                                                                                                                                                                                                                                                                                                                |                      | 574,986,006
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                |                      |            
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                | $                    | 732,091,426
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                |                      |            
|LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                                     |                                                                                                                                                                                                                                                                                                                                                |                      |            
|CURRENT LIABILITIES:                                                                               |                                                                                                                                                                                                                                                                                                                                                |                      |            
|                                                                                                   | Accounts payable                                                                                                                                                                                                                                                                                                                               |                      | $          
|                                                                                                   | Accrued interest                                                                                                                                                                                                                                                                                                                               |                      |            
|                                                                                                   | Other accrued liabilities                                                                                                                                                                                                                                                                                                                      |                      |            
|                                                                                                   | Film contract rights payable                                                                                                                                                                                                                                                                                                                   |                      |            
|                                                                                                   | Other current liabilities                                                                                                                                                                                                                                                                                                                      |                      |            
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                |                      |            
|TOTAL CURRENT LIABILITIES                                                                          |                                                                                                                                                                                                                                                                                                                                                |                      | 40,289,554 
|LONG-TERM DEBT                                                                                     |                                                                                                                                                                                                                                                                                                                                                |                      | 311,390,914
|FILM CONTRACT RIGHTS PAYABLE                                                                       |                                                                                                                                                                                                                                                                                                                                                |                      | 16,582,412 
|DEFERRED TAX LIABILITY OTHER NONCURRENT LIABILITIES                                                |                                                                                                                                                                                                                                                                                                                                                |                      | 96,624,452 
|OTHER NONCURRENT LIABILITIES                                                                       |                                                                                                                                                                                                                                                                                                                                                |                      | 19,843,495 
|REDEEMABLE PREFERRED STOCK                                                                         |                                                                                                                                                                                                                                                                                                                                                |                      | 239,544,783
|STOCKHOLDERS' EQUITY (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 18,447,927 shares of Common Stock (Nonvoting) (18,030,811 shares at December 31, 2000) issued and outstanding |                      |            
|Additional paid-in capital                                                                         |                                                                                                                                                                                                                                                                                                                                                |                      | 2,295,136  
|Retained earnings (accumulated deficit)                                                            |                                                                                                                                                                                                                                                                                                                                                |                      | 7,614,114  
|Less:                                                                                              |                                                                                                                                                                                                                                                                                                                                                |                      |            
|                                                                                                   | Unearned compensation                                                                                                                                                                                                                                                                                                                          |                      |            
|                                                                                                   | Treasury stock, at cost                                                                                                                                                                                                                                                                                                                        |                      |            
|                                                                                                   | Note receivable from officer                                                                                                                                                                                                                                                                                                                   |                      |            
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                |                      |            
|                                                                                                   | TOTAL STOCKHOLDERS' EQUITY (DEFICIT)                                                                                                                                                                                                                                                                                                           |                      |            
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                |                      |            
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                | $                    | 732,091,426
|                                                                                                   |                                                                                                                                                                                                                                                                                                                                                |                      |            

See
accompanying notes.

24

---



GRANITE BROADCASTING CORPORATION  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)  For the Years Ended December 31, 1999, 2000 and 2001

|                                                                               |  | Class A
Common
Stock |       | Common
Stock
(Nonvoting) |   | Additional
Paid-in
Capital |  | (Accumulated
Deficit)
Retained Earnings |             | Unearned
Compensation |   | Note
Receivable
From Officer |   | Treasury
Stock |            | Total
Stockholders'
Equity (Deficit) |  
|------------------------------------------------------------------------------ |  | -------------------- | ----- | ------------------------ | - | -------------------------- |  | --------------------------------------- | ----------- | --------------------- | - | ---------------------------- | - | -------------- | ---------- | ------------------------------------ | -
|Balance as of December 31, 1998                                                |  | $                    | 1,785 |                          | $ | 116,080                    |  | $                                       | 14,233,125  |                       | $ | (12,006,267                  | ) | $              | (2,881,008 | )                                    | $
|Dividends on redeemable preferred stock                                        |  |                      |       |                          |   |                            |  |                                         | (26,717,267 | )                     |   |                              |   |                |            |                                      |  
|Accretion of offering costs related to Cumulative Exchangeable Preferred Stock |  |                      |       |                          |   |                            |  |                                         | (500,148    | )                     |   |                              |   |                |            |                                      |  
|Exercise of stock options                                                      |  |                      |       |                          |   | 260                        |  |                                         | 97,930      |                       |   |                              |   |                |            |                                      |  
|Conversion of convertible preferred stock into Common Stock (Nonvoting)        |  |                      |       |                          |   | 62,367                     |  |                                         | 31,121,033  |                       |   |                              |   |                |            |                                      |  
|Issuance of Common Stock (Nonvoting)                                           |  |                      |       |                          |   | 933                        |  |                                         | (933        | )                     |   |                              |   |                |            |                                      |  
|Repurchase of Common Stock                                                     |  |                      |       |                          |   |                            |  |                                         |             |                       |   |                              |   |                |            |                                      |  
|Grant of stock award under stock plans                                         |  |                      |       |                          |   |                            |  |                                         | 568         |                       |   |                              |   |                | (568       | )                                    |  
|Stock expense related to stock plans                                           |  |                      |       |                          |   |                            |  |                                         | (324,506    | )                     |   |                              |   |                | 935,142    |                                      |  
|Net income                                                                     |  |                      |       |                          |   |                            |  |                                         |             |                       |   | 47,129,506                   |   |                |            |                                      |  
|                                                                               |  |                      |       |                          |   |                            |  |                                         |             |                       |   |                              |   |                |            |                                      |  
|Balance at December 31, 1999                                                   |  |                      | 1,785 |                          |   | 179,640                    |  |                                         | 17,909,802  |                       |   | 35,123,239                   |   |                | (1,946,434 | )                                    |  
|Dividends on redeemable preferred stock                                        |  |                      |       |                          |   |                            |  |                                         | (28,335,855 | )                     |   |                              |   |                |            |                                      |  
|Accretion of offering costs related to Cumulative Exchangeable Preferred Stock |  |                      |       |                          |   |                            |  |                                         | (500,148    | )                     |   |                              |   |                |            |                                      |  
|Exercise of stock options                                                      |  |                      |       |                          |   | 15                         |  |                                         | (971,464    | )                     |   |                              |   |                |            |                                      |  
|Issuance of Common Stock (Nonvoting)                                           |  |                      |       |                          |   | 653                        |  |                                         | (653        | )                     |   |                              |   |                |            |                                      |  
|Rescission of stock options exercised                                          |  |                      |       |                          |   |                            |  |                                         | 2,172,852   |                       |   |                              |   |                |            |                                      |  
|Issuance of warrants                                                           |  |                      |       |                          |   |                            |  |                                         | 12,149,840  |                       |   |                              |   |                |            |                                      |  
|Stock expense related to stock plans                                           |  |                      |       |                          |   |                            |  |                                         | (129,238    | )                     |   |                              |   |                | 854,781    |                                      |  
|Net loss                                                                       |  |                      |       |                          |   |                            |  |                                         |             |                       |   | (27,509,125                  | ) |                |            |                                      |  
|                                                                               |  |                      |       |                          |   |                            |  |                                         |             |                       |   |                              |   |                |            |                                      |  
|Balance at December 31, 2000                                                   |  |                      | 1,785 |                          |   | 180,308                    |  |                                         | 2,295,136   |                       |   | 7,614,114                    |   |                | (1,091,653 | )                                    |  
|Dividends on redeemable preferred stock                                        |  |                      |       |                          |   |                            |  |                                         | (4,492,611  | )                     |   | (27,571,217                  | ) |                |            |                                      |  
|Accretion of offering costs related to Cumulative Exchangeable Preferred Stock |  |                      |       |                          |   |                            |  |                                         | (500,148    | )                     |   |                              |   |                |            |                                      |  
|Grant of stock award under stock plans                                         |  |                      |       |                          |   |                            |  |                                         | 573,045     |                       |   |                              |   |                | (573,045   | )                                    |  
|Issuance of Common Stock (Nonvoting)                                           |  |                      |       |                          |   | 4,171                      |  |                                         | (4,171      | )                     |   |                              |   |                |            |                                      |  
|Stock expense related to stock plans                                           |  |                      |       |                          |   |                            |  |                                         | 63,990      |                       |   |                              |   |                | 1,141,713  |                                      |  
|Issuance of warrants                                                           |  |                      |       |                          |   |                            |  |                                         | 2,064,759   |                       |   |                              |   |                |            |                                      |  
|Discount on loans to officers                                                  |  |                      |       |                          |   |                            |  |                                         |             |                       |   |                              |   |                | (806,194   | )                                    |  
|Repayment of Note Receivable from Officer                                      |  |                      |       |                          |   |                            |  |                                         |             |                       |   |                              |   |                |            |                                      |  
|Net loss                                                                       |  |                      |       |                          |   |                            |  |                                         |             |                       |   | (76,746,894                  | ) |                |            |                                      |  
|                                                                               |  |                      |       |                          |   |                            |  |                                         |             |                       |   |                              |   |                |            |                                      |  
|Balance at December 31, 2001                                                   |  | $                    | 1,785 |                          | $ | 184,479                    |  | $                                       |            |                       | $ | (96,703,997                  | ) | $              | (1,329,179 | )                                    | $
|                                                                               |  |                      |       |                          |   |                            |  |                                         |             |                       |   |                              |   |                |            |                                      |  

See accompanying notes.

