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1992-02-11 Support Documentation Town Council Work Session
i i ~ - ,~-i~ ~ VAIL TOWN COUNCIL 12:00 NOON -WORKING LUNCH WITH EAGLE COUNTY COMMISSIONERS AT THE BEAVER CREEK LODGE • WORK SESSION TUESDAY, FEBRUARY 11, 1992 2:00 PM _ AGENDA ' 1. Discussion Re: Approval/Assignment of Golf Course Club House Restaurant Lease. Applicant: Steven Satterstrom, Inc., dba, Satch's Restaurant at the Golf Course to John DeNardo and Debra Swain, Pine Creek Restaurant, Ltd. 2. Discussion of Proposal from Vail Recreation District: Re: A "No Glass Ordinance" for all Athletic Park Facilities. 3. DRB Report. 4. Review of Final 1990 Census Count. 5. Review Draft Ordinance No. 3, Series of 1992. Re: Snow Removal on Private Property. 6. Police Department Report. 7. Public Works Department Report. 8. Information Update. 9. Council R~rorts. 10. Other. 11. Executive Session: Legal Matters. 12. Adjournment. I • C:IAGENDA.WS w ~ . TOWN OF UAIL ~ , 75 South Frontage Road Office of the Town Manager Vail, Colorado 81657 303-479-2105/FAX 303-479-2157 MEMORANDUM T0: VAIL TOWN COUNT ~ FROM: PAM BRANDMEY DATE: 07FEB92 RE: WORKING LUNCH WITH EAGLE COUNTY COMMISSIONERS THE FOLLOWING ARE CONFIRMED LUNCH ARRANGMENTS FOR THE WORK SESSION SCHEDULED WITH THE EAGLE COUNTY COMMISSIONERS: WHERE: BEAVER CREEK LODGE, BEAVER CREEK AT THE CORNER OF AVONDALE AND VILLAGE ROADS COLORADO II ROOM, LOCATED ON THE SECOND FLOOR NEXT TO THE BLACK DIAMOND RESTAURANT WHEN: TUESDAY, FEBRUARY 11, 1992 TIME: 12:00 NOON I HAVE CONFIRMED FOR THE FOLLOWING INDIVIDUALS: PEG OSTERFOSS MERV LAPIN JIM GIBBON JIM SHEARER TOM STEINBERG RON PHILLIPS (ROB LEVINE wTLL STILL BE OUT-OF-TOWN AND BOB BUCKLEY CANNOT MAKE THIS LUNCH BUT WILL ATTEND WORK SESSION AT 2:00 P.M.) VAIL TOWN COUNCIL 12:00 NOON -WORKING LUNCH WITFI EAGLE COUNTY COIViINISSIONERS AT THE BEAVER CREEK LODGE WORK SESSION TUESDAY, FEBRUARY 11, 1992 2:00 PM EXPANDED AGENDA 2:00 p.m. 1. Discussion re: Approval/Assignment of Golf Course Club House Larry Eskwith Restaurant Lease. Applicant: Steven Satterstrom, Inc., dba, Satch's Restaurant at the Golf Course to John DeNardo and Debra Swain, Pine Creek Restaurant, Ltd. Action Requested of Council: Approve/deny assignment of Golf Course Club House Restaurant. 2:20 p.m. 2. Discussion of proposal from Vail Recreation District fora "no Stephen Foster glass ordinance" for all athletic park facilities. . Action Reauested of Council: Discuss desirability and scope of proposal. Backaround Rationale: (See enclosed letter from VRD dated 11/6/91.) Mr. Foster requests Council's thoughts and suggestions relative to a "no glass ordinance" for all athletic park facilities to be in effect before this coming Summer season. He notes they now suggest and request no glass bottles be brought in to the parks, but there are enforcement difficulties. 2:40 p.m. 3. DRB Report. 2:45 p.m. 4. Review of Final 1990 Census Count. Shelly Mello Action Reauested of Council: Direct staff on action to be taken. Backaround Rationale: On December 30, 1991, the staff reviewed the final adjusted 1990 Census Counts. This adjustment was a result of one appeal to the Colorado Census Committee and then the Director of the Census in Washington, D.C. The changes are as follows: Previous Adjusted Chanae Population 3659 3716 +57 Housing Units 6102 6167 +65 Should the Council choose to purse this item further, the next step would be to file a legal action against the U.S. Bureau of the Census. 2:55 p.m. 5. Review Draft Ordinance No. 3, Series of 1992 re: snow removal Larry Eskwith on private property. Action Requested of Council: Review and discuss this draft 1 r qr ordinance. Backaround Rationale: Council requested preparation of an ordinance requiring property owners to remove snow and ice from sidewalks adjacent to their properties. 3:25 p.m. 6. Police Department Report. Corey Schmidt 3:40 p.m. 7. Public Works Department Report. Ken Hughey 3:55 p.m. 8. Information Update. 10. Council Reports. 11. Other. 12. Executive Session: Legal Matters. Larry Eskwith Discussion of use of Donovan Park for the cemetery. Andy Knudtsen Action Requested of Council: Provide direction to staff as to how to proceed with the cemetery planning. Backaround Rationale: Donovan Park was purchased in 1980 with the use of RETT funds. The ordinance regulating the use of RETT funds limits the way it can be spent. Staff believes there are three different ways to proceed with the cemetery at this site. These options are outlined in the enclosed staff memo. 13. Adjournment. C:~AGENDA.WSE 2 -4 'PAIL PARK l~TD RBCRBATIOM DIBTZtZCT RBSTADRI~NT LEA88 l1ORE81~[B~iT THIS AGREEMENT, made and entered into this day of January, 1992, by and between the VAIL PARK AND RECREATION DISTRICT (VPRD), d/b/a VAIL RECREATION DISTRICT, a Colorado quasi-municipal corporation, herein referred to as the "District", and STEVEN SATTERSTROM, INC., :a Colorado corporation, doing business as "Batch's Restaurant at the Clubhouse, Inc." and "Batch's Starter Shack, Inc.", hereinafter referred to as "Lessee". RRCYTI~LR A. The District is the owner of the Vail Municipal Golf Course (the "Golf Course") and the clubhouse located upon the Golf Course ("Clubhouse"), the restaurant located within the Clubhouse ("Restaurant" or "Restaurant Premises"), the starterhouse located upon the Golf Course ("starterhouse") and related facilities thereon all of which are depicted on ~,hibit ~ attached hereto and incorporated herein by this reference. B. The District is desirous of leasing the Restaurant, starterhouse, and permitting the sale of food and beverages upon the Golf Course ("Golf Course Food and Beverage Service"). C. The Lessee desires to lease and operate the Restaurant, starterhouse and the Golf Course Food and Beverage Service upon the Premises (hereinafter defined). NOW, THEREFORE, in consideration of the covenants and agreements herein contained and the payment of monies as herein- after set forth, the parties hereto mutually agree as follows: i. premises. (a) The District does hereby lease and demise to Lessee, and Lessee does hereby hire and take from the District approximately 5,600 square feet of space consisting of the Restaurant, meeting room (Krueger room), the L Room (approximately 250 square feet), the starterhouse, approximately 100 square feet of office space (the location of which to be designated by the District), and designated storage space located in the basement of the Clubhouse all of _ which are depicted on Exhibit A, (hereinafter sometimes collectively referred to as the "Restaurant Premises"). The Restaurant Premises are leased and demised to Lessee together with (i) nonexclusive use of all common facilities (collectively the "Common Facilities") which may from time to time serve the Premises, including, but not limited to, parking areas, driveways, roadways, entrance ways,. rest rooms and other similar or related facilities; and, (ii) the exclusive right to operate the Golf Course Food and Beverage Service upon the Golf Course. a a (b) The Lessee covenants that it will use the Restaurant Premises only for the operation of a business consisting of a restaurant and bar operation, and for such other purposes as are customarily incident thereto. Ydo other use shall be made of the Restaurant Premises without the prior written consent of the District. 2. Tara o! AgrQement. The primary term of this Lease shall commence on the date of February 1, 1992 and shall continue through and including the date of January 31, 1999 (the "Term"). The primary term of the Lease may be extended for one five-year period upon the giving of notice to the District by Lessee of its intent to extend at least sixty (60) days prior to January 31, 1999. 3. xeat. Lessee agrees to pay the District, at its office in Vail, Colorado or at such place or places as the District shall designate from time to time in writing, rent for Restaurant Premises, the non-exclusive use of Common Facilities and the Golf Course Premises (hereinafter sometimes collectively referred to as the Premises") as follows: (a) Minimum Rent. Lessee shall pay the District as minimum rent for the Premises monthly installments of Two Thousand Seven Hundred and Fifty and No/100 Dollars ($2,750.00) on the first day of the primary Term and on the first day of each succeeding calendar month during the primary Term (first 7 years of the Lease). Should the five (5) year option period be exercised by the Lessee, then the minimum rent payable to the District each month shall be based on the ~o $2,750.00 minimum increased proportionately as the U.S. Department of Labor Consumer Price Index (U.S. City Average for all Urban Consumers, Bureau of Labor Statistics, Denver) shall have increased over a 7 year period from the date of the commencement of the primary Lease to the date of said index published for the most current twelve month average available on the commencement of the option period. (b) Percentage Rent. In addition to the minimum rent, Lessee shall pay the District for each calendar year during the Term as percentage rent seven (7) percent of the excess, if any, of that percentage of Lessee's gross sales, as that term is hereinafter defined, for such calendar year over all minimum rent paid by the Lessee for such calendar year (at $33,000 per annum minimum rent, the percentage rent takes . effect once gross sales in any given calendar year reach $471,429). (The amount of percentage rent for the months of the Term ending December 31, 1992, shall be payable in full on the.first day of February, 1993.) Each calendar year shall constitute a separate independent accounting period. However, the estimated percentage rent to be paid on account thereof in each calendar year subsequent to December 31, 1992 shall be based upon the amount of gross sales in the calendar year 2 immediately preceding, and the percentage rent shall be paid in full by the end of the lollowinq February. (c) Cosa Sales. As used in this Lease, the term "gross sales" shall apply to the Restaurant, Starterhouse, catering, vending machines, beverage carts and any and all other activities/venues from which revenues are derived; "gross sales" shall mean the entire amount of the price charged, either wholly or partly for cash or on credit or an exchange for goods or~services, for all_food and beverage (which term for purposes of this Lease shall be deemed to include, but not be limited to, soft drinks, beer, wine and liquor) sold, and all charges made for services performed or for the extension of credit in, at or from any part of the Premises or through - the substantial use of the Premises, by Lessee or anyone acting on Lessee's behalf or under a sublease, license or concession from Lessee, including, without limiting the generality of the foregoing, the amount allowed for any "rain check" or "complimentary" services or products given, the retail price of any food and beverage sold and services rendered on redemption of trading stamps, or deposits not refunded to purchasers, and all orders taken in or from the Premises for which Lessee would in the normal course of its operations credit or attribute to its businesses upon the Premises, even though such order may be filled elsewhere, without deduction in any case for uncollected or uncollectible credit accounts; there shall also be included in "gross sales" the gross receipts from all mechanical or other vending devices placed in the Premises by Lessee or under authority from Lessee, other than such devices which are installed in portions of the Premises not open to the public for the convenience of Lessee's employees. Gross receipts from the - sales made and orders taken in the Premises shall be included in "gross sales" even though the account may be transferred elsewhere for collection and though the delivery of food and beverage sold or the performance of services ordered may be made elsewhere than at the Premises. Every transaction on a - deferred payment basis shall be treated as a sale for the full price at the time such transaction is entered into, irrespective of the time of payment. Gross sales shall not include the amount of any cash or credit refund in fact made u~»n sales from the Premises where the food and beverage sold oi~ some part thereof is not paid by the purchaser because of dissatisfaction or made solely for the convenient operation of Lessee's businesses and not having the effect of consummating _ a sale made or which would have been made at the Premises, not returns to shippers or manufacturers, nor sales of fixtures or equipment after their substantial use in the conduct of Lessee's business upon the Premises, not interest on charge accounts or revolving credit accounts, nor the amount of any sales, use.or excise taxes directly on sales from the Premises, which such taxes are both added to the selling price 3 (or absorbed therein) and paid to the taxing authorities by Lessee (but not by any vendor of Lessee). 2do other taxes ° shall be excluded from gross sales. If Lessee's gross sales are required to be reported on any federal, state or municipal sales tax return or any other similar form of return, and gross sales as so reported on any of such returns shall exceed the gross sales as reported by Lessee as herein provided, then the gross sales shall be taken at the highest f iqure so reported. If any governmental authority shall increase the gross sales reported by Lessee on any such tax return, after audit, for any calendar year for which such sales have been reported, then Lessee shall notify the District promptly of such increase and shall promptly pay any additional percentage rent due. Should Lessee incur substantial amounts of uncollected accounts,, the District shall consider excluding such amounts from gross sales upon application by Lessee. The District may, from time to time, require the Lessee in writing to reduce its charges during special events (e.q. . Jerry Ford Golf Tournament), provided that such reduced charges shall not result in Lessee recognizing a loss on the sale of such goods and beverages. In such event, Lessee's sales at reduced prices shall be excluded from gross sales used in computing percentage rent. (d) #teimbursement for Improvements. Pursuant to that Lease between the District and the Lessee dated Afay 14, 1987, the District has advanced $61,362 to the cost of improvements to the Premises. Lessee shall repay one-half said amount ($30,681), less $365.25 multiplied by the number of months in the Term which have expired, to District immediately upon the sale of controlling interest in the Lessee's corporation or Lessee's business to a third party. 4. Maintenance of Records. (a) ouarterly Accounting. Lessee shall keep a true and accurate account of all monies received through the operation of its businesses upon the Premises and shall on or before the . twentieth day following the close of each calendar quarter commencing with the quarter ending March 31, 1992 during the Term, render and deliver to the District an itemized statement showing all monies so received during the quarter immediately preceding. (b) Annual Accounting. Lessee shall submit to the District no later than March 15 of each year during the term. _ of this agreement a profit and loss statement prepared by an independent accountant in accordance with good accounting practices. Such statement shall contain an appropriate certification that all gross receipts during the calendar year 4 V~ accounting period shall have been properly reported to the District. (c) geco~~ Kept oD Premises. Lessee shall maintain with respect to the businesses transacted in or Prom the Premises a permanent, accurate set of books and records of all gross sales during each day o! the Term and all supporting records, including any excise tax reports, state salsa tax, business and occupation tax and gross income tax reports; and such pertinent records shall be kept, obtained and preserved for at least three (3) years, or as provided by state statute. Such books and reports shall be maintained in accordance with good accounting practice and shall contain sufficient information to permit that accurate calculation of gross sales as defined herein. The District or its agent or designee shall have the right to examine or audit during regular business hours within forty-eight (48) hour notice to the' Lessee all books and records of the Lessee in any way pertaining to the business transacted in or from the Premises. If upon any examination or audit by the District, its agent or designee, any gross revenues shown by the Lessee's statement for s~a,h year should be found to be understated by more than five (5) percent, the Lessee shall pay to the District the reasonable cost of such examination or audit. (d) Sales Tax Returns. Lessee shall provide to the District copies of monthly sales tax returns filed with the State; said copies shall be submitted to District within 10 business days of their. submission to the State. _ ~(e~ Not a Partnershio. Nothing contained in this Lease shall be construed as creating a partnership or joint venture between the District and the Lessee or between the District and any other party or cause the District to be responsible in any way for the debts or obligations of Lessee. 