25

---



GRANITE BROADCASTING CORPORATION  CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                                                                   |                                                                | For the Years Ended December 31,                    |            
|-------------------------------------------------------------------------------------------------- | -------------------------------------------------------------- | --------------------------------------------------- | -----------
|
|Cash flows from operating activities:                                                              |                                                                |                                                     |            
|Net income (loss)                                                                                  |                                                                | $                                                   | 47,129,506 
|Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: |                                                                |                                                     |            
|                                                                                                   | Extraordinary loss (gain)                                      |                                                     |            
|                                                                                                   | Amortization of intangible assets                              |                                                     |            
|                                                                                                   | Depreciation                                                   |                                                     |            
|                                                                                                   | Non-cash compensation expense                                  |                                                     |            
|                                                                                                   | Non-cash interest expense                                      |                                                     |            
|                                                                                                   | Deferred tax expense (benefit)                                 |                                                     |            
|                                                                                                   | Equity in net loss of investee                                 |                                                     |            
|                                                                                                   | Gain on sale of stations                                       |                                                     |            
|                                                                                                   | Gain from insurance proceeds over net book value lost          |                                                     |            
|Change in assets and liabilities net of effects from acquisitions or dispositions of stations:     |                                                                |                                                     |            
|                                                                                                   | (Increase) decrease in accounts receivable                     |                                                     |            
|                                                                                                   | (Decrease) increase in accrued liabilities                     |                                                     |            
|                                                                                                   | (Decrease) increase in accounts payable                        |                                                     |            
|                                                                                                   | NBC affiliation prepayment                                     |                                                     |            
|                                                                                                   | WB affiliation payment                                         |                                                     |            
|                                                                                                   | Increase in film contract rights and other assets              |                                                     |            
|                                                                                                   | Increase in film contract rights payable and other liabilities |                                                     |            
|                                                                                                   |                                                                |                                                     |            
|Net cash (used in) provided by operating activities                                                |                                                                |                                                     | (31,676,198
|                                                                                                   |                                                                |                                                     |            
|Cash flows from investing activities:                                                              |                                                                |                                                     |            
|                                                                                                   | Deposit for station acquisition and other related costs        |                                                     |            
|                                                                                                   | Proceeds from sale of stations, net                            |                                                     |            
|                                                                                                   | Insurance proceeds received                                    |                                                     |            
|                                                                                                   | Investment                                                     |                                                     |            
|                                                                                                   | Capital expenditures                                           |                                                     |            
|                                                                                                   |                                                                |                                                     |            
|                                                                                                   |                                                                | Net cash provided by (used in) investing activities |            
|                                                                                                   |                                                                |                                                     |            
|Cash flows from financing activities:                                                              |                                                                |                                                     |            
|                                                                                                   | Proceeds from bank loan                                        |                                                     |            
|                                                                                                   | Retirement of senior subordinated notes                        |                                                     |            
|                                                                                                   | Repayment of bank borrowings                                   |                                                     |            
|                                                                                                   | Payment of deferred financing fees                             |                                                     |            
|                                                                                                   | Dividends paid                                                 |                                                     |            
|                                                                                                   | Purchase of Common Stock (Nonvoting) for treasury              |                                                     |            
|                                                                                                   | Other financing activities, net                                |                                                     |            
|                                                                                                   |                                                                |                                                     |            
|                                                                                                   |                                                                | Net cash (used in) provided by financing activities |            
|                                                                                                   |                                                                |                                                     |            
|Net increase in cash and cash equivalents                                                          |                                                                |                                                     | 4,691,150  
|Cash and cash equivalents, beginning of year                                                       |                                                                |                                                     | 762,392    
|                                                                                                   |                                                                |                                                     |            
|Cash and cash equivalents, end of year                                                             |                                                                | $                                                   | 5,453,542  
|                                                                                                   |                                                                |                                                     |            
|Supplemental information:                                                                          |                                                                |                                                     |            
|                                                                                                   | Cash paid for interest                                         |                                                     | $          
|                                                                                                   | Cash paid for income taxes                                     |                                                     |            
|                                                                                                   | Non-cash investing and financing activities:                   |                                                     |            
|                                                                                                   |                                                                | Non-cash capital expenditures                       |            
|                                                                                                   |                                                                | Stock dividend                                      |            
|                                                                                                   |                                                                | Fair value of warrants issued                       |            

See accompanying notes.

26

---



GRANITE BROADCASTING CORPORATION  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1Operations of the Company

The business operations of Granite Broadcasting Corporation and its wholly owned subsidiaries (the "Company") consist of nine network affiliated television
stations (four with NBC, two with ABC, two with the WB Network and one with CBS). The Company's stations are located in New York, California, Michigan, Indiana, Illinois and Minnesota.

Note 2Summary of Significant Accounting Policies



The consolidated financial statements include the accounts of Granite Broadcasting Corporation and its wholly owned subsidiaries. All significant inter-company
accounts and transactions have been eliminated.



The Company's primary source of revenue is the sale of television time to advertisers. Revenue is recorded when the advertisements are aired. Other sources of
revenue are compensation from the
networks, studio rental and commercial production activities. These revenues are recorded when the programs are aired and the services are performed.



Intangible assets at December 31 are summarized as follows:

2000

2001Goodwill

$
222,365,570

$
206,560,570Covenant not to compete


30,000,000


30,000,000Network affiliations


129,609,983


128,741,614Broadcast licenses


297,336,089


273,168,965679,311,642


638,471,149Accumulated amortization


(104,325,636
)

(114,996,483
)Net intangible assets

$
574,986,006

$
523,474,666


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, with the exception of the
covenant not to compete, which is being amortized over 5 years and certain network affiliation agreements which are being amortized between seven and ten years. The Company's periodically
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. The Company currently uses Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, whereby the evaluation of the carrying amount 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.

In
June 2001, the FASB issued Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets ("Statement 142"), effective January 1, 2002.
Under the new rules,

27

---

goodwill and other indefinite lived intangible assets deemed to have indefinite lives will no longer be amortized but will be subject to annual impairment tests in accordance with the statement. The
Company will apply the new rules on accounting for goodwill and other intangible assets beginning in the first quarter of 2002. Application of the non-amortization provisions of the
Statement 142 is expected to result in a decrease in amortization expense of approximately $16,900,000 in 2002. The Company will test goodwill for impairment using the two-step process
prescribed in Statement 142. The first step is a screen for potential impairment, while the second step measures the amount of the impairment, if any. The Company expects to complete the first of the
required impairment tests of goodwill and indefinite lived intangible assets in the first quarter of 2002. Based on steps the Company has taken to prepare for the adoption of Statement 142, it is
likely that a portion of goodwill will be impaired using the impairment test required by Statement 142. An impairment that is required to be recognized when adopting Statement 142 will be reflected as
the cumulative effect of a change in accounting principle in the first quarter of 2002. The Company has not yet determined the amount of the potential impairment loss. The Company plans to complete
the measurement of the impairment loss in the first quarter 2002.