5. Securitp Deposit. (a) Lessee has deposited with District the sum of Five Thousand and No/100 Dollars ($5,000.00) as security for the condition or agreement of this Lease on Lessee's part to be performed (the "Deposit"). In the event that Lessee defaults in performing any covenant, condition or agreement, including but not limited to payment of minimum rent,~percentage rent, additional rent or other charges, District may and without -diminishing, waiving or affecting any other of District's rights and remedies provided in this Lease, use, apply or retain the whole or any part of the Deposit for the payment of . any such rent or other charge in default or for any other sum which District may expend or be required to expend by reason of Lessee's default, including any damages or deficiency accrued before or after summary proceedings or other reentry 5 by District. District shall not be required to us®, apply or retain the whole or any part of the Deposit, but if the whole or any part is used, applied or retained, Lessee shall upon demand immediately deposit with District an amount of cash equal to the amount so used, applied or retained so that Lessee shall at all times have on deposit with District the full sum of $5,000 as security as aforesaid. Lessee shall not be entitled to' any interest on the Deposit. At the termination of this Lease, damages to Restaurant Premises and any fixtures or equipment located thereon; other than ordinary wear and tear will be replaced by the District and the cost thereof paid from the Deposit. Should the cost exceed the Deposit, the Lessee agrees to pay the additional sum; if the costs are less than the Deposit, the difference will be returned to the Lessee within 30 days. If the Lessee and the District cannot agree on the amount of damage to be assessed, the parties shall select~a neutral third party who shall assess the damage and his decision shall be .binding. (b) At the beginning and termination of this Lease, a representative of the District and the Lessee will tour the Restaurant Premises together and jointly prepare a list of defects to be used to determine the property damages and/or equipment damages during the Term. 6. Signs and I~dvertisinq. The Lessee agrees that it will not erect or maintain, nor permit to be erected or maintained, upon the Premises any signs,or to employ callers, criers, or use any other similar means of attracting attention without obtaining the prior written consent of the District. Notwithstanding the foregoing, the District hereby consents to Lessee's signage located upon the Premises as of the date of this Lease; provided, however, any replacements thereof shall be subject to the prior written consent of the District. 7. Compliaac® with all Lae?a, Regulations aad Reports. The Lessee agrees that the businesses conducted under this Lease will be operated in strict compliance with all of the laws of the United States of America, State of Colorado, County of Eagle, Town of Vail, and all rules and regulations of the District of which the Lessee has been provided notice of. The District agrees that it will not adopt or implement rules and regulations which prohibit the operation of Lessee's businesses as contemplated under this Lease. - 8. operations. (a) Lessee covenants that it will use the Premises only for the operation of businesses consisting of a restaurant and bar operation and for providing the Golf Course Food and Beverage Service, and for such other purposes that are customarily incidental thereto. No other use shall be made of 6 ~ the Premises without the prior written consent of the _ District. (b) The Lessee agrees to operate its businesses for the accommodation of the public and in particular persons using the District's facilities and to operate the enterprise in the following manner: (1) The Restaurant Premises shall be operated in a first-class manner; food, beverages, and other articles sold shall be of good quality; the service shall be prompt, clean, courteous, and efficient. (2) The Restaurant Premises shall operate on the `days and hours specified in "Exhibit B" attached hereto and by this reference incorporated herein, and the Lessee shall not change the same without the prior approval of the District. (3) Thirty (30) days prior to the beginning of each Golf and Ski Season (hereinafter defined) , the Lessee shall submit to the District a sample menu, including prices. For purposes of the Lease, the term 10Golf Season" shall mean that time period during any calendar year during the Term commencing on the first day that full season rate green fees for. the Golf Course are charged and ending on the last day that green fees are charged for the Golf Course. For purposes of the Lease, the term °"Ski Season" shall mean that time period d~~r 3:fg any calendar year during the Term commencing on the ~ ~ st day that Vail Mountain is open to the public for skiing at full priced rates and ending the last~day that Vail Mountain is open to the public for skiing. For menu submission• purposes, the Golf Season is considered to start May 15 and the Ski Season is considered to start November 15 of each year. (4) An experienced assistant, employee or agent of the Lessee authorized to represent and act for the Lessee in matters pertaining to the operation of its businesses pursuant to this Lease and a sufficient number of trained personnel shall be on duty at the Premises for the proper operation of the Lessee's businesses upon the Premises. Said employees shall at all times maintain the highest standards_of personal hygiene and dress. (5j The Restaurant Premises and all fixtures and equipment used in the operation of Lessee's businesses .thereon shall be kept in clean, neat, safe, sanitary, and orderly condition at all times, and unreasonable emanation of fumes and odors from the Restaurant Premises shall be prevented. All waste matter shall be stored and 7 J i disposed of in a manner reasonably satisfactory to the District. The Lessee also agrees he will neither do nor permit anything to be done within the Restaurant Premises which might interfere with the effectiveness or accessibility of the drainage and sewage system, the fire protection system, the alarm system, or any other facilities or devices for the protection of the Premises and the public. . (6) The requirements of the Unit®d States Health Service, Colorado State Board of Health, and the Town of Vail Health Officer with respect to health and sanitary laws and regulations shall be met, and access will be given to the duly authorized representatives of said agencies or any other Town of Vail department for inspection purposes. (7) The Lessee acknowledges and agrees that the Golf Course's golf professional has been granted an exclusive right to sell certain soft goods and merchandise in accordance with his contract with the District and the Lessee shall not interfere or compete therewith. (8) Sales of sandwiches, soup, hot and cold beverages, ice cream, cigarettes, candy and similar items may be made by vending machines. The Lessee shall not install or operate any vending machine except with the prior written approval of the District. All vending machines shall conform to the specifications of. the District and be consistent with other vending machines that may be used in the Clubhouse. (9) The District shall have a total of five (5) days in the aggregate during the months of June, July, August and September during each calendar year of the Term on which it can utilize the entire Premises for special events, subject, however, to any prior contractual commitments of the Lessee with third-parties not affiliated with the Lessee, with not less than seven (7) days prior notice to the Lessee. The District shall have an additional total of five (5) days during each calendar year of the term on which it may utilize the entire premises for special events, subject, however, to - the same aforementioned conditions. The District shall use all reasonable efforts not to close the Premises completely unless required by the' size of the group or the circumstances of the special event in question. (10) During the time of any Golf Season the District shall have the primary right to use the meeting room located within the Restaurant Premises subject to the 8 - seven (7) day notice provisions outlined in the preceding paragraph. However, when the meeting room is not being utilized by the District, the Lessee shall have the right = to use it. (11) It is understood by the parties that from time to time the Lessee may have special events at the Restaurant Premises such as wedding receptions, private parties, etc. Notwithstanding the Lessee's right to hold such special events, the Lessee shall never during the Term close the operation of its businesses upon the Restaurant Premises to the general public. (12) The Lessee will not be permitted use of the District's safe. (13) Lessee will be responsible for providing its own phone system. The Lessee shall not in any way, without prior approval from the District, modify or tamper with the District's phone system utilized at the Clubhouse for Golf Course operations. Any such modification without the District°s approval will require the Lessee to return the phone system to its original condition at its sole cost. (c) pistr~ct's ~QnitorinQ o~essee's OoeratioD. (1) :The Lessee shall permit the District to monitor the quality of the operation of Lessee's businesses upon the Premises throughout the Term provided that the District shall not interfere with Lessee's operation of its businesses in any way. The District and Lessee agree that they shall periodically meet at the Restaurant to review the results of the District's monitoring and assessment of the quality of the operation of Lessee's businesses (the "Periodic Meetings"). The District agrees to cause the Vail Recreation District Golf Club Manager and/or the Vail Recreational District Recreation Director to be present at all Periodic Meetings and the Lessee shall cause representatives of the restaurant to be present at all Periodic Meetings. The District agrees to provide the Lessee with not less than seven (7) days' prior written notice, including written agenda, of each Periodic Meeting. At each of the Periodic Meetings, the District's representative(s) and the Lessee's - representative(s) shall discuss the results of the District's Monitoring and Assessment and shall mutually determine what action, if any, needs to be implemented by the Lessee to improve such aspects (the 11Deficient Aspects") of the operation of Lessee's businesses as the District reasonably deems necessary to maintain the operation of Lessee's businesses at a level which is 9 consistent with, and compliments the image and prestige - of the District as part of the Vail, Colorado community. (2) In the event any Deficient Aspect is not corrected to the reasonable satisfaction of the District after two consecutive Periodic Meetings, the Lessee shall be deemed to be in default under the performance of its . obligations under the Lease if Lessee shall fail to correct a Deficient Aspect within ten (10) business days after District's delivery of written notice specifying the Deficient Aspect; provided, however, that in case such Deficient Aspect cannot with due diligence be remedied within a ten (10) business day period, if Lessee _ commences to remedy such Deficient Aspect within such ten (10) business days and thereafter prosecutes the remedying of such Deficient Aspect with reasonable diligence, the period of time after the receipt of such notice by Lessee within which such failure may be remedied shall be extended so long as Lessee prosecutes the remedying of such failure with reasonable diligence. 9. utilities. (a) The District shall supply electrical service to the Restaurant Premises sufficient to provide up to four hundred (400) AMPS of power. Lessee shall pay for all water, gas, electrical and other utilities used, rendered or supplied upon - or in connection with the Restaurant Premises. Lessee shall pay directly for all such services which are separately metered. Lessee. shall also pay a proportionate part of those costs for gas (heating and domestic hot water), electricity (not separately metered), services used, rendered, or supplied upon in connection with the Clubhouse shared with the other lessees or the .District which are not metered. Such costs shall include repairs and maintenance of the applicable utility systems to be assessed at 50$ of the actual cost of repair. In lieu of the District presenting a bill to Lessee - each month for each. utility provided, the District has calculated an amount for such utilities based on historical usage for the period of November 1990 through October 1991. (b) Specifically, Lessee shall pay each month during the Term, in addition to rent, an amount to include 60$ of the cost of water use at the Starterhouse for the months of May _ through October; electricity at the Starterhouse for the - months of May through October; 60$ of the cost of water at the Clubhouse for the entire year, and 50$ of the year-round fire alarm fees at the Clubhouse and 50$ of the fire alarm fees at .the Starterhouse for the months of May through October. Based on historical usage, this amount will initially be set at $200 per month, payable and due at the beginning of each month, commencing with the start of the Term of the Lease. Beginning 10 ' January 1, 1993, and each successive January 1 during the Term of the Lease, this amount will be adjusted based on the increase or decrease of the most recent U.S. Department of Labor Consumer Price Index (U.S. City Average for all Urban Consumers, Bureau of Labor Statistics) for the preceding December 31 over or under the Index on December 31, 1990. Additionally, for any month during which the Lessee chooses to utilize gae heat supplied by the District (by opening the appropriate valve controlling said heat in the storage room), the Lessee will pay 50t of the Clubhouse gas bill as presented by the District to Lessee. The District will furnish the gas bill to Lessee within 30 days of its receipt by District of _ said bill, and Lessee shall make payment within fifteen (15) days of District's furnishing of bill to Lessee. Interest at the rate of one and one-half percent(1 1/2~) per month or a fraction thereof shall be due upon~Lessee's failure to remit payment within said fifteen (15) days. (c) The District shall not be liable to the Lessee in damages or otherwise if any one or more of said services is interrupted or terminated because of necessary repairs, installations, improvements, unavailability of supplies or any cause beyond the control of the District. The District may cease to furnish any one or more of said services without any responsibility to Lessee except to connect the service facilities with another source of supply as may be reasonably available for the services so discontinued. The Lessee shall be responsible for paying fifty (50) percent of the necessary repair and maintenance costs of all applicable utility systems: Payment terms will be the same as those for Clubhouse gas bills described in the foregoing paragraph. 