The Company has incurred certain fees in connection with entering into a bank credit agreement, the sale of 103/8% Notes (as defined), the sale of
93/8% Notes (as defined) and the sale of 87/8% Notes (as defined). The Company entered into an amended and restated senior credit agreement in March 2001 and used
a portion of the proceeds to repay in full all outstanding borrowings under its then existing bank credit agreement (See Note 8Long Term Debt). The unamortized deferred financing
fees related to the then existing bank credit agreement of $2,000,000 were written off in the first quarter of 2001 as an extraordinary loss. The deferred financing fees related to the
103/8% Notes, the 93/8% Notes and the 87/8% Notes are being amortized over ten years. The deferred financing fees related to the current Credit Agreement
are being amortized over three years. Amortization of deferred financing fees is classified as non-cash interest expense on the consolidated statement of operations.



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 are recorded as assets at gross value when the license period begins and the films are available for broadcasting. Film contract rights 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.

During
2000, the designated market area ("DMA") for KNTV was reassigned by Nielsen Media Research from the Monterey/Salinas, California DMA to the San Francisco-Oakland-San
Jose, California DMA effective September 1, 2000. In connection with this change, KNTV is no longer able to broadcast certain syndicated programs that are licensed to other stations in the San
Francisco-Oakland-San Jose, California DMA. Consequently, the Company took a one-time charge and wrote-off the book value of these programs totaling $1,716,000.

At
December 31, 2001, the obligation for programming that had not been recorded because the program rights were not available for broadcasting aggregated $47,851,000.

28

---



Revenue from barter transactions is recognized when advertisements are broadcast and merchandise or services received are charged to expense when received or
used. The net effect of barter transactions on the Company's results of operations is not material.



The cost of advertising is expensed as incurred. Advertising expense was $3,273,000, $2,853,000 and $2,028,000 for the years ended December 31, 1999, 2000
and 2001 respectively.



The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 include funds invested overnight in Eurodollar deposits.

Net income (loss) per common share

The following table sets forth the computation of basic and diluted earnings per share:

|                                                                                                                                                                                                  |                                                 | Years Ended December 31,               |           
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | -------------------------------------- | ----------
|
|Net income (loss) before extraordinary item                                                                                                                                                       |                                                 | $                                      | 47,514,489
|Extraordinary (loss) gain on early extinguishment of debt, net of tax benefit of $256,655 and tax expense of $2,473,470 in 1999 and 2000, respectively and net of tax benefit of $804,720 in 2001 |                                                 |                                        | (384,983  
|                                                                                                                                                                                                  |                                                 |                                        |           
|Net income (loss)                                                                                                                                                                                 |                                                 |                                        | 47,129,506
|LESS:                                                                                                                                                                                             |                                                 |                                        |           
|Preferred stock dividends:                                                                                                                                                                        |                                                 |                                        |           
|                                                                                                                                                                                                  | Convertible preferred                           |                                        |           
|                                                                                                                                                                                                  | Exchangeable preferred                          |                                        |           
|Accretion on exchangeable preferred                                                                                                                                                               |                                                 |                                        | 500,148   
|                                                                                                                                                                                                  |                                                 |                                        |           
|Net income (loss) attributable to common shareholders                                                                                                                                             |                                                 |                                        | 19,912,091
|Effect of dilutive securities:                                                                                                                                                                    |                                                 |                                        |           
|PLUS:                                                                                                                                                                                             |                                                 |                                        |           
|                                                                                                                                                                                                  | Convertible preferred stock dividends           |                                        |           
|                                                                                                                                                                                                  |                                                 |                                        |           
|Net income (loss) attributable to common shareholders  assuming dilution                                                                                                                         |                                                 | $                                      | 21,588,040
|                                                                                                                                                                                                  |                                                 |                                        |           
|Weighted average common shares outstanding for basic net income (loss) per share                                                                                                                  |                                                 |                                        | 13,968,611
|ADD:                                                                                                                                                                                              |                                                 |                                        |           
|Effect of dilutive securities:                                                                                                                                                                    |                                                 |                                        |           
|                                                                                                                                                                                                  | Preferred stock conversions                     |                                        |           
|                                                                                                                                                                                                  | Stock options                                   |                                        |           
|                                                                                                                                                                                                  |                                                 |                                        |           
|                                                                                                                                                                                                  |                                                 | Total potential dilutive common shares |           
|Adjusted weighted average common shares outstanding  assuming dilution                                                                                                                           |                                                 |                                        | 19,011,795
|                                                                                                                                                                                                  |                                                 |                                        |           
|Per Common Share:                                                                                                                                                                                 |                                                 |                                        |           
|                                                                                                                                                                                                  | Basic income (loss) before extraordinary item   |                                        | $         
|                                                                                                                                                                                                  | Basic extraordinary (loss) gain                 |                                        |           
|                                                                                                                                                                                                  |                                                 |                                        |           
|                                                                                                                                                                                                  | Basic net income (loss) per share               |                                        | $         
|                                                                                                                                                                                                  |                                                 |                                        |           
|                                                                                                                                                                                                  | Diluted income (loss) before extraordinary item |                                        | $         
|                                                                                                                                                                                                  | Diluted extraordinary (loss) gain               |                                        |           
|                                                                                                                                                                                                  |                                                 |                                        |           
|                                                                                                                                                                                                  | Diluted net income (loss) per share             |                                        | $         
|                                                                                                                                                                                                  |                                                 |                                        |           

---

29

---

Note 3Asset Disposition

On May 31, 2000, the Company entered into a series of definitive agreements with the NBC Television Network ("NBC"). Pursuant to these agreements, KNTV
became the NBC affiliate in the San Francisco-Oakland-San Jose California DMA for a ten-year term commencing on January 1, 2002 (the "San Francisco Affiliation"). The
Company also extended the affiliation agreements with KSEE, WEEK and KBJR until December 31, 2011. As a part of such extension, NBC paid the Company $2,430,000 in affiliate compensation in
equal semi-annual installments through December 31, 2001, at which time the affiliation payments terminated.

In
consideration for the San Francisco Affiliation, the Company was to pay $362,000,000 in nine annual installments, with the initial payment in the amount of $61,000,000 due
January 1, 2002. On March 6, 2001, the San Francisco Affiliation was amended to reduce the January 1, 2002 installment to $30,500,000 and defer the remaining $30,500,000 of the
original initial payment until January 1, 2005. The Company prepaid the January 1, 2002 installment on March 6, 2001 with proceeds from the Credit Agreement, paying $27,778,694,
which represented the present value of that installment discounted at 12%.

In
addition, the Company granted NBC a warrant to purchase 2,500,000 shares of the Company's Common Stock (Nonvoting), par value $0.01 per share (the "Common Stock (Nonvoting)"), at an
exercise price of $12.50 per share (the "A Warrant") and a warrant to purchase 2,000,000 shares of Common Stock (Nonvoting) at an exercise price of $15.00 per share (the "B Warrant"). The A Warrant
vested in full on December 31, 2000. The B Warrant vested in full on January 1, 2002, since the San Francisco Affiliation was in effect on that date. Each warrant, once vested, remains
exercisable until December 31, 2011 (or, if earlier, any date prior to January 1, 2007 on which the San Francisco Affiliation is terminated) and may be exercised for cash or surrender of
a portion of a then exercisable Warrant. The fair value of the warrants of $12,150,000 has been recorded as a non-current asset and will be amortized over the ten-year life of
the San Francisco Affiliation.



On December 14, 2001, the Company entered into a definitive agreement with NBC to sell KNTV. NBC will pay the Company $230,000,000 in cash plus a working
capital adjustment. In addition, at the
closing, NBC will refund the Company a pro rata portion of the affiliation payment made to NBC in 2001. The consummation of the sale is contingent upon approval by the FCC and satisfaction of other
customary closing conditions and is expected to close prior to May 2, 2002 as required by the Company's senior credit facility. Paxson Communications Corporation ("Paxson") has filed an
opposition to the Company's application to transfer KNTV to NBC with the FCC. The Company believes that Paxson's opposition is without merit and anticipates that the FCC will approve the transfer
prior to May 2, 2002. The Company will use the proceeds from the sale of KNTV (i) to repay outstanding debt and deferred interest under the existing senior credit facility,
(ii) to pay taxes and other fees associated with the sale and (iii) to the extent there are remaining proceeds, for working capital purposes. The San Francisco Affiliation will terminate
upon the closing of the sale and the Company will not be required to make any further affiliation payments to NBC (provided that the sale of KNTV closes prior to January 1, 2003). The A and B
Warrants, issued to NBC as part of the San Francisco Affiliation, will be returned to the Company. The Company's affiliation agreements for KSEE-TV, WEEK-TV, and
KBJR-TV, which involve no payment obligations, will remain in effect until their expiration on December 31, 2011. The net assets of KNTV are recorded on the consolidated balance
sheet as of December 31, 2001 as assets held for sale.

30

---

Note 4Property and Equipment

The major classifications of property and equipment are as follows:

December 31,2000

2001Land

$
1,750,522

$
1,546,960Buildings and improvements


14,969,602


14,699,158Furniture and fixtures


8,397,648


7,802,668Technical equipment and other


52,655,328


39,857,96677,773,100


63,906,752Less: Accumulated depreciation


35,090,364


30,295,284Net property and equipment

$
42,682,736

$
33,611,468


Note 5Other Accrued Liabilities

Other accrued liabilities are summarized below:

December 31,2000

2001Compensation and benefits

$
1,373,761

$
1,537,575Taxes payable


300,873


69,874Other


1,376,254


1,405,891Total

$
3,050,888

$
3,013,340


Note 6Other Current Liabilities

Other current liabilities are summarized below:

December 31,2000

2001WB affiliation payment, net

$
3,905,765

$
4,273,691Barter payable


851,482


896,385Other


328,048


568,364Total

$
5,085,295

$
5,738,440


Note 7Other Current Assets

Other current assets are summarized below:

December 31,2000

2001Income tax receivable

$
19,431,000


Barter and other receivables


2,972,067


2,609,253Prepaid film contract rights


1,136,645


1,006,703Insurance settlement receivable


2,617,646


152,575Other


3,561,970


2,362,692Total

$
29,719,328

$
6,131,223


31

---

Note 8Long-term Debt

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

|                                                             |  | December 31, 2000 |             | December 31, 2001
|------------------------------------------------------------ |  | ----------------- | ----------- | -----------------
|
|Senior Bank Debt                                             |  | $                 | 113,672,428 |                  
|93/8% Senior Subordinated Notes, net of unamortized discount |  |                   | 34,573,475  |                  
|103/8% Senior Subordinated Notes                             |  |                   | 100,717,000 |                  
|87/8% Senior Subordinated Notes, net of unamortized discount |  |                   | 62,428,011  |                  
|                                                             |  |                   |             |                  
|Total                                                        |  | $                 | 311,390,914 |                  
|                                                             |  |                   |             |                  

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 Agreement
approximated fair value.

32

---

Senior Bank Debt

On March 6, 2001, the Company entered into an amended and restated $205,000,000 Senior Credit Agreement (the "Credit Agreement"). The Credit Agreement
consists of a $110,000,000 Tranche A term loan and a $95,000,000 Tranche B loan. The proceeds from the Credit Agreement were used (i) to repay all outstanding borrowings of approximately
$114,000,000 under the Company's then existing senior revolving credit facility, (ii) to prepay the first installment under the NBC Affiliation Agreement (see Note 3), (iii) to
pay certain fees and expenses associated with the Credit Agreement and (iv) for general working capital purposes.

The
Tranche A and Tranche B term loans bear interest which is payable monthly at the greater of LIBOR plus 5.50% or 12%. In addition, the Tranche B term loan accrues simple deferred
interest at an annual rate of 6% which is payable when the Credit Agreement matures on December 31, 2003. The Company granted to the Tranche B lenders a warrant to purchase 753,491 shares of
Common Stock (Nonvoting), par value $.01 per share, at an exercise price of $1.75 per share. The warrant is fully vested and remains exercisable until March 6, 2006. The fair value, estimated
to be $2,065,000 has been recorded as a discount to the amount outstanding under the Credit Agreement and is being amortized over the life of the Credit Agreement.

The
Credit Agreement is secured by substantially all the assets of the Company, as well as a pledge of all issued and outstanding shares of capital stock of the Company's subsidiaries
and guaranteed by all the subsidiaries of the Company. The Credit Agreement requires the Company to maintain compliance with certain financial tests, including but not limited to minimum net revenue,
broadcast cash flow, EBITDA and a maximum ratio of senior debt to EBITDA. Other provisions place limitations on the payments for capital expenditures and prohibit incurrence of additional debt, the
purchase of the Company's common stock, the repurchase of subordinated indebtedness and the declaration and payment of cash dividends.

On
October 23, 2001, the Company amended the Credit Agreement to, among other matters, modify certain financial ratios to reflect the current advertising climate. As a result, the
Company was in compliance with its amended debt covenants as of September 30, 2001 and December 31, 2001. In connection with, and as a condition to, amending those covenants, the
Company's senior lenders required the Company to sell certain Tranche A assets and repay the Tranche A loans in accordance with specified terms and schedules. KNTV is not a Tranche A asset, however,
the senior lenders have waived the Tranche A asset sale covenant through May 2, 2002 to allow the Company to consummate the sale of KNTV. The Company anticipates that the Credit Agreement debt
will be repaid in full upon
consummation of the KNTV sale. If the sale of KNTV does not close prior to May 2, 2002 or if the Company does not repay the Tranche A loans in full following consummation of such sale, the
Company may be in default under the Credit Agreement, unless the Company obtains further waivers from its senior lenders. The Company is currently in discussion with a senior lender for a new or
amended senior credit agreement to be available upon the closing of the sale of KNTV.

Senior Subordinated Notes

In May 1995, the Company issued $175,000,000 aggregate principal amount of its 103/8% Senior Subordinated Notes (the "103/8%
Notes") due May 15, 2005. Since then, the Company repurchased a total of $74,283,000 face amount of its 103/8% Notes at various prices.

The
103/8% 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 103/8% 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 103/8% Notes).

33

---

The
103/8% Notes are subordinated in right of payment to all existing and future Senior Debt (as defined in the Indenture governing the 103/8% Notes) and
rankpari passuwith all senior subordinated debt and senior to all subordinated debt of the Company. The Indenture governing the 103/8%
Notes contains certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur debt, pay cash dividends on or repurchase capital stock, enter into agreements
prohibiting the creation of liens or restricting the ability of a subsidiary to pay money or transfer assets to the Company, enter into certain transactions with their affiliates, dispose of certain
assets and engage in mergers and consolidations.

In
February 1996, the Company completed an offering of $110,000,000 principal amount of its 93/8% Senior Subordinated Notes (the "93/8% Notes") due
December 1, 2005 at a discount, resulting in net proceeds to the Company of $109,450,000. Since then, the Company repurchased a total of $75,340,000 principal amount of its 93/8%
Notes at various prices.

The
93/8% 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 93/8% 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 93/8% Notes).

The
93/8% Notes are subordinate in right of payment to all existing and future Senior Debt (as defined in the Indenture governing the 93/8% Notes) and rank pari
passuwith all senior subordinated debt and senior to all subordinated debt. The Indenture governing the 93/8% Notes contains
certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur debt, make certain restricted payments, enter into certain transactions with their
affiliates, dispose of certain assets, incur liens securing subordinated debt of the Company, engage in mergers and consolidations and restrict the ability of the subsidiaries of the Company to make
distributions and transfers to the Company.

In
May 1998, the Company completed an offering of $175,000,000 principal amount of its 87/8% Senior Subordinated Notes, due May 15, 2008 (the
"87/8% Notes"), at a discount, resulting in proceeds to the Company of $174,482,000. Since then, the Company repurchased a total of $112,435,000 principal amount of its
87/8% Notes at various prices.

The
87/8% Notes are redeemable in the event that on or before May 15, 2001 the Company receives net proceeds from the sale of its Capital Stock (other than
Disqualified Stock (each as defined in the Indenture governing the 87/8% 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 87/8% Notes with certain limitations. In addition, the 87/8% Notes are redeemable at any time on or after May 15,
2003 at the option of the Company, in whole or in part, at certain prices declining annually to 100% of the principal amount on or after May 15, 2006, plus accrued interest. The Company is
required to offer to purchase all outstanding 87/8% Notes at 101% of the principal amount thereof plus accrued interest in the event of a Change of Control (as defined in the Indenture
governing the 87/8% Notes).

The
87/8% Notes are subordinate in right of payment to all existing and future Senior Debt (as defined in the Indenture governing the 87/8% Notes) and rank pari
passuwith all senior subordinated debt and senior to all subordinated debt. The Indenture governing the 87/8% Notes contains
certain covenants that, among other things, limit the ability of the Company and its subsidiaries to incur debt, make certain restricted payments, enter into certain transactions with their
affiliates, dispose of certain assets, incur liens securing subordinated debt of the Company, engage in mergers and consolidations and restrict the ability of the subsidiaries of the Company to make
distributions and transfers to the Company.