10. Repairs and Common Area Maintenance Costs. (a) District shall cause the foundations, sub-floor, exterior walls (except plate glass or glass or other breakable materials used in structural portions) and roof of the Clubhouse and the Starterhouse to be kept in good repair, except that the District shall not be responsible for any such repairs which become necessary or desirable by reason of the act or negligence of Lessee, its directors, officers, agents, servants or employees. With the exception of those portions of the improvements located upon the Premises that are the responsibility of the District, Lessee shall keep the _ Restaurant Premises over which it has exclusive control and all furniture, equipment, facilities and fixtures therein contained in good order, condition and repair, and in clean, sanitary and safe condition and in accordance with all applicable laws, ordinances and regulations of any governmental authority having jurisdiction and all applicable protective. covenants and restrictions. During the period exclusive of the Golf Season during the Term in addition to 11 any other responsibilities set forth herein in regard to maintenance and repair of the Restaurant Premises, the Lessee shall maintain in good order, condition and repair and in a clean, sanitary and saf® condition in accordance with all applicable laws, the Clubhouse sidewalk, deck, lavatories and meeting room. The District shall be responsible for snow plowing the Clubhouse parking lot so long as the town of Vail continues to plow the parking lot for the District without compensation. Should the Town of Vail stop plowing the parking lot for the District, the Lesse®~shall have the obligation of plowing thirty-five (35) parking spaces to be used by the Restaurant as shown on "Exhibit C" attached hereto. Upon the Lessee's becoming responsible for said plowing, the Lessee shall have the exclusive right to utilize said thirty-five (35) spaces. Snow removal from the roof of the Clubhouse building shall be the responsibility of the District. The Lessee shall be responsible for paying the. District twenty-five (25) percent of the cost of such snow removal from the roof of the Clubhouse. (b) During any Golf Season during the Term the District, rather than the Lessee, shall be responsible for maintaining and repairing the lavatories on the Premises. The Starterhouse decks, kitchen, seating area, lavatories and lobby shall be maintained and repaired by the Lessee except during such time that the Starterhouse is utilized as a cross country skiing facility by the District. Lessee shall not perform any acts or carry on any practices which may injure the Premises and shall keep the Premises and sidewalks adjacent to the Restaurant Premises clean and free from rubbish and dirt at all times. _ (c) The District and Lessee acknowledge and agree that, as of the date hereof, the Restaurant and Starterhouse contain the equipment described in "Exhibit D" attached hereto and made a part hereof. Lessee may replace any such equipment at its cost with the prior consent of the District. Any equipment so replaced by Lessee shall be deleted from "Exhibit D" and shall remain the property of the Lessee. (d) If Lessee refuses or neglects to commence repairs, maintenance or replacement as required by this Section within ten (10) days after written demand, or adequately to complete the same within a reasonable time thereafter, the District may, in addition to any other remedy it might have, make the - repairs, maintenance or replacement without liability to Lessee for any loss or damage that may occur to Lessee's stock or business by reason thereof (unless such loss or damage is attributable to the willfully wrongful or grossly negligent acts of the District or its agents), and if the District makes such repairs, maintenance or replacement, Lessee shall pay to the District on demand as additional rent the reasonable cost 12 - ~ thereof with interest at the rate of eighteen (18) percent per annum from the date of payment by the District until paid by • Lessee. (e) Lessee may make non-structural modifications to the kitchen area or the storage area of th® Restaurant Premises which have an estimated cost of not greater than five thousand dollars ($5,000) without obtaining the permission of the District. Lessee shall make no other alterations, additions or improvements in or to the Restaurant Premises without the District's prior written consent. All such work shall be performed in a good and workmanlike manner. • (f) Lessee shall pay or cause to be paid all costs for work done or cause to be done by Lessee to the Restaurant Premises pursuant to the terms of this Section, and Lessee shall keep the Premises free and clear of all mechanic's liens and other liens or claims on account of work done for Lessee or persons claiming thereunder. Should any liens be filed or recorded against the Premises or any action affecting the title thereto be commenced, Lessee shall give the District written notice thereof. Lessee shall thereafter cause such liens, or claims against the District in lieu of liens, to be removed of record within sixty (60) days after the filing thereof. If Lessee shall desire to contest any claim or lien, it shall either bond over the lien 'in the manner provided by the Colorado Revised Statutes or, furnish the District with security satisfactory to the District in the amount of one hundred fifty (150) percent of the amount of the claim plus reasonably estimated costs and interest. If a final judgment establishing the validity or .existence of any lien or a claim for any amount is entered, Lessee shall pay and satisfy the same at once. Lessee shall notify the. District of the names and addresses of any persons supplying labor and material for alterations to the Restaurant Premises. (g) Lessee shall require that any contractor who performs work for Lessee on the Restaurant Premises in excess of Ten Thousand and No/100 Dollars ($10,000.00) will furnish a good and sufficient performance bond in an amount not less than the full amount involved in the contract as surety for the faithful performance of the contract by the contractor and a labor and materials bond for the payment of all persons performing labor and furnishing material in connection with the work. Lessee may substitute equivalent alternate security -for said bonds;. it may do so only with the permission of the District, which permission shall not be unreasonably withheld. Lessee shall further require the contractor who does any work on the Restaurant Premises to procure adequate contractor's general public liability and property damage insurance and workman's compensation insurance. Lessee shall before the 13 commencement of any work furnish the District with evidence that its. contractor is adequately covered as herein provided. 11. Inaemnifioatione (a) Lessee shall indemnify and hold harmless the District and the Town of Vail, their officers, agents, employees and representatives (referred to individually as the "District Indemnitee1°) from and against any claims for death, bodily injury or property damage arising out of (i) the negligence or intentional wrongful acts of Lessee, subject, depending on the law of the State of Colorado, either ~to the doctrine of comparative negligence or to the doctrine of contributory negligence, or (ii) any accident, injury or damage whatever (except to the extent caused by the negligence of District, the Town of Vail or their agents, employees or contractors) occurring in, at or upon the Premises. This indemnification shall include all costs, expenses and liabilities incurred in connection with any claim covered by this paragraph 11(a), including, but not limited to, reasonable attorneys' fees (to and through appellate proceeding). (b) District shall indemnify and hold harmless Lessee and its partners, directors, officers, agents and employees (referred to individually as "Lessee Indemnitee") from and against any claims for death, bodily injury or property damage arising out of the negligence or intentional wrongful acts of District, subject, depending on the law of the State of Colorado, either to the doctrine of comparative negligence or to the doctrine of contributory negligence. This indemnification shall include all costs, expenses and liabilities incurred in connection with any claim covered by this paragraph 11(b), including, but not limited to, reasonable attorneys' fees (to and through appellate proceeding). (c) The provisions of this Section shall survive the expiration or earlier termination of this Lease. 12. District's Liability to Lessee for Damag®. (a) The District shall not be liable to the Lessee for any damage occasioned by plumbing, electrical, gas, water, _ _ steam, or other utility pipes, systems, and facilities, or by the bursting, stopping, leaking or running of any tank, wash stand, closet or water or other pipes in or about the Restaurant Premises or the Clubhouse of which they are. a part, unless directly resulting from facilities controlled and maintained by the District and from the District's acts, omissions or negligence after notice; or for any damage occasioned by water being used or coming through the roof, 14 skylight, vent, trap door or otherwise, unless resulting from the District°s acts, omissions or negligence after notice; or for any damage arising from any acts, omissions or neglect of co-tenants, or other occupants of the Premises. (b) X11 property kept, stored or maintained in the Restaurant Premises shall be so kept, stored or maintained at the sole risk of the Lessee. 13. Lessee°a Insuranoe. (aj Lessee agrees to procure and maintain a policy or policies of insurance, at its own cost and expense, insuring the Lessee, the District and the Town of Vail from all claims, demands or actions for injury to or death of any one person in an amount of not less than one million dollars ($1,.000,000) and for injury to or death of more than one person in any one accident to the limit of one million dollars ($1,000,000) and for damage to property in an amount of not less than three hundred thousand dollars ($300,000) made by or on behalf of any person or persons, firm or corporation arising from, related to, or connected with the conduct and operation of Lessee's businesses upon the Premises. Lessee shall carry like coverage against loss or damage by boiler, of internal explosion by boilers, if there is a boiler in the Restaurant Premises. Lessee shall also carry liquor liability insurance in an amount of Five Hundred Thousand Dollars ($500,000) per occurrence and Five Hundred Thousand Dollars ($500,000) in the aggregate for the Premises. Copies of certificates of insurance shall be provided to the District for each current policy. (b) Said insurance shall not be .subject to cancellation except after at least ten (10) days prior written notice to the District and the Town of Vail, and the policy or policies, or duly executed certificate or certificates for the same, together with satisfactory evidence of the payment of the premium thereon shall be deposited with the District at the commencement of the Term and renewals hereof not less than thirty (30) days prior to the expiration of the term of such coverage, and shall contain, in addition to the matters customarily set forth in such a certificate under standard ' insurance practices, an undertaking by the insurer to give the District and the Town of Vail not less than ten (10) days _ written notice of any cancellation or change in scope or amount of coverage of such policy. If the Lessee fails to comply with such requirements, the District may obtain such • insurance and keep the same thereof upon demand as additional rent for the month next following such payment by the District. 15 (c) The District egress to insure the Clubhouse and Starterhouse against loss or damage by perils customarily included under standard "all-risk" policies for at least 80~ ' of the replacement value thereof exclusive of the costs of excavation and foundation. The District reserves the right to insure said structures through an insurance company of its choice or through self-insurance methods. (d) ~}.ver of Subroq~. (1) Notwithstanding any provision contained in this Lease to the contrary, each party (a "damaged party") hereby releases the other party (the "other party") from any liability to the damaged party on account of any damage to the property of the damaged party arising out of any casualty or other loss included within a standard form of "all-risk" insurance even if such damage is the result of the fault or negligence of the other party; provided, however, that if the damage is covered by an insurance policy actually maintained by the damaged party and the release provided by this sentence would invalidate or be in conflict with such policy and such policy was purchased by the damaged party in compliance with the requirements of subparagraph (2) below, then such release shall be inapplicable to the damage covered by such policy. (2.) Aia party (the "procuring party") shall obtain or accept any insurance policy which would be invalidated by or would conflict with the release provided for in subparagraph (1} above (a "policy without waiver°0) unless a policy which would not be so invalidated and would not conflict with such release (a f0policy with waiver") (i) is unobtainable and the procuring party has so notified the other party; or (ii) is obtainable but only at a ,premium in excess of that payable for a policy without waiver and the procuring party has so notified the other party (including in its notice a statement of the amount of the additional premium) and the other party within thirty (30) days of its receipt of such notice fails to offer to pay such additional premium. 3.4. Damaq® by Fir® or Oth®r Casualty; F$r® Insuranc®. _ (a) In the case the Clubhouse building shall be partially or totally destroyed by fire or other casualty insurable under standard fire and extended coverage insurance, so as to become partially or totally untenable, the same shall be repaired as speedily as possible without expense to the Lessee unless the District shall elect not to rebuild. If the _ District elects to rebuild, a just and proportionate part of the rent shall be abated until so repaired. In any event, the 16 _ District shall only rebuild the basic building (including all necessary plumbing, ®lectrical fixtures and all items of a similar nature) and exterior work thereof. Should the District elect not to rebuild the Clubhouse building, this Lease shall be terminated as of the dat® of the casualty. (b) If such damage or destruction occurs and this Lease is not so terminated, this Lease shall remain in full force and effect and the parties waive the provisions of any law to the contrary. .Lessee shall, in the .event of any such damage or destruction, unless this Lease shall be terminated, forthwith replace or fully repair all exterior signs, trade fixtures, equipment, display cases and other installations originally installed by Lessee. The District shall have no interest in the proceeds of any insurance carried by Lessee on Lessee's interest in this Lease, except to the extent of the District's interest under independent security agreements, if~ any, and Lessee shall have no interest in the proceeds of any insurance carried by the District. (c) Lessee agrees during any period of reconstruction, restoration or repair of the Premises and/or of said building to continue the operation of its business in the Premises to the extent reasonably practicable from the standpoint of good business. Rent shall be abated proportionally during any period in which by reason of any such damage or destruction there is a substantial interference with the operation of the business of the Lessee in the Premises, having regard to the extent to which Lessee may be required to discontinue its business in the Premises, and such abatement shall continue for the period commencing with such destruction or damage and ending with the completion of such work or repair and/or reconstruction. Nothing in this paragraph shall affect or be construed to abate or diminish percentage rent or other charges hereunder. (d) At all times during the term of this Lease, Lessee shall maintain in effect with a responsible insurance company or companies, policies of insurance covering Lessee's trade fixtures, furnishings, and equipment providing protection to the extent of not less than eighty (80) percent of the replacement value of the same, against the casualties specified under standard insurance industry practices within the classification of "fire and extended coverage". (e) Without the District's prior written consent, Lessee shall not carry any stock of goods or do anything in or about the Premises which will in any way tend to increase insurance rates or invalidate any policy on the Premises or the building. If the District shall consent to such use, Lessee agrees to pay as additional rental any increase in premiums for insurance against loss by fire or extended coverage 17 resulting from the business carried on in the Premises by Lessee. If Lessee installs any electrical equipment that overloads the power lines to the Clubhouse building, Lessee shall at its own expense, make whatever changes are necessary to comply with the requirements of insurance underwriters and insurance rating bureaus and governmental authorities having jurisdiction. 