34

---

During
1999, the Company recognized an extraordinary loss of $642,000 related to the repurchases of subordinated debt. Such extraordinary losses were the result of premiums paid and the
write-off of related deferred financing fees, offset in part, by gains recognized on that subordinated debt repurchased at a discount. During 2000 the Company recognized an extraordinary
gain of $3,710,000 related to the repurchase of subordinated debt. The extraordinary gain was the result of gains recognized on that subordinated debt repurchased at a discount, offset in part, by the
write-off of related deferred financing fees. During 2001, the Company recognized an extraordinary loss, net of tax, of $1,207,000 related to the repayment of all outstanding borrowings
under the then existing bank credit agreement and the write-off of related deferred financing fees.

The
scheduled principal maturities on all long-term debt for the five years subsequent to December 31, 2001, are as follows:

2002

$
2003


205,000,0002004


2005


135,377,0002006


2007 and thereafter


62,565,000$
402,942,000


Note 9Commitments

Future minimum lease payments under long-term operating leases as of December 31, 2001 are as follows:

2002

$
1,351,6782003


1,005,3592004


1,040,9992005


1,066,1782006


976,3422007 and thereafter


134,796$
5,575,352


Rent
expense, including escalation charges, were approximately $1,559,000, $1,416,000 and $1,412,000 for the years ended December 31, 1999, 2000 and 2001, respectively.

Future
payments under film contract rights agreements as of December 31, 2001 are as follows:

2002

$
25,674,8902003


24,487,4272004


22,276,7052005


21,119,6162006


4,963,958$
98,522,596


35

---

Note 10Redeemable 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 that accumulated, without interest, if unpaid. Accrued but
unpaid dividends on the Series A Stock totaled $262,844 at December 31, 2000 and 2001. Accrued dividends are due and payable on the date on which such dividends may be paid under the
Company's debt instruments.

123/4% Cumulative Exchangeable Preferred Stock

In January 1997, the Company authorized the issuance of 400,000 shares of its 123/4% Cumulative Exchangeable Preferred Stock (the
"123/4% Cumulative Exchangeable Preferred Stock"), par value $.01 per share. In connection with the Company's acquisition of WDWB-TV, 150,000 shares of the
123/4% Cumulative Exchangeable Preferred Stock were issued in January 1997 at a price of $1,000 per share. Holders of the 123/4% Cumulative Exchangeable Preferred
Stock are entitled to receive dividends at an annual rate of 123/4% per share payable semi-annually on April 1 and October 1 of each year. The Credit Agreement
does not permit the payment of cash dividends on the 123/4% Cumulative Exchangeable Preferred Stock. The Company can pay dividends on or prior to April 1, 2002 in additional
shares of 123/4% Cumulative Exchangeable Preferred Stock. On and after October 1, 2002, the Company is required to pay such dividends in cash. However, the payment of cash
dividends on the 123/4% Cumulative Exchangeable Preferred Stock is restricted by the terms of the indentures governing the Company's senior subordinated notes and is prohibited under
the terms of the Credit Agreement. Dividends on the 123/4% Cumulative Exchangeable Preferred Stock are cumulative and accrue without interest, if unpaid.

The
123/4% 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 ($275,776,849 liquidation value at December 31, 2001). The Company is required, subject to certain conditions, to redeem all of the
123/4% 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 123/4% Cumulative Exchangeable Preferred Stock is exchangeable, in whole or in part, at the option of the Company, for the
Company's 123/4% Exchange Debentures (the "123/4% Exchange Debentures") on any scheduled dividend payment date at the rate of $1,000 principal amount of
123/4% Exchange Debentures for each share of 123/4% Cumulative Exchangeable Preferred Stock outstanding at the time of the exchange.

Note 11Stockholders' Equity (Deficit)



In April 1990 the Company adopted a stock option plan (the "Stock Option Plan") for officers and certain key employees. The Stock Option Plan terminated on
April 1, 2000. At December 31, 2000 and 2001, options granted under the Stock Option Plan were outstanding for the purchase of 4,629,925 and 4,529,425 shares of Common Stock (Nonvoting),
respectively.

On
April 27, 2000, the Company adopted a new stock option plan (the "2000 Stock Option Plan") for officers and certain key employees. The number of shares of Common Stock
(Nonvoting) subject to options available for grant is 4,000,000. Options may be granted under the 2000 Stock Option Plan at

36

---

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 non-qualified stock options may be less than, equal to or greater
than the fair market value of the Common Stock (Nonvoting) on the date the option is granted. At December 31, 2000 and 2001, options granted under the 2000 Stock Option Plan were outstanding
for the purchase of 624,500 and 649,500 shares of Common Stock (Nonvoting) respectively.

During
2000, certain officers of the Company exercised stock options. The provisions of the Stock Option Plan allow an option-holder to pay the exercise price and applicable federal and
state withholding taxes using previously owned shares as the method of payment. Consequently, the Company would have had to remit approximately $1,000,000 in withholding taxes on the income generated
from exercise. Due to concerns about the impact this payment would have had on the Company's cash position at that time, the board of directors approved a rescission of those options exercises. As a
result, the Company recorded a one-time non-cash charge to earnings of $1,192,000, representing the lost tax deduction the Company would have received had the option exercises
not been rescinded.

On
July 24, 2001, the Company repriced the exercise prices of options to purchase an aggregate of 802,975 shares of Common Stock (Nonvoting) from prices ranging from
$11.125$12.438 to $7.563.

On
March 1, 1994, the Company adopted a Director Stock Option Plan (the "Director Option Plan") providing for the grant, from time to time, of nonqualified stock options to
non-employee directors of the Company to purchase an aggregate of 300,000 shares of Common Stock (Nonvoting). On July 27, 1999, the Director Option Plan was amended to increase the
shares of Common Stock (Nonvoting) subject to options available for grant to 1,000,000. As of December 31, 2000 and 2001, options granted under the Director Option Plan were outstanding for the
purchase of 861,360 and 809,060 shares of Common Stock (Nonvoting), respectively. The options granted under the Director Option Plan serve as compensation for attendance at regularly scheduled
meetings and for service on certain committees of the Board of Directors.

The
Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation"
("SFAS 123"). Accordingly, no compensation expense has been recognized for the stock option plans. For purposes of SFAS 123 pro forma disclosures, the estimated fair value of the options
is amortized to expense over the options' vesting period; therefore, the impact on pro forma net income (loss) in 1999, 2000 and 2001 may not be representative of the impact in future years. The
Company's pro forma information for years ended December 31, follows:

1999

2000

2001Pro forma net income (loss)

$
45,661,497

$
(30,022,799
)
$
(78,860,420
)Pro forma net income (loss) per share:Basic

$
1.32

$
(3.23
)
$
(6.00
)Diluted

$
1.06

$
(3.23
)
$
(6.00
)


The
fair value for each option grant was estimated at the date of grant using the Black Scholes option pricing model with the following assumptions for the various grants made during
1999, 2000 and 2001: risk-free interest rate of 5.93% in 1999, 4.80% in 2000 and 4.08% in 2001; no dividend yield; expected volatility of 45% in 1999, 81% in 2000 and 86% in 2001; and
expected lives of four years in 1999 and 2000 and five years in 2001.