15. !?asiggn®ats and 8ub1®tting. (a) Lessee shall not assign or in any manner transfer this Lease or any interest therein, nor sublet the Premises or any part or parts thereof, nor permit occupancy by anyone with, through or under it, without the previous written consent of the District. The District's consent to such assignment or sublease shall not be unreasonably withheld, but is subject to the provisions of paragraph 15(d) below. Consent by the District to one or more assignments of this Lease or to one or more sublettings of the Premises shall not operate as a waiver of the District's right under this article to any subsequent assignment or subletting,. nor release Lessee or any guarantor of Lessee, or any of its obligations under this Lease, nor be construed or taken as a waiver of any of the District's rights or remedies hereunder. Among other reasons, the District may withhold its consent if, in its sole judgment, the proposed assignee or sublessee. has not provided evidence of its financial ability or experience to run a first class restaurant. - (b} Any combination of sales, transfers or assignments of outstanding capital stock and/or the issuance of new capital stock which result in ownership by the presently existing shareholders of Lessee as represented at the commencement of this Lease of less than fifty-one'(51} percent of the then issued and outstanding capital stock of Lessee, shall be deemed to be an assignment under this Section requiring the prior written consent of the District. (cj Neither this Lease nor any interest-therein, nor any estate created thereby, shall pass to any trustee or receiver in bankruptcy, or any assignee for the benefit of creditors or by operation of law. (d) In the event Lessee or any assignee under this Lease shall wish to assign the Lease or to sell, transfer or convey any of the businesses underlying this Lease, the District shall be given written notice thereof together with an executed copy of such offering and the terms thereof. The District shall have the right, which may be executed by written notice to Lessee within thirty (30) days of receipt of _ notice by District, to obtain assignment of the Lease or to purchase the subject businesses upon the same terms and 18 conditions set forth in the offer therefor. This right o! first refusal shall extend and run throughout the Term. 16. Bminont Domain. If the whole or any part of the Premises shall be taken by any public authority under the power of eminent domain, then the Term shall cease on the parts so taken from the date of the possession of that part required for any, public purpose, and the rent shall be paid up to that day. If such portion of the Premises is so taken as to destroy the usefulness of the Premises for the purpose for which the Premises were leased, then, from that day, both the District and the Lessee shall have the right to terminate this Lease within thirty (30) days thereafter; but if the Lease is not terminated by either, Lessee shall continue in the possession of the remainder of the Premises under the terms herein provided, in which latter ®vent the minimum rent (but not percentage rent or other charges) shall be reduced in proportion to the area of the Premises taken. All damages awarded for such taking shall belong to and be the property of the District w:~ether such damages shall be awarded as compensation for diminution in value to this leasehold or to the District's underlying fee of the Premises herein leased; provided, however, that the District shall not be entitled to any portion of the award made to the Lessee for its personal g;'?-operty, fixtures, equipment and moving expenses. 17. Access to Premises. The District and the District's authorized agents and representatives shall have the right to enter upon the Restaurant Premises or the Premises at any time for the purpose of inspecting the same or making repairs, additions or alterations thereof, or to the Clubhouse in which the same are located, or for the purpose of exhibiting the same to prospective tenants, purchasers or others provided that Lessee's business operation is not substantially interrupted. Provided the District complies with the provisions of this section, the District shall not be liable to the Lessee in any manner for any such action, nor shall the exercise of such right be deemed an eviction or disturbance of Lessee's use or possession. 18. Tagea, Workman's Compensation Insurance and Licenses. (a) The Lessee shall be required to hold a hotel and restaurant liquor license for the Premises. A copy of said license shall be provided to the District. The Lessee agrees . to protect the license, operate its businesses upon the Premises as required by law and to do no act or allow any act that would jeopardize said license. Lessee agrees to pay promptly all taxes, excises, license fees, liquor license fees, and permit fees of whatever nature applicable to its operation and to acquire and keep current all licenses (federal, state, county or town), required for the conduct of its businesses and further agrees not to permit any of said taxes, excise or license fees to become delinquent. 19 (b) Lease® shall at all times maintain adequate workman's compensation insurance with a duly authorized - insurance company, or through the Colorado State Compensation Insurance Fund, insuring the payment of compensation to all its employees.. R copy of said workmen's compensation insurance policies shall be provided to th® District. (c) Lessee agrees not to.permit any. mechanic's lien, materialmen's lien or any other lien to be filed (which is not - released within 60 days of such tiling) or foreclosed upon the Premises or any equipment or personal property located thereon. (d) Lessee shall furnish the District upon request duplicate receipts or other satisfactory evidence showing the prompt payment of compensation insurance, taxes or fees and required license fees. The Lessee further agrees to pay promptly when due, all bills, debts, and obligations incurred by it in connection with the operation of its businesses upon the Premises, and not to permit the same to become delinquent; and to suffer no lien, mortgage, judgment, execution or adjudication and bankruptcy which will in any way impair the rights of the District under this Lease. 19. Default. The occurrence of one or more of the following events or circumstances shall constitute a default hereunder by Lessee: (a) The making by the Lessee of an assignment for the benefit of its creditors; (b) The levying of a writ of execution or taxation on or against the property of the Lessee and the same is on or against the property of the Lessee 'and the same is not released or discharged within forty-five (45) days thereafter; (c) The instituting of proceedings in a court of competent jurisdiction for the involuntary reorganization, liquidation or dissolution of the Lessee, or for its adjudication as a bankrupt or insolvent or for the appointment of a receiver of the property of the Lessee, and said proceedings are not dismissed, or any receiver, trustee or liquidator appointed therein is not discharged within sixty (60) days after the institution of said proceedings; (d) The legal inability of the Lessee to serve alcoholic beverages on the Premises for a period of five (5) consecutive days unless caused by any acts, omissions or negligence of the District; (e) The instituting of proceedings for the voluntary reorganization, bankruptcy, liquidation or dissolution of the 20 Lessee or if the Lessee shall otherwise take advantage of any state or federal bankruptcy or insolvency act; (f) The abandonment of the Premises by the Lessee and discontinuance by Lessee of the conduct and operation of the business required hereunder for a period o! ten (lo) consecutive days. (q) The failure of the Lessee to perform,- keep and observe any of the terms, covenants or conditions herein contained on its part to be performed, kept, or observed, which failure continues for five (5) days after written notification thereof by the District (or within such period, if any, as may be reasonably required to cure such default if it is of such a nature that it~ cannot be cured within such five (5) day period, provided that Lessee commences to remedy such default within such five (5) day period and proceeds with reasonable diligence thereafter to cure such default). 20. Remedies. (a) Upon the termination of the Lease for default as set forth in the Section 19, the District may reenter the Premises with or without process of law using such force as may be necessary, remove all persons and chattels therefrom or may, at the District's option, change the locks or otherwise refuse the Lessee access to or possession of the Premises except as reasonably necessary for the Lessee°s removal of its personal property, and the District shall not be liable for damages or otherwise by reason of any of its acts in accordance herewith. Notwithstanding such termination, by the District, the liability of the Lessee for the rent and charges provided for herein shall not be relinquished, diminished, or extinguished for the balance of the term of the Term. It fs further understood that the Lessee will pay, in addition to the rent and other sums agreed to by paid hereunder, such additional sums as reasonable attorney°s fees and any suit or action instituted by the District or otherwise incurred by the District to enforce the provisions of this Lease or the collection of the rent due the District hereunder provided the District prevails on any claim in such suit or action. Any property belonging to the Lessee or any person holding by, through or under the Lessee, or otherwise found upon the Premises may be removed therefrom and stored. in any warehouse . at the cost of and for the account of the Lessee. ~If the Lessee should abandon, vacate or surrender the Premises or be dispossessed by process of law, any personal property left upon said Premises may be deemed abandoned, or at the option of the District and upon such reentry, the District may take possession of any and all furniture, fixtures or chattels used or on said Premises and sell the same in whole or in part, without filing suit or obtaining any execution, order or 21 decree, to the highest bidder for cash with or without said - property being present et said sale (Lessee agreeing to make delivery thereof to the purchaser), and apply the private proceeds thereof to the payment of costs and expenses of taking and removing said property and holding of said sale and of rents and amounts owing the District, and Lessee agrees to make good any deficiency. Lessee expressly releases the District and its successors and assigns of all claims which - might exist by reason of any termination of or reentry under this Lease or removal of Lessee°s property, pursuant to the provisions of this Section and hereby waives any and all rights of redemption under any statute or rule of law in effect at the time of termination or reentry. (b) Yn the event of any breach by the Lessee, the District may immediately or at any time thereafter, without notice, cure such breach for the account and at the expense of the Lessee. If the District at any time, by reason of such breach, is compelled to pay or elects to pay, any sum of money or do any act which will require the payment of any sum of money, or is compelled to incur any expense, including reasonable attorney's fees, in instituting or prosecuting any action, or proceeding or otherwise incurred to enforce the District's rights hereunder, the sum or sums paid by the District, with interest thereon at the legal rate from the date of payment thereof shall be deemed to be additional rent and shall be due from the Lessee to the District on the first day of the month following the payment of such respective sums or expenses. (c) Notwithstanding any termination of this Lease or reentry into the Premises by the District, Lessee shall be liable to the District for damages for breach of the Lessee°s covenants under this Lease in an amount equal to the entire unpaid rent which would have been payable hereunder for the balance of the full term hereof if this Lease had not been terminated or such reentry made, provided, however, that if the District shall relet the Premises or any portion thereof during said period, District shall credit Lessee with the net rents received by the district from such relettinq, with such excess discounted in present value using a rate of 8$ per annum, plus all costs and expense incurred by the District in connection with reentry and the repair, renovation, brokers commissions, counsel fees and other charges incurred in connection with the relettinq of the Premises. If, because of - - any bankruptcy, insolvency, or similar statutes, the right .of ' the District to collect damages shall be limited to an-amount less than would be payable in accordance with the provisions of this section, Lessee shall be liable to the District for the full amount of damages recoverable by the District under the circumstances. Lessee agrees that in case any rent or other charges payable hereunder shall not be within fifteen za - (15) days after the date when the same shall become due, Lessee shall pay to the District a late payment charge at the rate of two (2) percent of the amount of net or other charges due. 21. Surrender of Possession. (a) At the expiration of the tenancy created hereunder, . whether by lapse of time or otherwis®, Lessee shall surrender the Restaurant Premises in good condition and repair, reasonable wear and tear excepted. (b) In the event Lessee remains in possession of the Premises after the expiration of the tenancy created hereunder, and without the execution of a new Lease, Lessee shall be deemed to be occupying said Premises as a lessee from month to month at the rent which prevailed during the last month of the Term, subject to all the other conditions, .provisions and obligations of this Lease insofar as the same are applicable to a month-to-month tenancy. (c) On the date of the termination of this Lease, whether by the passage of time or otherwise, Lessee shall have the right to remove from the Premises, all personal property and equipment not a part of the real estate, installed by it with the .exception of all wall and floor coverings, subject however, to any valid lien or claim which the District may have for unpaid fees, provided, also that ff said removal causes any damage to the Premises, Lessee will repair the same in a proper and satisfactory manner at its own expense. 