The
Black Scholes option valuation model was developed for use in estimating the fair value of traded options, which have no vesting restrictions and are fully transferable. In addition,
option valuation models require the input of highly subjective assumptions including the expected stock price

37

---

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.

|                                                               |  | 1999 |           | 2000 |   | 2001
|-------------------------------------------------------------- |  | ---- | --------- | ---- | - | ----
|
|Outstanding at beginning of year                               |  |      | 2,053,225 |      | $ | 8.51
|Granted                                                        |  |      | 3,637,385 |      |   | 7.78
|Exercised                                                      |  |      | (31,800   | )    |   | 4.63
|Forfeited                                                      |  |      | (179,500  | )    |   | 6.95
|                                                               |  |      |           |      |   |     
|Outstanding at end of year                                     |  |      | 5,479,310 |      |   | 8.10
|                                                               |  |      |           |      |   |     
|Exercisable at end of year                                     |  |      | 1,779,810 |      |   | 7.90
|Weighted-average fair value of options granted during the year |  | $    | 2.87      |      |   |     

|                  |  | Options Outstanding |  | Options Exercisable
|----------------- |  | ------------------- |  | -------------------
|
|$  1.05  $  2.00 |  | 564,500             |  | 8.96 years         
|$  3.00  $  5.50 |  | 445,225             |  | 2.44 years         
|$  6.13  $  6.88 |  | 1,665,200           |  | 7.11 years         
|$  7.00  $  9.75 |  | 2,023,260           |  | 6.52 years         
|$10.00  $12.44   |  | 1,259,800           |  | 6.83 years         

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. On February 15, 2001, the Company increased the reserve of shares of Common Stock (Nonvoting) available for
grant under the Management Stock Plan to 1,500,000 from 1,000,000. Shares generally vest over a five-year period. As of December 31, 2001, the Company has allocated a total of
1,069,812 Bonus Shares pursuant to the Management Stock Plan, 920,762 of which had vested through December 31, 2001 For the years ended December 31, 2000 and 2001, 58,875 and 293,500
shares, respectively, were granted pursuant to the Management Stock Plan. The weighted-average grant-date fair value of those shares is $6.54 and $2.49, respectively.

Non-Employee Directors' Stock Plan

In April 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. On December 31, 2000, the Company increased the reserve of shares of Common Stock (Nonvoting) for grant under the Director Stock Plan from 100,000 shares to 400,000
shares. Shares granted vest immediately. For the years ended December 31, 2000 and 2001, 15,800 and 160,000 shares, respectively, were granted pursuant to the Director Stock Plan with
weighted-average grant date fair values of $10.13 and $1.00 respectively.

38

---

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
total number of common shares outstanding at December 31, 2001 assuming the exercise of all outstanding stock options and warrants is as follows:

Class A Common Stock

178,500Common Stock (Nonvoting)

18,447,927Stock options

5,957,985Warrants

5,253,49129,837,903


Note 12Income Taxes

The Company records income taxes using a liability approach for financial accounting and reporting that results in the recognition and measurement of deferred tax
assets based on the likelihood of realization of tax benefits in future years.

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

1999

2000

2001Current taxes:Federal

$
23,397,000

$
(18,616,000
)
$
State


2,111,000


2,801,000


214,00025,508,000


(15,815,000
)

214,000Deferred taxes:Federal


4,876,000


6,971,000


(25,210,000
)State


933,000


(2,034,000
)

(1,749,000
)5,809,000


4,937,000


(26,959,000
)Provision (benefit) for income taxes

$
31,317,000

$
(10,878,000
)
$
(26,745,000
)


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

39

---

purposes. Components of the Company's deferred tax asset and liability as of December 31 are as follows:

December 31,2000

2001Deferred tax liability:Depreciation and amortization

$
104,645,823

$
106,447,474Interest on NBC obligation


3,669,672


9,274,452Total deferred tax liability


108,315,495


115,721,926Deferred tax assets:Net operating loss carry forward


9,211,527


49,964,109Other


581,416


3,761,406Alternative minimum tax credit


1,898,100


1,898,100Valuation allowance





(8,769,973
)Total deferred tax assets


11,691,043


46,853,642Net deferred tax liability

$
96,624,452

$
68,868,284


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:

1999

2000

2001U.S. statutory rate

35.0
%
35.0
%
35.0
%Nondeductible amortization

1.8

(3.3
)
(1.3
)State and local taxes

2.6

(3.3
)
1.0(Decrease) increase in valuation allowance

0.5

(2.5
)
(8.6
)Effective tax rate

39.9
%
25.9
%
26.1
%


At
December 31, 2001, the Company had a net operating loss carry forward for federal tax purposes of approximately $131,000,000 of which $113,000,000 will expire in 2021. The
remaining $18,000,000 relates to WKBW, which may be subject to limitation under the Separate Return Limitation Rules of the Internal Revenue Code, and expire in 2002 through 2013. As of
January 1, 1999, the operations of WKBW were included in the Company's federal consolidated tax return.

Note 13Defined Contribution Plan

The Company has a trusteed profit sharing and savings plan (the "Plan") covering substantially all of its employees. Contributions by the Company to the Plan are
based on a percentage of the amount of employee contributions to the Plan and are made at the discretion of the Board of Directors. Company contributions, which are funded monthly, amounted to
$811,390, $778,378 and $847,494 for the years ended December 31, 1999, 2000 and 2001, respectively.

40

---



Note 14Related Party

Between 1995 and 1998, the Company loaned an officer $2,911,000 in four separate transactions. On January 1, 2001, the Company loaned this officer an
additional $375,000. On February 15, 2001, the Company agreed to consolidate the five loans into one promissory note in the amount of $3,286,000. The new promissory note matures on
January 25, 2006 or, if earlier, 30 days after the officer's termination of employment. The new promissory note does not bear interest, but interest at an annual rate of
6.75 percent will be imputed as additional compensation to the officer. The new promissory note allows for the loan to be forgiven in one-third increments if the Company's Common
Stock (Nonvoting) trades for ten consecutive trading days at $15, $20, and $25, respectively, or if the per share consideration received by the Company's common stockholders in a Change of Control (as
defined in the Indentures governing the Company's senior subordinated notes) equals at least $15.00, $20.00 or $25.00, respectively. The old loans provided for interest at various rates ranging from
7.50% to 9% payable annually on April 30th of each year. The old loans had various maturity dates ranging from April 2001 to December 2004. In addition, on February 15,
2001 the Company forgave $232,247 of interest accrued during the year-ended December 31, 2000. The Company took a charge for this amount in 2001.

In
1995, the Company loaned another officer $221,200. On February 15, 2001, the Company agreed to cancel this note and issue a new promissory note in the same amount. The new
promissory note matures on January 25, 2006 or, if earlier, 30 days after the officer's termination of employment. The new promissory note does not bear interest, but interest at an
annual rate of 6.75 percent will be imputed as additional compensation to the officer. The new promissory note allows for the loan to be forgiven in one-third increments if the
Company's Common Stock (Nonvoting) trades for ten consecutive trading days at $15, $20, and $25, respectively, or if the per share consideration received by the Company's common stockholders in a
Change of Control (as defined in the Indentures governing the Company's senior subordinated notes) equals at least $15.00, $20.00 or $25.00, respectively. The old note provided for interest at 9%
payable annually on April 30th of each year and was to mature on December 29, 2004. In addition, on February 15, 2001 the Company forgave $19,908 of interest accrued during the
year-ended December 31, 2000. The Company took a charge for this amount in 2001.

Note 15Price Range of Common Stock (Nonvoting) and Cumulative Convertible Exchangeable Preferred Stock (unaudited)

The
Company's Common Stock (Nonvoting) is traded in the over-the-counter market and is quoted on the NASDAQ Small Cap Market under the symbol "GBTVK". The
following table sets forth the
closing market price ranges per share of Common Stock (Nonvoting) during 2000 and 2001, as reported by NASDAQ:

High

Low2000First Quarter

$
123/4

$
53/16Second Quarter


73/8


53/8Third Quarter


71/16


41/2Fourth Quarter


45/8


7/82001First Quarter


39/16


15/16Second Quarter


33/20


13/8Third Quarter


3


19/32Fourth Quarter


235/64


11/64


As
of March 22, 2002 the closing price per share for the Company's Common Stock (Nonvoting), as reported by NASDAQ was $2.10 per share.

41

---

Note 16Quarterly Results of Operations (unaudited)

The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 2001:

|                               |                                | March 31,
2000 |            | June 30,
2000 |       | September 30,
2000 |   | December 31,
2000 |            
|------------------------------ | ------------------------------ | -------------- | ---------- | ------------- | ----- | ------------------ | - | ----------------- | -----------
|Net revenue                    |                                | $              | 33,339,280 |               | $     | 37,575,779         |   | $                 | 32,238,416 
|Loss before extraordinary item |                                |                | (8,811,291 | )             |       | (4,351,993         | ) |                   | (10,839,214
|Net loss                       |                                |                | (7,027,823 | )             |       | (2,425,257         | ) |                   | (10,839,214
|Per common share:              |                                |                |            |               |       |                    |   |                   |            
|                               | Loss before extraordinary item |                |            |               |       |                    |   |                   |            
|                               |                                | Basic          |            | $             | (0.85 | )                  | $ | (0.62             | )          
|                               |                                | Diluted        |            |               | (0.85 | )                  |   | (0.62             | )          
|                               | Net loss                       |                |            |               |       |                    |   |                   |            
|                               |                                | Basic          |            |               | (0.75 | )                  |   | (0.52             | )          
|                               |                                | Diluted        |            |               | (0.75 | )                  |   | (0.52             | )          

|                               |                                | March 31,
2001 |             | June 30,
2001 |       | September 30,
2001 |   | December 31,
2001 |            
|------------------------------ | ------------------------------ | -------------- | ----------- | ------------- | ----- | ------------------ | - | ----------------- | -----------
|Net revenue                    |                                | $              | 26,848,304  |               | $     | 30,506,207         |   | $                 | 25,502,449 
|Loss before extraordinary item |                                |                | (13,834,353 | )             |       | (12,186,672        | ) |                   | (16,880,017
|Net loss                       |                                |                | (15,041,434 | )             |       | (12,186,672        | ) |                   | (16,880,017
|Per common share:              |                                |                |             |               |       |                    |   |                   |            
|                               | Loss before extraordinary item |                |             |               |       |                    |   |                   |            
|                               |                                | Basic          |             | $             | (1.17 | )                  | $ | (1.09             | )          
|                               |                                | Diluted        |             |               | (1.17 | )                  |   | (1.09             | )          
|                               | Net loss                       |                |             |               |       |                    |   |                   |            
|                               |                                | Basic          |             |               | (1.23 | )                  |   | (1.09             | )          
|                               |                                | Diluted        |             |               | (1.23 | )                  |   | (1.09             | )          

Note 17Subsequent Events

On December 14, 2001, the Company entered into a definitive agreement with the National Broadcasting Company, Inc. ("NBC") to sell KNTV. The sale
transaction was completed on April 30, 2002. NBC paid the Company $230,000,000 plus a working capital and other adjustments of $14,545,000. In addition, NBC refunded the Company $20,473,000 of
the affiliation payment due to NBC on January 1, 2002 under the terms of the KNTV NBC affiliation agreement (the "San Francisco Affiliation Agreement"), which the Company prepaid on
March 6, 2001. The Company repaid $170,000,000 of outstanding senior debt and $14,763,000 of deferred interest and other fees associated with the senior credit facility and the amended credit
agreement discussed below upon consummation of the sale. The San Francisco Affiliation Agreement terminated upon the closing of the sale and the Company is not required to make any further affiliation
payments to NBC. The warrants issued to NBC as part of the San Francisco Affiliation Agreement have been returned to the Company. The Company's affiliation agreements for KSEE-TV,
WEEK-TV, and KBJR-TV, which involve no payment obligations, will remain in effect until their expiration on December 31, 2011.

Simultaneously
with the closing of the sale of KNTV, the Company entered into an amended and restated senior credit agreement (the "Credit Agreement"). The Credit Agreement consists of
(i) a committed $60,000,000 Tranche A term loan facility, (ii) a committed $80,000,000 Tranche B term loan facility and (iii) an uncommitted $10,000,000 Tranche C supplemental
term loan facility. The Tranche B loan commitment expires 120 days after the closing, unless previously canceled by the Company, and may be extended at the lenders' option for an additional
period of time. The terms of the Tranche C term loan have not been fully negotiated, and borrowing of the Tranche C loans will require

42

---

supplemental action by the Board of Directors of the Company. The obligations of the Company with respect to all of the loan facilities are secured by substantially all of the assets of the Company
and its subsidiaries.

Upon
entering into the Credit Agreement, the Company rolled over existing outstanding loans under the prior loan facility into an initial Tranche A borrowing in the amount of
$35,000,000. Proceeds from Tranche A and Tranche B term loans shall be used for working capital and general corporate purposes. The Tranche A loans bear interest at the greater of LIBOR plus 4.50% or
6.50% and the Tranche B loans bear interest at the greater of LIBOR plus 9% or 11%. All interest is payable monthly in arrears. The Credit Agreement matures on April 15, 2004, at which time the
Company must repay the principal amount of all outstanding loans and all other obligations then due and owing under the Credit Agreement. The Credit Agreement requires the Company, among other
matters, to maintain compliance with certain financial tests, including but not limited to, minimum net revenue, broadcast cash flow, EBITDA, working capital and cash balances.

SCHEDULE II  GRANITE BROADCASTING CORPORATION  VALUATION AND QUALIFYING ACCOUNTS

|Allowance for Doubtful Accounts      |  | Balance at
beginning
of year |         | Amount charged
to costs
and expenses |   | Amount
written off(1) |  | Balance
at end
of year
|------------------------------------ |  | ---------------------------- | ------- | ------------------------------------ | - | --------------------- |  | ----------------------
|For the year ended December 31, 1999 |  | $                            | 424,290 |                                      | $ | 492,648               |  | $                     
|For the year ended December 31, 2000 |  |                              | 430,360 |                                      |   | 1,453,709             |  |                       
|For the year ended December 31, 2001 |  |                              | 648,862 |                                      |   | 541,646               |  |                       

---

43

---

PART IV

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

| | (a)1 | Financial Statements
| | ---- | --------------------

GRANITE BROADCASTING CORPORATIONReport of Independent AuditorsConsolidated Statements of Operations for the Years Ended December 31, 1999, 2000 and 2001Consolidated Balance Sheets as of December 31, 2000 and 2001Consolidated Statements of Stockholders' Equity (Deficit) For the Years Ended December 31, 1999, 2000 and 2001Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 2000 and 2001Notes to Consolidated Financial Statements


| | (a)2 | Financial Statement Schedule
| | ---- | ----------------------------

Schedule II  Valuation and Qualifying AccountsSchedule I  Condensed Financial Information, Schedule III Real Estate and Accumulated Depreciation, Schedule IV  Mortgage Loans on Real Estate and Schedule V  Supplemental Information Concerning Property  Casualty
Insurance Operations have been omitted because they are not applicable to the Company.


| | (a)3 | Exhibits
| | ---- | --------

|3.1d/  |  | Third Amended and Restated Certificate of Incorporation of the Company, as amended.                                                                                                                                                             
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.2r/  |  | Amended and Restated Bylaws of the Company.                                                                                                                                                                                                     
|3.3g/  |  | Certificate of Designations of the Powers, Preferences and Relative, Participating, Optional and Other Special Rights of the Company's 123/4%, Cumulative Exchangeable Preferred Stock and Qualifications, Limitations and
Restrictions Thereof.
|4.37b/ |  | 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 103/8% Senior Subordinated Notes due May 15,
2005.                    
|4.38c/ |  | Form of 103/8% Senior Subordinated Note due May 15, 2005.                                                                                                                                                                                       
|4.41f/ |  | 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 93/8% Series A Senior Subordinated Notes due December 1,
2005.              
|4.42f/ |  | Form of 93/8% Series A Senior Subordinated Note due December 1, 2005.                                                                                                                                                                           
|4.44g/ |  | Indenture, dated as of January 31, 1997, between Granite Broadcasting Corporation and The Bank of New York for the Company's 123/4% Series A Exchange Debentures and 123/4% Exchange Debentures due
April 1, 2009.                              
|4.45g/ |  | Form of 123/4% Exchange Debenture due April 1, 2009 (included in the Indenture filed as Exhibit 4.44).                                                                                                                                          
|4.49l/ |  | Indenture dated as of May 11, 1998, between the Company and The Bank of New York, as Trustee, relating to the Company's 87/8% Senior Subordinated Notes due May 15, 2008 (including form of note).                                              
|       |  |                                                                                                                                                                                                                                                 