22. Subordination. Lessee agrees that this Lease is., and shall be subordinate to any bonafide mortgage, deed of trust, or any other hypothecation,for security which has been or which hereafter may be placed upon the Premises and due renewals, modifications, consolidations, replacements and abstentions thereof. Lessee agrees to execute any documents in addition to this Lease which may be reasonably required to effectuate such subordination and failing to do so within ten (10) days after written demand does hereby constitute and irrevocably appoint the , District as the Lessee's attorney in fact and in the Lessee's name, place instead to so do; provided however that the mortgagee or mortgagees shall acknowledge in advance that they will recognize this Lease as valid in the event of foreclosure or deed-in-lieu of foreclosure of the District's interest in the Premises, so long as the Lessee is not in default. The District represents that as of the date of the commencement of the Term the Premises are not encumbered by any liens, mortgages or deeds of trust. 23 e a 3 . ti®neral . (a) tdothinq contained in this Leas® shall be deemed or construed by the parts®s nor any third party as creating the relationship of principal and agent or a partnership or a joint venture between the parties, it being understood and agreed that neither the method of computation of rent nor any other provision contained herein nor any acts of the parties hereto shall be deemed to create a relationship between the parties other than the relationship of landlord and tenant. (b) The right to remedies contained in this Lease and reserved to each of the parties shall not be considered as exclusive, but shall be construed cumulative and shall be in addition to every other remedy now or hereafter existing at law, in equity, or by statute. No delay or omission of the right to exercise any power by either party shall impair such right or power or shall be construed as a waiver of any default or as acquiescence therein. One or more waivers of any covenant, term or condition of this Lease by either party shall not be construed by the other party as a waiver of a subsequent breach of the same covenant, term .or condition. The consent or approval by either party to or of any act by the other party shall not be construed .to be a consent or approval of any subsequent similar act. (cj The headings contained in this Lease are for convenience only and do not define, limit or construe the contents hereof. All negotiations, considerations, representations and understandings between the parties are incorporated herein, and may be modified or altered only by an agreement in writing between the parties. (d) The covenants, agreements and obligations contained herein shall extend to, bind and inure to the benefit of the . parties hereto, their respective successors and assigns. (e) The District represents and warrants that it has full right and authority to lease the Premises to Lessee and to otherwise enter into this Lease on the terms and conditions set forth herein. The provisions of this Lease shall replace and supersede in all respects the terms and provisions of that Lease between the District and Lessee dated May 14, 198?, and ' any amendments thereof. _ (f) This Lease shall be governed by and construed in accordance with the laws of the State of Colorado. (g) District's or' Lessees submission of this Lease for the other's execution, shall not bind either party hereto in any manner, and no binding obligations of either party hereto 24 shall arise unless and until the Lease has been executed by and delivered to both District and Lessee. 24. 7~ttoraape' Maas. The District and Lessee agree that in the event any legal action or proceeding is commenced to enforce the obligations set forth~in this Lease the prevailing party shall be entitled to an award of all reasonable costs and expenses including but not limited to reasonable attorneys' fees. 25. Notices. Whenever under this Lease a provision is made for a notice of any kind, such shall be in writing and signed by or on behalf of the party giving or making the same, and shall be deemed sufficient notice of service thereof if such notice is to the Lessee and sent by registered or certified mail, postage prepaid to the last post office address of the Lessee furnished to the District for such purpose, or to the Premises; and if to the District, sent by registered or certified mail, postage prepaid, to the District at the address furnished for such purpose or to the place then fixed for the payment of rent. If the Lessee is more than one person, notice need be sent to but one Lessee. The District's initial address for notices is 292 West Meadow Drive, Vail, Colorado 81657. The Lessee's initial address for notices is P.O. Box 1827, Vail, Colorado 81658. 26. IIss of the Starterhouse by Distriot. Between November 1 and April 30 of each year during the Term, the District shall have the right to take possession of the Starterhouse and utilize the Starterhouse for purposes of cross country skiing on the Golf Course and related uses. Upon use of the Starterhouse by the District for cross country skiing purposes the District covenants not to violate any of the laws of the State of Colorado or the Town of Vail, including but not limited to, the liquor licensing laws thereof. The District shall be liable for all costs and expenses of operating the cross country ski operation on the Starterhouse premises. 25 IN WITNESS WHEREOF', the parties hereto have caused this Agreement to be made the day and year first above written. t Ste, ~ VAIL PARK AND RECREATION DISTRICT, a Colorado quas i ATTEST: municipal corporation gy; By: Secretary President ~ $F ~ STEVEN SATTERSTROM, INC. a Colorado corporation ATTEST: By: By: Secretary President 26 - GUA~TE For value received, STEVEPI SATTERSTROM hereby guarantees the payment of the rent and the performance of the covenants and agreements in manner and form as in said Lease provided. Steven Satterstrom STATE OF COLORADO ) _ ) SS. COUNTY OF ) The foregoing Lease Agreement was acknowledged before me this day of , 1992, by o as President and , as Secretary of Vail Park and Recreation District, a Colorado quasi-municipal corporation. Witness my hand and official seal. My commission Expires: • Notary Public STATE OF COLORADO ) SS. COUNTY OF ) The foregoing Lease Agreement was acknowledged before me this day of , 1992, by Steven Satterstrom as President and as Secretary of Steven Satterstrom, Inc., a Colorado corporation. Witness my hand and official seal. My commission Expires: . Notary Public 27 a d®~1 ~ i~1 m The undersigned, as Lessor under the Ground Lease for the Premises, hereby consents to the terms and conditions contained in the foregoing Lease Amendment. ( SEAL] ~ TOWN OF VAYL, a Municipal corporation ATTEST: By° By: Pamela A. Brandmeyer, Rondall V. Phillips, Town Clerk Town Manager Dater 28 LIBT Ot E7~IBITB EXHIBIT A Premises (Depicting Golf Course, Clubhouse, Restaurant, L Room and Starterhouse) EXHIBIT B Hours of Operation EXHIBIT C Site for (35) Parking Spaces F.XHIHIT D Inventory of Equipment 29 . ,.---t-~• - i . .l,J ~ ,,i ~,J ~j'~y':s , ' ,~ic Z ~.y ~,':i t ~ ~c:. ` Y"4}~ y:° is ` r~ ' - _ • • ~ m .t.: "~i `PS, ~';4`1lt3Y w` ;.,Z~Yf ~t .i t:: X•••• • ~Y. r.~ _ . ~ ~ , _ ~ . . ~ ~ 1 . , x ~ ~ . ~ - ~ ._-dust-__.. j . ;.`i . .Y l1`i _ ® I i ILI_ _ . ~ ~ • • ~ ~ VAtE-. ~gnLF" Cot~Ft4'.~ cLC1~HOU~C '~tJOV~,"~~~~lt~ r ~~1 ~ ! ~:~a taor~. ar ` 1r 1•~•np.1 q~'. J Ii ~`II!)r r I,~ . : I ' ~ i ' • . M•AOIf~ EsGLE gWINTY ~ WHITE RIVER NATIONAL FORESt t~ , m TOWN OF VAIL BOl1NDARY rsaasee ~ t r• e. a•~i rRrs~m tss• o r•ia oa ~ ~ L ® "'p a.st.a rau rm oa °1' • : - _ _ NTERSTATE 70 ~ ~ ~ - ~ A: P i ~ filet r~Q-. Cr; aa-""' _ • , ~ wo mwn ~ -rw °r err yrr FCIR~ P11RK ~s~- , . ..r • y~ ~;r o o e r. r a~ -e _ ~ • m +rer • r • w • ~ r••m. a •0 'r a a • w rw r - I r~ _ • " r1O,• ~~e. W11L NfLL/MrE 7th FIUfV(i L~ i.'.wr•V 7 r f • . ~ . • ~ , •q wer • . /1 wr.wpio.~~~ J "yam. o ki r.~.o,.~ II - - - E/~CLE. OOUNTd X61 LL EIIAtAF~G~Ia 1m ~iw~.:l•~• I 1.. r..ar - - - ~ r _ . ~ - ~il~ _ : _ ~ sva_ 1, l~ ! ~ r T ff t • ~1 wL va,,,,,wE is,h ia..+v a . r Iw eera+ s r o WHITE RIVER = • M NATIONAL FOREST : • • p a M W} ~ A I.W IM 1 ~ i MM.M. I~ TOWN OF VAIL BOUNDARY t~ ~ ~ I 3 1 ~ • ~ / n~ .I 4 ~ Y. 1 tdTERSTATE 7C 4 - ` ' ~ _ WHITE RIVER . ~ ~ NATIONAL FOREST VAIC VAl-lEY \ 4M. FI~HVG ~ :w r ~ .'w w rYtr • U w VAIL L N » v • ® ~.VAI.I.£Y 3rd flLING . ~ e ~ + - j~ . ; ~ ~ ~ ~ A AESlS8f3,V15,ON Of A . ; •r f SUN8l17SST Jl i i!r wR: w • s w , r r. ti . • ~ r. plaRitEN PULI$! ~ WIL vAt•~1L2n4 fly ~ • ~gp1/ISION ..a..: e. 1 _ _ . I p . ~?sa.. gorl 3 • W1L V0..LAGE 13 Mt F~RdO e.'.. " OO WIL VILLAGE 12M~. F~INO ~ wIHITE RIVER ro.s. a / • ' ~ r r ~ NATIONAL RAREST ~ o m..~ o ' OO . ° .d ® r V11l.LLA$GE 101~2F~'LING ~ r •rw r a••r• mr• • • e ~ V ' Ian ..r w O Ye ro•n• ° sll~ i m~a nr• 1 d r • ri+ mw reatr D N~ • • 1 a wens ~ ~ ro'r ~wrre l~l® Ica,~a. sueolY~s~el-O~~~iw lm~-'~-"~ 13+A_Fr,1CNti~ l Vlll 11~ U BiTER3TATE YO ~ e r•.• eaw ® .eALIRD 1 u • ,r O • • r • m ° ~ ° ~ 7 ° , • ~ VAIIVB..UMiE III. F~.l?,~ ~ ~T E ..r.rn• VAIL~VIQLL~AG~ ~tA~FILI~Ki \ ~`\41APA er.°r.•o ~ no \ FIRST A0D7T~N ~ i ~ U 1 TOWN OF VAIL 60lJNDARY - _ , ~..--re ~ \ ' • \ ~ e. SEC O Ap01T10N "7 ~ - ~ ~.c- 1: F~r,r %1~ r,3 ~ \;d u ~a 11 \ ~ _ . _ r r • r- EXHIBIT B HOURS OF OPERATION 1. FROM OPENING DAY UNTIL THE VRD CHARGES FULL SEASON RATES FOR GOLF: The Restaurant or the Starter Shack will be open from fifteen minutes before the first scheduled tee time and will remain open until the last golfer with a scheduled tee time completes the round. Beverage cart operates at the discretion of the Lessee. 2. DURING THE TIME THE VRD CHARGES FULL SEASON RATES FOR GOLF: The Starter House will be open from fifteen minutes before the first scheduled tee time until the last golfer with a scheduled tee time begins the round. The Starter House or Beverage Cart will remain open until the last golfer with a scheduled tee time completes the first nine or 6:00 p.m., whichever occurs last, weather permitting. The Restaurant will open witrx a "full service" menu from 11:00 a.m. until 8:00 p.m. From 8:00 p.m. until thirty minutes after the last golfer with a scheduled tee time completes the round a "grill" menu consisting of soup, salad, and sandwiches will be available. 3. FROM THE TIME THE VRD REDUCES RATES FOR GOLF UNTIL CLOSING DAY: Same as #1 above. ~~~a~g~T_ G G p tT'•~ 11~- ~ . .r' o . ' r " • I • • , ' r, GPfb'~" 7'l.AYJ? ]y s • ~ ~ ~ . o o _ ) ~ i ~ ~ n / , ~ ~ b N ra • _ ~ N ~ ..w.r 1 ~ • . -`VYVt_-=c~l:r' ~ptJsz.~r~ CwfyX7c~v;r~ •crs~NovA~t'i~o~! EXHIBIT D INVENTORY OF EQUIPMENT STARTER HOUSE (Kitchen & Furniture) 1 Delfield 4048 Compact Refrigerator 1 set casters for delfield 4048-8 1 Hobart WM-ES3 undercounter dishwasher 1 AMF WYOTT HR-40 Hot Dog Cooker 1 Husshan star SM-81C Display Freezer 1 Plexiglass full cover for display freezer ' 1 Lacrosse Metal Masters Ice Chest with sealed-in cold plate, freestanding 1 vegi sink-single compartment sink with integral drainboard 1 utility sink/hand sink - stainless steel 1 SS-505 Disposal for sink mounting with manual switch 20 stacking chairs, 7 tables 1 ABC Kidde Fire Extinguisher CLUBHOUSE RESTAURANT (Kitchen & Furniture) Beverage Cooler (2 sliding doors on top) Bar Mixer - Hamilton Beach Sink - 3 Compartment Ice Cream Freezer - Kelvinator Refrigerator - Delfield Salamander/Wolf US Range "Char-Glo" Grill Deep Fryer with two baskets - Frialator Dry Table with wood cutting surface - Aerohot Metal Counter Can Opener 2 Drawer bun warmer (built in) Toastmaster Walk-in Cooler - Norlake CT5863/80918R (no compressor) Walk-in Roll-out Storage Tray (full size) Heat Lamp -Merco EZFW48 Pot sink - 2 compartment 42-16-2-24 Sandwich Refrigerator - 2 door Delfield Garbage Disposal - waste king WK125-1 20 Dining chairs, 8 square wood block tables i\ / All. GOLF" CIA:e .IONV A. DOBSOI ARF:~A . /j J0~-(79-2260 J21 f'yst Li^mhrad Circk FORD TENNIS CO\1PLF:X Vai1• t^I^nd^ 81657 JOJ-f79-2271 ail cre io 30379-229' ~tARKf:TItiGlSPECIAI- EVEN'iS NAIL YOLTH SERVICES D I S T R I C T SPORTS J95 F3w Lans6ead Circk 30}379-2279 vai1. C^bndo 8(657 JOJJ79-2.92 VATCRF. CEtiTER 292 ~~'est Meadow Drive • hil. Colorado 81657 303-179.2291 303-~79-2279 • FAX 303-t'19-2197 November 6, 1991 Ron Phillips, Town Manager Town of Vail 75 South Frontage Road Vail, CO 81657 Dear Ron: I have begun to work on next summer's programs and events and one issue continues to resurface for me. I would like your thoughts and suggestions relative to this issue. I would like to propose a no glass ordinance for all athletic park facilities to-be in effect before this coming summer season. We now try to suggest and request that no glass bottles be brought in, but there is no way to control it. From time to time'it becomes a problem and with the number of people who congregate there for events, it continues to create a potential problem area. Please give~me a call as I would like to discuss all the options or concerns with you. I have briefly spoken with Larry Eskwith and his suggestion is to start with you. Sincerely, Stephen Foster Recreation Supervisor/Sports SF/tlt .y ' DESIGN REVIEW BOARD AGENDA FEBRUARY 5, 1992 3:00 P.M. SITE VISITS 1:00 P.M. 1 Craythorne - 2701 Davos Trail 2 Erickson Residence - 1385 Westhaven Circle 3 Stevenson Residence- 1230 Westhaven Circle 4 Norris Residence - 486 Forest Road 5 Lionshead Auxiliary Building - 395 Lionshead Cir. 6 The Club --304 Bridge Street 7 Grasis Residence - 2807 Aspen Court 8 Gerald R. Ford Amphitheater - 530 Frontage Road E. 9 Town of Vail Municipal Bldg. - 75 S. Frontage Road AGENDA 1. Vail Village Transportation Center confirmation KP/TO of selection of benches and planting containers. 241 S•. Frontage Road. MOTION: SECOND; VOTE: TABLED TO FEBRUARY 19TH MEETING'. 2. Stevenson Residence - New Primary/Secondary JK Revisions to previously approved plans. 1230 Westhaven Circle/Lot 32, Glen Lyon Subdivision. MOTION: George Lamb SECOND: Sherry Dorward VOTE : 4-0 Subject to GRFA check at building permit. Ridge heights not to exceed 33'. 3. Norris Residence - 250 Addition to separated primary JK unit (east). 486 Forest Road/Lo.t 1, Block 1, Vail Village 6th Filing. MOTION: George Lamb SECOND: Sherry Dorward VOTE: 4-0 Approved. 4. Craythorne - Tow to be constructed between garage & AK , residence, 2701 Davos Trail/Lot 15, Block B, Vail Ridge. MOTION: George Lamb SECOND: Pat Herrington VOTE; 5-0 Consent approved. ~ e 5. Erickson - New Single Family Residence - CONCEPTUAL AK 1385 Westhaven Circle/Lot 51, Glen Lyon Subdivision. MOTION: SECOND: VOTE: Conceptual Review. 6. Grasis - New Single Family Residence-CONCEPTUAL AK 2807 Aspen Ct./Lot 12, Resubdivision~of Tract E, Vail Village 11th Filing. MOTION: SECOND: VOTE: Conceptual Review. 7: Lionshead Auxiliary Building - Directory Signs BR 395 East Lionshead Circle. MOTION: SECOND: VOTE: TABLED TO FEBRUARY 19TH MEETING. 8. The Club - New Door BR 304 Bridge Street/Red Lion Building. MOTION: SECOND: VOTE: TABLED TO FEBRUARY 19TH MEETING. 9. The Cascades/Millrace IV/Cosgiff Parcel - Final SM review of development. Unplatted parcel located between the Westin Hotel and the Millrace Development in Cascade Village. MOTION: SECOND: VOTE: TABLED TO FEBRUARY 19TH MEETING. 10. Gerald R. Ford Amphitheater - CONCEPTUAL MM Expansion of seating area, weatherproofing and new orchestra pit. 530 Frontage Road East/Ford Park. MOTION: SECOND: VOTE: No vote taken for conceptual review.