44

---

|4.51p/  |  | Series A Warrant to purchase 2,500,000 shares of Common Stock of Granite Broadcasting Corporation issued May 31, 2000 to National Broadcasting Company, Inc.                                                                                                                                                                 
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4.52p/  |  | Series B Warrant to purchase 2,000,000 shares of Common Stock of Granite Broadcasting Corporation issued May 31, 2000 to National Broadcasting Company, Inc.                                                                                                                                                                 
|4.53p/  |  | Registration Rights Agreement, dated May 31, 2000 between Granite Broadcasting Corporation and National Broadcasting Company, Inc.                                                                                                                                                                                           
|4.54q/  |  | Credit Agreement dated as of March 6, 2001, among Granite Broadcasting Corporation, as Borrower, the Lenders party thereto, Goldman Sachs Credit Partners L.P., as Administrative Agent, Tranche B Collateral Agent, Sole Lead Arranger and Sole
Bookrunner, and Foothill Capital Corporation, as Tranche A Collateral Agent.
|4.55q/  |  | Warrant to purchase 753,491 shares of Common Stock (Nonvoting) of Granite Broadcasting Corporation issued March 6, 2001 to Goldman Sachs & Co.                                                                                                                                                                               
|4.56    |  | Amended and Restated Credit Agreement dated as of April 30, 2002 among Granite Broadcasting Corporation, as Borrower, and the Lenders party thereto and Goldman Sachs Credit Partners L.P. as Administrative Agent, as Collateral Agent, as Sole Lead
Arranger and as Sole Bookrunner.                                       
|10.1n/  |  | Granite Broadcasting Corporation Stock Option Plan, as amended through October 26, 1999.                                                                                                                                                                                                                                     
|10.12f/ |  | Network Affiliation Agreement (WPTA-TV).                                                                                                                                                                                                                                                                                     
|10.13a/ |  | Employment Agreement dated as of September 20, 1991 between Granite Broadcasting Corporation and W. Don Cornwell.                                                                                                                                                                                                            
|10.14a/ |  | Employment Agreement dated as of September 20, 1991 between Granite Broadcasting Corporation and Stuart J. Beck.                                                                                                                                                                                                             
|10.15l/ |  | Granite Broadcasting Corporation Management Stock Plan, as amended through April 28, 1998.                                                                                                                                                                                                                                   
|10.19n/ |  | Granite Broadcasting Corporation Directors' Stock Option Plan, as amended through October 26, 1999.                                                                                                                                                                                                                          
|10.20b/ |  | Network Affiliation Agreement (WTVH-TV).                                                                                                                                                                                                                                                                                     
|10.25d/ |  | Granite Broadcasting Corporation Employee Stock Purchase Plan, dated February 28, 1995.                                                                                                                                                                                                                                      
|10.28e/ |  | Network Affiliation Agreement (WKBW).                                                                                                                                                                                                                                                                                        
|10.30g/ |  | Employment Agreement dated as of September 19, 1996 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr.                                                                                                                                                                                                       
|10.31r/ |  | Non-Employee Directors Stock Plan of Granite Broadcasting Corporation, as amended through December 31, 2000.                                                                                                                                                                                                                 
|10.32h/ |  | Stock Purchase Agreement, dated as of October 3, 1997, by and among Granite Broadcasting Corporation, Pacific FM Incorporated, James J. Gabbert and Michael P. Lincoln.                                                                                                                                                      
|10.34i/ |  | First Amendment to Purchase and Sale Agreement, dated as of July 20, 1998 among Granite Broadcasting Corporation, Pacific FM Incorporated, James J. Gabbert and Michael P. Lincoln.                                                                                                                                          
|10.36j/ |  | Stock Purchase Agreement, dated as of June 26, 1998, between Granite Broadcasting Corporation and The Michael Lincoln Charitable Remainder Unitrust.                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                              

45

---

|10.37k/ |  | Stock Purchase Agreement, dated as of June 26, 1998, between Granite Broadcasting Corporation and The James J. Gabbert Charitable Remainder Unitrust.                                                                                                                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.38m/ |  | Extension Letter, dated February 28, 1999 between Granite Broadcasting Corporation and Robert E. Selwyn, Jr. extending the term of Mr. Selwyn's Employment Agreement to January 31, 2003.                                                                                                                                                                                          
|10.46o/ |  | The Granite Broadcasting Corporation 2000 Stock Option Plan, dated as of April 25, 2000.                                                                                                                                                                                                                                                                                           
|10.47p/ |  | Network Affiliation Agreement, dated as of May 31, 2000 among Granite Broadcasting Corporation, the Parties set forth on Schedule I thereto, and NBC Television Network (KNTV(TV), KSEE, KBJR and WEEK-TV).                                                                                                                                                                        
|10.48p/ |  | Supplemental Agreement, dated as of May 31, 2000, between Granite Broadcasting Corporation and National Broadcasting Company, Inc.                                                                                                                                                                                                                                                 
|10.50q/ |  | Amended and Restated Network Affiliation Agreement, dated as of March 6, 2001 among Granite Broadcasting Corporation, the Parties set forth on Schedule I thereto, and NBC Television Network (KNTV(TV)).                                                                                                                                                                          
|10.51q/ |  | Amended and Restated Network Affiliation Agreement, dated as of March 6, 2001 among Granite Broadcasting Corporation, the Parties set forth on Schedule I thereto, and NBC Television Network (KSEE, KBJR-TV and WEEK-TV).                                                                                                                                                         
|10.52s/ |  | First Amendment, dated as of October 5, 2001, to the Credit Agreement, dated as of March 6, 2001, by and among Granite Broadcasting Corporation, the Lenders party thereto, Goldman Sachs Credit Partners L.P., as agent for the Lenders, as sole lead
arranger and book runner and as Tranche B Collateral Agent, and Foothill Capital Corporation, as Tranche A Collateral Agent.
|10.53t/ |  | Stock Purchase Agreement, dated as of December 14, 2001, by and among National Broadcasting Company, Inc., Granite Broadcasting Corporation, KNTV Television, Inc. and KNTV License, Inc.                                                                                                                                                                                          
|21.u/   |  | Subsidiaries of the Company.                                                                                                                                                                                                                                                                                                                                                       
|23.     |  | Consent of Independent Auditors (Ernst & Young LLP).                                                                                                                                                                                                                                                                                                                               

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|a/ |  | Incorporated by reference to the similarly numbered exhibits to the Company's Registration Statement No. 33-43770 filed on November 5, 1991.                                 
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|b/ |  | Incorporated by reference to the similarly numbered exhibits to the Company's Registration Statement No. 33-94862 filed on July 21, 1995.                                    
|c/ |  | Incorporated by reference to the similarly numbered exhibits to Amendment No. 2 to Registration Statement No. 33-94862 filed on October 6, 1995.                             
|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 the similarly numbered exhibit to the Company's Current Report on Form 8-K filed on July 14, 1995.                                              
|f/ |  | 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.
|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, 1996, filed on March 21, 1997.
|   |  |                                                                                                                                                                              

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|h/ |  | Incorporated by reference to Exhibit Number 1 to the Company's Current Report on Form 8-K, filed on October 17, 1997.                                                        
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|i/ |  | Incorporated by reference to Exhibit Number 2.5 to the Company's Current Report on Form 8-K, filed on August 13, 1998.                                                       
|j/ |  | Incorporated by reference to Exhibit Number 2.3 to the Company's Current Report on Form 8-K, filed on July 1, 1998.                                                          
|k/ |  | Incorporated by reference to Exhibit Number 2.4 to the Company's Current Report on Form 8-K, filed on July 1, 1998.                                                          
|l/ |  | Incorporated by reference to the similarly numbered exhibit to the Company's Registration Statement No. 333-56327 filed on June 8, 1998.                                     
|m/ |  | 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, 1998, filed on March 31, 1999.
|n/ |  | 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, 1999, filed on March 30, 2000.
|o/ |  | Incorporated by reference to the similarly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, filed on May 15, 2000.      
|p/ |  | Incorporated by reference to the similarly numbered exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, filed on August 14, 2000.    
|q/ |  | Incorporated by reference to the similarly numbered exhibit to the Company's Current Report on Form 8-K, filed on March 9, 2001.                                             
|r/ |  | 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, 2000, filed on March 30, 2001.
|s/ |  | Incorporated by reference to the similarly numbered exhibit to the Company's Current Report on Form 8-K, filed on October 24, 2001.                                          
|t/ |  | Incorporated by reference to the similarly numbered exhibit to the Company's Current Report on Form 8-K, filed on December 19, 2001.                                         
|u/ |  | Previously filed.                                                                                                                                                            



Current
Report on Form 8-K filed October 24, 2001, disclosing that the Company entered into a First Amendment to its senior credit agreement, effective October 23,
2001.

Current
Report on Form 8-K filed December 19, 2001, disclosing that the Company and certain of its subsidiaries entered into a definitive agreement with National Broadcasting
Company, Inc. ("NBC"), whereby NBC will acquire from the Company the San Francisco-Oakland-San Jose, California market-based KNTV television station.

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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 7th day of May, 2002.

| | GRANITE BROADCASTING CORPORATION
| | --------------------------------
| | By:                             

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