• 11. Town of Vail - Modification to air conditioning JK unit for computer room. 75 S. Frontage Road, Municipal Building. MOTION: George Lamb SECOND: Pat Herrington VOTE: 5-0 Consent approved. MEMBERS PRESENT: MEMBERS ABSENT; George Lamb Sherry Dorward . Pat Herrington - (absent for a portion of the meeting) Ned Gwathmey Diana Donovan (PEC) STAFF APPROVALS: Double Diamond Printing & Copy Centers -Sign on awning. 1000 Lionsridge Loop/Nail Run Building. • Lifthouse Lodge Addition - Banner Sports clerestory window changes. 555 East Lionshead Circle. Duke Residence - Storage shed. • 182 West Meadow Drive/Lot 5, Vail Village 2nd Filing. • Timberfalls - Add hot tub east of Building #4. 4496 Meadow Drive. Zneimer-Lot 3 - Change window from DRB approval, change dormer configuration. Lot 3, Zneimer Subdivision. Hughes Precious Metal - Sign. 555 E. Lionshead Circle/Lifthouse Lodge. Tynan Residence - Entry Change and hot tub. Vail Point/Lot 1, Block 3, Lionsridge #3. 5chink - Portable hot tub. Lot 1, Block 1-A, Bighorn 5th • Villanueva window - Add window on west side ground floor next to chimney. 4460 Timberfalls Court, Unit #1602. Coldwell Banker Display Box. 286 Gore Creek Drive/A & D Building. Pyka Residence - Addition and remodel of second floor. 4879 Meadow Drive/Lot 15, Block 5, Bighorn 5th. Q°~ 1 ORDINANCE NO. 3 t SERIES 1992 AN ORDINANCE AMENDING SECTION 8.24.090 OF THE MUNICIPAL CODE OF THE TOWN OF VAIL, COLORADO, TO PROVIDE FOR THE OWNER OR OCCUPANT OF ANY PROPERTY WITHIN THE TOWN OF VAIL TO KEEP THE SIDEWALKS IN THE PUBLIC RIGHT-OF-WAY ON ADJACENT OR ABUTTING SUCH LOT OR PARCELS FREE AND CLEAR FROM ICE, SNOW, AND OTHER OBSTRUCTIONS. WHEREAS, the Town Council of the Town of Vail, Colorado, believes it wily benefit the health, safety, and welfare of the citizens of the Town of Vail if the owners or occupants of property within the Town are obligated to keep the sidewalks in the public right-of-way on adjacent or abutting such lot or parcels of land free and clear of and from ice, snow, water, and other obstructions: NOW, THEREFORE, be it ordained by the Town Council of the Town of Vail, Colorado: 1. Section 8.24.090 of the Municipal Code of the Town of Vail is hereby repealed and re-enacted to read as follows: Section 8.24.090 A) It shall be the duty of every owner or occupant in any lot, property, or parcel of land within the Town, or his agent, to keep the sidewalks in the public right-of-way on or adjacent to such lot or parcel of land, free and clear of and from snow, ice, mud, and all other obstructions. It is unlawful to fail to keep the sidewalks free and clear of snow, ice, mud, and all other obstructions. Snow, ice, mud, and other obstructions cleared from sidewalks shall not be deposited in public streets or alleys. B) If the Town Manager or his designee finds that any portion of a sidewalk has not been cleared of snow, ice, mud, and other obstructions as required by Subsection A of this Section and that a hazardous condition exists, the Town Manager or his designee shall notify the owner or manager or any property, the lessee leasing the premises or any adult occupant of a single-family dwelling that such person must remove the snow within twenty-four hours. Notice under this Subsection is sufficient if hand delivered or telephoned to the owner, manager, lessee, or occupant. C. If the person so notified fails to remove the snow as required by the notice set forth in Paragraph B of this Section, the Town Manager or his designee may cause the snow removal to be done to meet the requirements of this Section and charge the cost thereof, plus and additional amount up to $25.00 for administrative costs to the person so notified. D. If any person fails or refuses to pay any charge imposed under this Section, the Town Manager may in addition to taking other collection remedies, certify due and unpaid charges to the Eagle County Treasurer for collection. 1 ~ > 2. If any part, section, subsection, sentence, clause or phrase of this ordinance is for any reason held to be invalid, such decision shall not affect the validity of the remaining portions of this ordinance; and the Town Council hereby declares it would have passed this ordinance, and each part, section, subsection, sentence, clause or phrase thereof, regardless of the fact that any one or more parts, sections, subsections, sentences, clauses or phrases be declared invalid. 3. The Town Council hereby finds, determines, and declares that this ordinance is necessary and proper for the health, safety, and welfare of the Town of Vail and the inhabitants thereof. 4. The repeal or the repeal and reenactment of any provision of the Municipal Code of the Town of Vail as provided in this ordinance shall not affect any right which has accrued, any duty imposed, any violation that occurred prior to the effective date hereof, any prosecution commenced, nor any other action or proceedings as commenced under or by virtue of the provision repealed or repealed and reenacted. The repeal of any provision hereby shall not revive any provision or any ordinance previously repealed or superseded unless expressly stated herein. 5. All bylaws, orders, resolutions, and ordinances, or parts thereof, inconsistent herewith are repealed to the extend only of such inconsistency. This repealer shall not be construed to revise any bylaw, order, resolution, or ordinance, or part thereof, theretofore repealed. INTRODUCED, READ, APPROVED, AND ORDERED PUBLISHED ONCE IN FULL ON FIRST READING this day of , 1992, and a public hearing shall be held on this Ordinance on the day of , 1992, at 7:30 p.m. in the Council Chambers of the Vail Municipal Building, Vail, Colorado. Margaret A. Osterfoss, Mayor ATTEST: Pamela A. Brandmeyer, Town Clerk READ AND APPROVED ON SECOND READING AND ORDERED PUBLISHED this day of , 1992. Margaret A. Osterfoss, Mayor ATTEST: Pamela A. Brandmeyer, Town Clerk C:\ORD92.3 2 . ~ a r ~ , . V v • ~t c ( T, f • ~c WORK SESSION FOLLOW-UP ~ February 7, 1992 Page 1 of 2 TOPIC QUESTIONS FOLLOW-UP SOLUTIONS i 818189 WEST INTERMOUNTAIN COUNCIL: Proceeding w/legal requirements for County is not renewing contracts for snowplowing, ANNEXATION annexation. animal control, and police services. Ron to speak to (request: Lapin) Cindy Callicrate. 7127 UNDERGROUND UTILITIES IN LARRY/GREG: Work with Holy Cross Electric to New options for allocation of costs will be presented EAST VAIL establish special improvement district(s) for to Council in a timely manner to be included in the underground utilities in East Vail. required notification of the affected property owners in the proposed special district. Notices were mailed the week of February 3rd. Public meeting is set for 3/3/92. 05/07 SALES TAX COLLECTION LARRYISTEVE: Research remedies to change this to Draft ordinance forwarded to Forest Service and VA for (request: Gibson/Lapin) a mandatory TOV tax collection. review. Larry Lichliter states review will take another 30 days. (Review 2118/92) Ron checked will Bill Wood. Response was due 1/24192. Bill checking on its whereabouts. 07109 SNOW REMOVAL ON PRIVATE LARRY: Research ordinance. Larry has been asked to prepare an ordinance for SIDEWALKS discussion at 2111192 work session. 09/17 STREET LIGHTS PETE BURNt i i : The LionsHead Merchants Public Works will present analyzed data by spring of (request: Levine) Association would like to see a couple changes, '92. which might include some of the lighting by Montaneros, which is too bright, and placing it in front of Gallery Row in the Treetops Building. 11119 NEWSPAPER VENDING LARRY: What can be done to make these uniform and Scheduled for discussion at work session on 2118192. MACHINES locations less prolific? 12103 CONSENSUS BUILDING/ COUNCIL: Carl Neu will be conducting ahalf-day This special session will be held in the St. Moritz GOAL SETTING goal-setting seesion on Tuesday morning, 2118/92, Room of the Sonnenalp. from 8:00 a.m. - 1:30 p.m. Work session will follow in Council Chambers at 2:00 p.m. WORK SESSION FOLLOW-UP February 7, 1992 Page 2 of 2 TOPIC QUESTIONS FOLLOW-UP SOLUTIONS 12117 LIONSHE~AD MERCHANTS MTG. KRISTAN: This group meets the first Tuesdav of each Kristan has spoken with new leader, Packy Walker. month. We have scheduled for 3110/92. (Merv, Peggv, Rob, Jim G., Ron, Kristan, Diana Donovan, Ned Gwathmev) 01!07 VILLAGE LOADING AND EVERYONE: A community meeting with Arnie Ullevig Staff is organizing a report for discussion by Council. DELIVERY ISSUES was held on Wednesday, 1/15/92. Staff meeting scheduled Monday, 213/92, 1:00 p.m. 01107 KINSLEY RON: Schedule a 15 minute presentation by Fred This presentation has been tentatively scheduled for GEOTECHNICAL, INC. "Skip" Kinsley re: oil and gas exploration in the the regular evening meeting on Tuesday, 2/18192, greater Vail area. 01/21 EVENING PARKING MIKE ROSEISTEVE B.: Evaluate financial Research is underway. STRUCTURE FEES ramifications of eliminating parking structure fees (request: Lapin) after 6:00 p.m. each night. Further review summer free parking, generating numbers to show revenue and expenses if some nominal fee were to be charged. 01121 BEAVER POND KRISTAN: Gheck with FEMA experts and Interfleuve Will do. REVITALIZATION to see what solution might be appropriate to revitalize this pond (i.e., dredging or other means). 02104 HERITAGE CABLEVISION RON: Prepare new letter of protest for Mayor's FRANCHISE NEGOTIATIONS signature. XC: Newspapers, Dillon, Minturn, etc. (request: Lapin) 02104 CLUB TWENTY MEETING TOM STEINBERG/JIM SHEARER: Notify Tom Narned whether one or both will attend the February 14-15 conference at the Grand Junction Holiday Inn./328-2327 ~ i atbyr' . I Ji . ~l ~~ax ~ ~ ~~L a~~^ ~ ~~~f~~~~ ~~~~~~L uw'~ ~ - N - THE WALL STREET JOURNAL MONDAY, JANUARY 27, :1992 Gettu?g Control ' Their stock transactions -often only ~ partially disclosed in federal filings .and usually unavailable to other shareholde?•s- may or may not have violated securities Cable Cabal ~ laws; the law prohibits corporations from withholding important information from . ~ shareholders. But the objective of the deal- The Rise of Giant TCI ings appears clear. Through these and ~ • other transactions, the two nten built one of the most influential and feared conrpa- , Is rVlarked by Bullying, Hies in the television industry, and granted themselves effective control over it. Many Founders' Self-Dealin contend that consumers ultimately paid g the price, as TCI worked to squelch compe- tition in the cable industry. The accunudation of that wealth and Com lex Transactions Enrich TCI emphatically denies engaging in the sheer girth of TCI will undoubtedly p any questionable transactions with its top draw the interest of the U.S. Senate this two officers, or anyone else for that mal• week, as lawmakers begin debating Principals; Tough Tactics ter. Any suggestion tllat "when we paid whether the cable industry has become Magness and Malone shares we were pay- monopolistic and whether additional regu• BIOCk Cable-TV Rivals iug then[ for assets we already owned is lation is needed. TCI and Liberty Media false," a spokesman says. He cautions, operate in 98 states and dwarf their next• )towever, that the denials and elaborations largest rival, Time Warner Inc. TCI alone Who Owns What In Utah? are based on the "collective recollection" generates cash flow of $1.7 billion ayear- of TCI executives, and that he didn't con- more than ABC, CBS, NBC and the Fox By Joxrvrvre L. RosEx2s sult Messrs. Magness and Malone, who de- network combined. Annual revenue ap- stajjRepoker °jTt~Ewni.t.sTeFCrJouRNn~ clined to be interviewed specifically about preaches $4 billion. TCI and Liberty own In many ways, Tele-Conununications tl[e U•ansactions. Further, the company stakes in four of the top 10 cable channels Inc. is a classic tale.of bootstrap American says it was unable to retrieve records from a?uf have an interest in nine of the top 2a, entrepreneurship. From a tiny company storage that bear on the internal stock including Cable News Network, Turner struggling in the scrubland of West Texas, dealings. Broadcasting System, Turner Network TCI has built itself into the world's biggest The spokesman says allegations the Television, the Discovery Channel and cable-television enterprise. One of every company is a Lnrlly in the nrrrket are also Black Entertainment Television. I ~ ~ false. He says TCI The company's critics say TCI's verti- five American cable users is wired into TCI in one way or another, and about 'l0"i° just tries to offer the cal integration-ownership of both the lo- ot the industry's entire revenue flows to best service at the cal cable systems and the channels that _ ; ~ best possible price, provide to ? rnunin for those stems= this behemoth. P • .g •t g Y To many of its rivals and customers, " ~ ~ amid rising competi• gives it unfair power and is one of the best ; Lion. ar uments tar though, TCl represents not the best but y~y z-. , g greater regulation of the in- the worst in American business-a monop• ~ Fnr his part, Mr. dustry. The company's outside sharehold- • ,.1 Malone does say in ers, however, couldn't be happier. A dollar olistic, sU•ong-arm bully, they say, th~:rt an interview that, in Please T urn to Pa e A5, Column 1 squeezes other cable operators, denies free S~ ~ 9 com etition to ` 'a _ general, TCI'strans- p programmers and fla• ~ ~=a actions with its top granny disrupts the plans of rivals. 'The = ~ • "ringleader" in the "cable Cosa Nostra" ~ officials are merely , is what Sen. AI Gore of Tennessee calls ` j~~`; a way of supple- 1%~;„ nu:nting salaries TCI. Contends Mei Cohen, the mayor of Morganton, N.C., where TCI operates a ca-- Bob Maness and leaching top ble system: "TCI is trying to crush ow. brassaboutdifferent city government." aspects of the cable business. "TCI has one TCI, which owns more than 1,000 cable o[ the lowest, if .not• the lowest, salary systems, is also very tightly controlled. structures in corporate America," he said. Bob Magness, TCI's founder and chair- The deals have "allowed us to build wealth. man, and John C. Malone, its chief execu- over time." • tive, built and dominated the company hr Messrs. Magness and Malone are paid part through internal self-dealing, an in• a bit under $500,00(1 a year each and con- vestigation by The Wall Street 3om•nal trot a combined 3fi°I° of shareholder votes shows. In one case, the two sold to TCI a ut TCI. When TCI spun o[f some assets into group of Utah cable systems the company a company called Liberty Media Corp.-a apparently already owned. move designed to answer charges that TCI had become too dominant-the two execu- tives quickly acquired 5G°/° of the voting shares of that comli~ny, too. The market value of their combined holdhrgs is nearly $700 million. - - Yet fur alt u[ his influence, the soft-spo- C,orili~ced From First Ptcye ken Mr. IVtalone remains a sU'angel` to invested-in TCI •stock in the mid-1970s is many iu the field. Says cable broker Bill •worth more than $800 now. TCI has "given Daniels; who shares a skybox atop Den- us a tremendous return," says Keith Hart- ver's Mile High Stadiwa with Mr. Malone: .man, with Associated Communications "I just don't know anyone close to hirn." What is known about the transactions is this: Corp., an investment company in Pitts- Fuiaucial Acumen ~ The deals began in 1979. Because of the _ burgh. Associaled's $7 million investment ~ Mr. Malone, who holds two master's de• cross-ownership ban, and because the in TCI in 1979 has swelled to well over $300 ; grees and a doctorate in operations re- Hatch family stake in TCI hadn't yet been million. If TCI were sold today the cony ~ search, has served as TCI's strafe is sold, TCI couldn't )ursue an new cable parry would probably fetch at least $15 bit- ~ thinker and financial alchemist, deftly systems in the SaltlLake City market, the lion. managing the company as a portfolio of company said in public filings. TCI none- Noshareholder has benefited more than ~ cable assets and buying, shifting, marry- theless wanted the unawarded Utah fi•an- Bob Magness, acigar-chomping, rough- ~ ing and decoupliug them in ways that chisesiri "friendly hands," Mr. Malone re- hewn rancher who started TCI with the ~ boosted their value. More than any other called in an interview. purchase of a single system in Memphis, ~ indusUy executive, Mr. Malone pulled the So the TCI board.w•ged Messrs. Mag- Texas. At age 68, he is worth over $~i00 ~ financial conuauuity onto the cable baud- ness and Malone to form their own private million. For alt his wealth, Mr. Magness wagon, getting Wall Street to focus on the company to pursue the Utah franchises, eschews the life style of the rich and fa- ~ business's surl,•iug cash flow. with the idea that TCI would ultimately moos. For two decades he has lived in a , But that higher profile had a downside: buy the properties from the executives. modest ranch house atop a plateau over- ~ It increased !.he chances that TCI might •They and their inuaediate kin set up a new looking Denver. "You go to his house for ~ become a target v[ corporate raiders. entity: Community Cable of Utah Inc. dinner and everyone takes his shoes off, That risk grew in 1979 as Salt Lake A 1 Ili for FrancliIses ?more or less," says Rudy Wunderlich, a ; pp Y g City's Hatch family prepared to sell off its friend. The cable magnate has been known sizable stake in TCI to con)1)ly with the ban TCI, it turns out, had a subsidiary that to shift a cigar to a corner of his mould, ~ used that same name as a trade name. ou cross-ownership. "With the. Hatches resting it there while eating a T-bone i gone, IMr. Malone I felt the company was Through that subsidiary, and despite the steak. "He ain't very happy in a tuxedo," ~ more vulnerable," says James Hoak a•., a ban on cross-ownership, TCI had already another friend says. ~ former executive at Ileritage Media, a applied for and received quite a few Utah These days, Mr. Magness spends little ; TCf-owned group of cable systems. cable franchises, local and federal records time on TCI's day-to-day affairs. I-le raises , What to do'? TCI started to adch•ess the show. horses and collects Western art, passions ! , For example, in 1979 Ule towns of Span- problem in 197J by creating a new class of he pursued with his first wife and business ~ ish Fork, Sandy, Salem, and Payson City partner, Betsy. She died in 1985, and he ; uig power ovBrsthe more widely held Class all awarded franchises to a TCI. subsidiary has since remarried. ~ known as Comnnrnity Cable of Utah Inc. • He [orn)ed his cable company in 1956. ~ A shares. Now TCI had only to find a way But this Community Cable of Utah, records to get the bulk of the Class B shares into As lore has it, Mr. Magness, a short and friendly hands-such as those of Messrs. show, was registered in Nevada. The Mag- rugged Oklahoman, sold some cattle for ness and Malone=owned Community Cable Magness and Malone. foods to buy the franchise in Texas. (A The t.wv rncnl embarked on a bout of so• was incorporated in Utah and was, legally, franchise is the right to build and operate ~ phisticated self-dealing that ultimately a separate and unrelated entity. a cable system, and is usually awarded b,V All of these franchises, however, would local authorities:) From there, he and end up belonging to Messrs. Magness & Betsy began collecting cable systems in would have TCI pay them a huge. chunk of Malone. Records don't make clear how this the super-voting sh.u•es. The cleats were so Montana, Nevada, Colorado and Utah. happened. complex they almost seemed designed to In February 1981, after the Hatch fanr Finding Support befuddle: ?r one case, they involved fom• By the mid-1960s,. Mr. Magness needed separate conrpauies with almost the exact ily stake in TCI had been sold, TCI ac- backers. He found two in Salt Lake Cil y Messrs. Mag_ quired Messrs. Magness and Malone's y- same name-two owned b Community Cable of Utah, paying them [he Gallivan family, which owns the local ness and Malone, two owned by TCI-and and their family members 360,000 Class B , newspaper, Salt Lake City Tribune, and the swapping of Utah cable franchises and shares of TCI. The com an s assets, the Hatch family, owners of local televi• systems among them. P' Y listed in disclosure documents, included at sion station KUTV. (The fatally isn't re- Beck and Forth least one of the very same franchises and gated to that of Sen. Orrin Match.) Acting through sn)all subsidiaries, TCI the system built under it-Sandy-that The investment by the Hatch family first bought up Franchises around Salt TCI's Community Cable unit had acc aired would prove prgblematic years later, when Lake City. 'Then 'l'CI transferred the Fran- a few years earlier. The assets also in- thefederal government barred "cross-own- ership" of local TV stations and cable sys- chises-it isn't exactly clear how-to sepa- eluded 260,000 shares of Class A stock. tears in the same conuuwrily. Birt with rate Magness and Malone companies with 'I'CI executives give contradictory ac- the families' help, lVir. 1Glagness incorpo_ .Ilnu)sl the Bone names as the TCI subsidi• counts of how TCI's Sandy Franchise ended rated TCI in 1968 and look it public in .)ries. Later, 'l'Cl bought the Magness l~ up as the properly of Messrs. Magness and 1970 Malone entities-even though TCI had Malone. First, Bernard Schotters, a TCI By 1973, though, TCI was flirting with owned Borne of the franchises in the first spokesman, said the franchise had be- bankruptcy: Mr. Magness, it seemed, place, longed to the two executives to begin with, lacked the skill to build and manage TCI The price: uearl-y one million of the su- but that Sandy officials insisted on naming as a modern enterprise. So he turned to Per-voting Class B shares, which 1'Cl paid the TCI subsidiary as the official owner. Mr. Malone, a young Connecticut native to Messrs. Magness and Malone over five Then, he and another spokesman, Rub- and Yale-educated financial virtuoso who Years. The stock, anrounling to l3 h of all ert Thomson, revised Lhe explanation to was then the president of a TCI supplier. shareholder votes by early 1991 and worth say that TCI, indeed, had first owned the Shortly after taking over as TCI's presl_ about $140 million al the tinge, essentially Sandy franchise, but had "assigned" it to dent, Mr. Malone summoned TCI's impa.- gave the two tot) executives enough voting another Magness and Malone entity, Cone tient lenders to a meeting, the story goes, Power', when added to their existinl,* stakes, nurnity Television of Ulah. In return, and ga~~e them an ultimatum: Either back to block any move they didn't like. Messrs. Magness and Malone "paid" TCI off or take over the com In The lenders Records don't make it clear, but it ap- by granting TCI the right of first refusal to p` y' pears the transactions could have gone one buy the Sandy property back. backed off, and TCI was able to refinance. Its quest for expansion resumed, fueled by of at least two ways: Messrs. Magness and mow)taius of new debt. Malone paid only a sn)all sum for TCI's Today, Mr. Malone, age 50, is•cable's Utah franchises and sold them back al a most visible and formidable figure. He large Profit; or the pair received the fran- crafted the industry's $560 million rescue • chises free and sold them back to the cony of Ted Turner's debt-laden business in parry. L+'ither way, the transfers weren't 1987, which enabled TCI to gradually take disclosed to the Securities and Exchange a 25% stake in Turner Broadcasting Sys- Commission. - tem Inc. A TGI Entity Later, the TCI spokesmen said [he Mag- TCI has played a similar form of hard- But local record's show that Community ness and Malone company had been ball with its rivals. Its source of power- lies Television of Uhah isn't owned by Messrs. awarded at least two of the franchises in- iu thE; fact that the sheer size of its sys- Magness and Malone-it is yet another unit volved by Utah 1U1t110r'It1eS. BUt IOCaI YEC- if'Ir,S c•an make or l.~reak a new channel- of TCI. The various explanations, more- orris show all five Utah franchises were di• acid keep a rival channel from reaching over, contradict a filing TCI made with redly awarded to TCI's subsidiary. TCI many American households. That size also Sandy officials in the late 1980s: In i[, 'I'CI can't explain whether it. transferred the gives it, enormous leverage in demanding said it had received. [he Sandy franchise rights to its top two executives-or when, tower prices from independent channels. back in 1979, when TCI was telling share- o+' for what price. The company's move into programming holders that it was federally barred from Combined and adjusted for- stock splits, began iu earnest in 1979 when it invested the more than one million Class B shares $18u,000~ in a start-u ~ called Black Enter- doing so because of the crossover restric- I [ions. Today, in explaining its past actions, that TCI paid Messrs. Magness and Ma- hrinment Television. From the mid-]98os TCI says it was wrong to tell shareholders lone over the years became 1o.~i million on, TCI acquired stakes of from 5^/~ to ;i0;~ that i[ couldn't own a franchise; in fact, Class B shares as of January 199[-before in American Movie Classics, the Discovery a spokesman says, it was permitted to Liberty Media was spun off-worth almost i Channel, the Family Channel, and Turner seek a franchise, but not to own and oiler- '$140 million and equal to about 1'3°h of al] Broadcasting and its three cable outlets, ate the cable system built under the fran- 1'Cl shareholder votes. ~ Cable News Network, Turner Network chile. Today the Magness and Malone cony ~ 'felcwision and Supershltinn TBS. TCI and its two top officers and their hined holdings give the executives veto Critics say'I'C! displayed its power last power over any decisions at both TCI and year when it fou ht to Win control of the families, who now were fhrsh with the ad• g ditional 360,000 Class B shares, then re- Liberty Media, thinks in part also to sub- Learning Ch~uulel, an award-winning edu- peated the self-dealing. What they gained, stantial payment of Class B shares they've cational channel that was 51%-owned by again, was greater control of TCI itself. received ,router their empklyrllent con- tr•ouhlerl Financial News Network Inc. Here's how it worked: tracts. FNN was hound for bankruptcy-court • In selling their Community Cable to Playing Tough proceedings, and it put the Learning Chan- TCI, the two men held back five cable sys- As the'rivo men built their empire, leav- nHl on the auction block. Several bidders [ems covering 1'2,000 homes in cenh•al ing behind Ulis maze of dealings, they were emerged, including the Public Broadcast- Utah. TCI never identified the specific sys• slowly developing a reputation for h;u•dball ing System, the Lifetime cable channel- tems in public filings. But records indicate tactics with local governments and rivals. and Discovery Channel, 49%,~-owned by they were the franchises. that had been Six years agb, for example, TCl began '?'CI. granted to TCI's Community Cable of Utah waging war on Morganton, N.C., popula- Lower Offers through a 100%-owned TCI unit In any lion 'L8,0(]0. Initially, analysts estimated the Learn- case, Messrs. Magness and Malone now Tiie battle was over the company's ca- ing Channel might be Worth $8t1 million or owned them and shifted them into yet am ble franchise in Morganton, which was ex- more. 13ut as FNN's woes worsened, offers other new entity with the same name, TCI Airing and which the town council decided dr•~,I,ped. Lifetime offered $40 million, out- lays today. This version of Community Ca- not to renew. Service was "atrocious," bidding 1'CI's Discovery, and began negoti- ble of Utah Inc. was registered in Colo- Mayor Met Cohen charges today, and the ating a final cle;rl. 'l'hen 1'CI elbowed in. rado. town began studying whether to build its TCi's Mr. Malone suddenly decided that • In April 1983, they exchanged the five own cable system. ~ the Learning Channel had declined in qual- systems fora 21% stake in a new TCI com• 'fCl argued that government ownership ity, and he ordered TCI's local cable sys- pany formed to make acquisitions. TCI would be illegal and countered by suing terns-which accounted for as many as valued the assets of their Community Ca- Morganton, asking $35 million in damages. one-third of the channel's total Bub- ble of Utah a[ $3.8 million. The acquisition The town won, but TCI has been appealing scribers-to dump the service. company, meanwhile, went on to buy an• the decision ever since, continuing to col- That, of course, made the Learning other cable system. lect $1.3 million a year in local cable rove- Channel a less attractive property to the • In December 1985, TCI bought out the ones. At one point, TCI offered to sell the two men's stake in the acquisition COnI- SyS1P.Ill to a buyer group. But the town bidders a[ Lifetire, which is owned by an The rice: 600,000 sharps of Class R ~ Capital Cities/ABC Inc., Viacom Inc. and p' y. p balked after Iea1•ning one of the buyers I~lears[ Corp. Executives from Hearst and stock in TCI, with a market value of al- was partly owned by TCI. ABC descended on Mr. Malrnre in Denver most $23 million. On the same clay, TCI Then last year, TCI hired a lobbying and pleaded with him to keep the Learning paid [hem another 50,000 Class B shares, firm that formed "Citizens Opposed to Llrannel on TCI systems, according to offi- valued at $1.9 million, to acquire another City-owned Cable." The group gathered pe- troll with Lifetime. They outlined plans to 2]% stake the two men had in yet another tition signatures to force a vote by till- improve the channel and pledged to freeze '1 CI entity, which had purchased a cable zens on wliether the cable system should the rate paid by TCI systems for the chan- system in Buffalo, N.Y. That 21% stake be owned privately or by the government. nel for two years. had cos[ the two just $210,000 only a year Morganton officials contend there was a But Mr. Malone said TCI couldn't prom earlier, according to TCI proxy state- catch: The petition included ameasure- ise it would carry the redone channel if the ments. drafted by TCI-that would have virtually sale went through, according to people fa- TCI's two spokesmen, Messrs. Thornson guaranteed TCI a lifetime franchise if the nliliar with [he meeting. Today Mr. Ma- and Schotters, provide contradictory expla- vote was in favor of private enterprise. lone says he had worried that abank- nations for the turn of events. The local board of elections rejected it, ruptcy judge might force TCI to continue First, Mr. Schotters said TCI itself ob• and another court battle was on. carrying the channel. He also says that, in twined most of the five Utah franchises in Undeterred, TCI targeted Mayor Cohen his opinion, Lifetime's revival plans question-despite _ _ and an incumbent town councilman for de- weren't firm. "We wanted to put them on the company's ear- v ~ feat in elections last Oct. 8., the mayor notice that we have no obligation to carry" tier claim, in proxy y • " eTCI-funded citizen rou ~ ran as sa s Ih g I the Channel, he says. He also said TCI was ~ /~~=~'1~`~ ' man as three news a per ads a da I statements, [hat it Y ' ' P I y ~n the concerned [hat the Learning Channel wasn't allowed to do , ' ~ three weeks preceding the election. One would raise its rates after it was acquired so. He said TCI, it ~lr=-~?t°_:~°' pictru•ed two buzzards sitting on an elech•ic by Lifetime. turns out, was al- r ~f"~i.:-:~ line and read: "Morganton politicians are Lifetime soon abandoned its bid. A ` ' " sittin hi h on the ~Prch." lowed to seek Fran- niy..> g g t - short time later, the Learning Channel got chiles-it ust - Winning the Election another buyer-TCI's Discovery Channel, couldn't build and "It+ttl`~°u -~~~'~=t-~:,.a:,. All told, TCI spent aborrt $144,(100 on the Which snapped up the Learning Channel own the systems. for $3l million. After makin and sMalone didnthe l J~jj~''~~r~ campaign-drawling the $40Q to $600 the in- r.,rmming than es, TCI decgided t was ~ cumbents say, they each spent to get re- g g i.!%/ elected. In the end, the mayor and the fine after all, keeping it on many, though building outside of ~ councilman both were reelected. not all, TCI systems. TC1's chief operating the 'I'CI corporate John C. MNone TCI's Mr. Thomson generally confirms officer, J.C. Sparkman, says that TCI "had umbrella With TCI the. events in Morganton but says he ex- nothing to do with whether Lifetime or Dis- financing, Ile said. But he added that TCI peas the two sides to settle the dispute. covery" acquired the Learning Channel, isn't sure whether it ever transferred own- "We anticipate calmer heads will prevail," and that TCI did nothing untoward during ership of the systems to_the two men.. he says. the bidrlin • . g•........ • Getting on--the System Several years later, NBC tried again. one tell swoop, even though his•conlract at " •rlnother rival has also complained 13y this time, TCI had taken a stake in the time limited him to 20,000 shares a about TCI's extensive control over both the Turner 13ru,tdcasling. To win TCI's sup- year for the next five years. Iu October, medium and the message. Home Shopping port, NBC promised that its new channel, Liberty directors let Mr. Malone exercise Network's chief executive, Roy M. Speer, CN]3C, would focus uu Inrsihess and fi- all of the options at once. charged in testimony to congressional sub' ++~ince instead of running an a11•news for- Exercising the option cost Mr. Malone { conuniltees last year that TCI "systemati- [r?at that would con?pete with Cable News $25.6 million, but he had to put up only tally refuses" to carry EIome Shopping on Network, say people tainiliar with the $100,000 in cash, according to Liberty til- ~ TCI systems because of its own sizable h•ansaction. NBC also agreed to pay TCI ings with the SEC. Moreover, Mr. Malone $20 million for a fledgling TCI channel raised the money by selling part of his per- stake in a rival channel, QVC. (Liberty called Terrrpo. Sep. Core, in a 1989 Senate sonal stake in Liberty's QVC channel back Media now holds the QVC stake.) hearing on media ownership, called that to Liberty. He gave the company a $25.5 Home Shopping managed to sign up payment a "shakedown" by TCI. million note for the rest of the stock, with a only 3.7°!~ of TCI's subscriber base, al- though its sign-up rate was 47°!~ for most Non-Compete Pruvisi0tl low annual interest rate of 7.54%. Mr. Ma- other top cable operators, the service said NBC Chairman Itiuberl Wrigl?l and TCI lone later paid off part of the debt by giv- ~ in a 1990 fifh?g with the Federal Conununi- scoffed at the shakc.~down allegation, and fug Liberty some of I?is TCI stock. cations Commission. Home Shopping said 'I'CI denied it had forced NBC to avoid To lessen their risk when Liberty was TCI was thus depriving it of hundreds of spun off, )Messrs. Magness and Malone millions of dollars in revenue and was in- competing with CNN. But Mr. Wrigl?t testi- structured the deal to insulate themselves tied that most cable companies "required, From any losses, even if it meant damag• creasing its costs. if 'you will," anon-compete provision and Mr. Speer declined to be interviewed. said it "wasn't exactly what we would ?ng Liberty itself. Under the terms they set But in his testimony he detailed years of have preferred." TCI and NBC have since up-which weren't available to Liberty's alle ed (IISCI'llnlnatl0n b TCI. TCI's En- 1 outside shareholders-Liberty Media must g y entered into a number of joint business a?•range the purchase of stakes held by glewood, Colo., system once told Home ventures. Shopping it couldn't carry the network be- Afraid that TCI's dual role in owning Messrs. Magness and Malone and the Gal- cause it competes witl? QVC, Mr. Speer ~,rhle systems and channels would prompt livan family, the early TCI backer, at a said. h[ 1988, TCI directed two systems it the federal government to try to break up guaranteed price if these shareholders are had ac aired in Pasco Count Fla., to can' ever forced by regulators to divest. The 4 Y. the company, Messrs. Magness and 1VIa- cel Home Shopping and replace it with lone conceived a plan that would appear to guaranteed price is an average of the QVC, he said. In April 1990, TCI's top Cali- c{+, just that-white letting them retain total stock's price over a specific trading pe- fornia manager told Home Shopping there Trod. ca+trul of the empire. "The actions (Liberty Media J may be was "no way" his systems could carry it, Lasl. ye~u• 'I'CI spun off $605 million of given that TCI had a stake in QVC, Mr. required to lake in order to satisfy such ob- assets in the furu+ of a new con?pany, Lib- ligations ...could have an adverse effect Speer charged. ~erty Media, and sold Liberty to TCI share- on the company's business, financial condi- TCI denies it discriminates against holders by giving them the option of swap- lion and prospects," the company warned I-come Shopping but declines to comment ping some of their TCI shares for shares iu in SEC filings. further. In a letter last summer to Sen. the new company. 13ut `I'CI set up Liberty Daniel K. Inouye of Hawaii, TCI said it be- lieves it is Home Shopping's largest car- as a second vertically integrated company rier, accounting for one-quarter of Home with cable systems of its own. Shopping's viewers. What's more, Liberty purports to be an The fortunes of QVC, meanwhile, are independent company, but it employs soaring. While Home Shopping Network mostly TCI people, has Mr. Malone as its posted an $8.9 million loss on one-time chairman, and has five TCI executives on charges in its most recent fiscal year, QVC its board of six directors. reported almost $5 million in profit in the "This so-called spinoff should be re- first half on 8391 million in sales, which Warned 'All in the Family,' " said a critical TCI Chairman Magness - were up i111110St 22°/0. staff report to the Senate Cunnnerce Com• mitlee. Had a Brush kith BCC( A Controversial Approach Liberty shares have more than tripled ByU WALL STREET.IOURNALSLajJ RBpOTr6~ If TCI can be hard on rjvals, it so?ne- in price from an original $'l30 to $770 a Tele-Communications Inc. Chairman times is no more gentle with consumers. share in less than a year of trading. The Bob Magness is no stranger to contro- Last sun?nrer it launched Encore, Glow- swift rise has some analysts wondering versy. priced movie channel, using the "negative whether the appreciation is warranted."It Last August, the fiercely private ca- option"-subscribers all had to pay extra is ridiculously overvalued," contends Fred• ble magnate was linked to the scandal for it unless they explicitly told TCI they Brick A. Moran, president of Moran Asset surrow?ding the Bank of Credit & Com- didn't want it. The company figured that M;uragemeut Inc., a money nrur?gement coerce International. Press reports iden- putting the burden on customers to say no company. He recently advised clients to lifted him, together with TCI executive promised to corral 80% of TCI households 'dump Liberty Media shares. Larry Ronu•ell, as founding investors for Encore. It also says it had fo use the Messrs. Magness and Malone own 56% and directors of Capcom Financial Serv- sU•ategy because of technical limitations in of Liberty's shareholder votes and were ices Ltd., a brokerage firm affiliated many of its cable systems. A Texas news- able to grab such a dominant stake be- wiW BCC(. TCI has said it has no ties to paper called the strategy "sneaky," others cause many other shareholders iu TCI the bank. said it was anti-consumer, and a judge didn't elect to participate in the swap. As this newspaper recently reported, halted it. Al least 10 states sued, and TCI the two executives borrowed $500,000 had to abandon the innnick nationwide. ExpantlUtg Influence g ~ • from London-based Capcom and in- Butthe setback was something of an ex- Under Mr. Malone's control, Liberty `vested it in afutures-market brokerage ception. Usually TCI gets its way. In 1985, has been especially generous to him; he firm controlled by Capcom. That firm for example, when General Electric Co.'s owns 164,000 shares worth $]26 million. ~ was later expelled from the .Chicago NBC network set plans for arr all-news ca• Records sl+uw he obtained 100,000 Liberty -Board of Trade for engaging in what the ble channel, officials assumed it "couldn't shares llu•ough options in lieu of salary in ':exchange termed "reckless and unbusin- happen without TCI," recalls Lawrence K. ~esslike dealing." Grossman, president of NBC News at the In' 1988, Capcom 'was convicted of time. But in the end, TCI .merely played w 'laundering drug money. Auer the firm NBC off against CNN, whose programming - °was.;indicted on [he charge, Messrs. the cable company was al?•eady carrying. Magness and Rornrell swiftly cut all ties According to Mr. Grossman, TCI used a proposed alliance with NBC to get price ~to it and maintain they were duped into •tl?e investment and knew nothing of the breaks from CNN, and then backed away -.company's affairs. from the NBC proposal. '~®8~~~mmun~~~t~®r~~ incoa C®n®s~~~ CabB® TCI's corporate struciura;;unless noted in par~nthoeas ovmershp i~ 70`30 ~ ~P~1N9~N~ ~ A~l~R ' . Discovery Channel (49°/) j ~ Turner Broadcasting (25%) • UnoOnsehdated Inaiestm~9nts R United Artists Theatres' P~ianaged Cable TV dfliliaies g 2 600-screen theater chain or Non-managed ~Hiliates I ' _ _ - - - Cable Adnet Partners TCI Northeast Bresnan Communications (80%) advertising time marketer 7CI North Central Halcyon (75%) Netlink USA (BO%) TCI Great Lakes Caguas/Humacao (50°/) home satellite-dish programming TCI East Heritage Partnerships (30.2 Cable TV joint venture (New Zealand) TCI West Intermedia Partners (32.2%°) Cable TV partnership (England) TCI Central Storer Communications (35%) Liberty Media (5%); owns: TCI Southeast UAE Partnerships (11.1%) Black Ent. Television (17%) Washington, D.C. (75°/ -owned) Courtroom TV (33%a) • WeslMarc Communication OVC Network Inc. (49%) Heritage Communication (80.1 Family Channel (•16°/ ) United Cable American Movie Classics (50%) ` Sources: PaineWebber, 7Cl `TCI has said it wants to sell U.A. Theatres Steady Growth in Subscribers ! Puts it On Yop Total basic cable TV subscribers in millions: Largest cable system operators ranked by basic includes those lrom systems managed by TCI subscribers as of June 1991, in millions and those in which company has a minority stake. 14 Minarilyslake TCI' 10 70 ? 12 Managed ` Time Warner 6.59 10 Continental Cablevision 2.76 _ ~ __._r Comcasl Cable 1.66 B r ~ Coz Cable 1.64 6 ~ , ; ~ ' Storer Communications 1.61 4 Jones Intercable 1.61 2 ' hldudes United Artists Cablesyslems plus net 0 ' ownership of altiliated systems 'e6 '87 '09 '89 '90 '91 'f- Source: PaineWebber Source: Paul Kagan Associates And Provides Cash Fiow But the Stock Has Languished Cash Ilow in billions of dollars Monthly close of TCI class A shares $2.0 I 21 ~ ' I 5 ~-.........1.._.....~...__......:._.. 1.2 ~ - 12 . 0.8 - I 9 _ ,i 0.4 6 ...._..._._i..._.... f..._......_~-....__; I i I 0 3 i 'e6 '87 '68 '89 '90 '91' '86 '87 '69 '89 '90 '91 '92 'Estimate Sowce: IDD Irrlormarion Services/)'radeline ' Santa Barbara. That amounted to a ~ whopping $74 billion lass year, or $790 in s~ ,`.d the health bill of the typical household. Self-serving. The most explosive ex- ample of tying behavior in medicine hay emer~ed in physician "self-referrals." r~ recent study of 23 home-nursing ages- _ _ cies by the Florida Health Care Co~~ Containment Board, for example, foun~' that nearly one quarter had financial tie>~ to doctors who steered patients to them. _ - These agencies billed customers 40 per- - - - cent more than nursing a encies without _ g ties to referring doctors In another FTC ~ case, the government asserted that Ger- ald Friedman, a Pomona, Calif., doctor, had achieved a virtual monopoly in the local market for outpatient dialysis and that he was using this control to funnel patients to his inpatient dialysis setviee, where he could charge higher fees. An attorney for Friedman said the arrange- ' When Valley Wireless Cable Television meat was designed to protect patients ~ from hepatitis infections from competi ~ ' opened shop in Bakersfield, Calif., fast tors' machinery, but the doctor agreed t~~ halt the practice. I year, it offered consumers many reasons The U.S. Department of Health and Human Services estimates that i in 4 to switch from the incumbent cable TV franchise. Valley carries ESPN, medical-testing laboratories-or at least 80,ooii facilities- is now owned wholly or Showtime and Home Box Office, just like its more established competitor. in part by doctors who refer their own And because it beams its signals via microwave to tiny rooftop receiving patents. Unfortunately, surveys show that few consumers will defy their doe- dishes instead of using costly underground coaxial cable, it sells tors' advice or shop for lower lab prices. The Florida study found that. ?ast year, for $24.95 a month, not the $39 charged by its rival. the average patient paid $46.22 at doc- tor-owned labs, compared with $27.85 at But Valley can't offer Turner Network Television, which independent labs. The Health and Human Services De- carries Sunday-night football games, or have monopolies in partment issued new rules in July that Prime Z"icket, a local sports service. The 99.5 percent of cable can cut off Medicare or Medicaid pay- incumbent cable franchise has those wired cities. And since meats to a clinic that gets more than 40 programming services locked up with 1986, when Congress dr percent of its business from doctor-own- exclusive contracts. So Valley has land- regulated rates for most ers. But 60 percent of the nation's health- ed just 1,200 subsci fibers in a market of franchises, p~ ices have shot up at three care bill is paid privately and remains 150,000 television homes. times the rate of inflation. The National beyond direct federal regulation. And Valley's struggle shows how barriers Gable Television Association insists that because so many consumers place them- to entry keep competition low and prices consumers have lots of alternatives, in- selves at the mercy of doctors and hospi- high as new technologies like "wireless" eluding network television, local indc- tals, it appears that tying behavior will cable try to find a niche in the $f9 billion pendent stations and home video. But remain a prescription for higher prices. cable business. Gable operators now the Consumer Federation of ~~mcrica ASCAP performs a useful blanket fee of $200 or $300, or ganizations' power to set li- social function. says Managing you can negotiate every royal- ceasing fees for so many musi- ~ Director Gloria Messinger, be- ty yourself. Think how many cal artists allowed it to engage ' ~ cause it serves as an efficient songs they might play. Think in illegal price fixing. But in a ~ ~ cle~aringhousc between thou- how many composers and landmark 1979 decision, the ~ i sands of artists who deserve agents you would have to call U.S. Supreme Court took the royalties and thousands of to negotiate royalties. The opposite position. Justice By- businesses that profit from transaction costs would be ron White wrote. "A middle- their music. "Lets say you're enormous." man with a blanket license was ~ - abar owner and you have a Price fixing? Not everyone an obvious necessity if the combo in your place three. agrees with Messinger. In 1972, thousands of individual negoti- ~ nights a week." says Mes- CBS Television sued ASCAP ativns, a virtual impossibility, ~ singer. "You can pay us a and BMI, arguing that the or- were to be avoided." ~ Ellington. L)runin~iiug/~~r<lrxi~lt U.S.NLW:ti ~ wOttill IZEPOitT, FF:BRC`ARti 142 t~ ®w ® BUSINESS from cross-ownership: It has poured lions of dollars in "booking fees" to have $500 million, for example, into new their tickets sold on systems owned by big estimates that true cable competition HBO programming. Robert Thomson, carriers. In 19Sf3, Sabre and Apollo col- would cut cable rates by 50 percent. sav- senior vice president aC TC1, says that lected $430 millionor 15 percent of the ing consumers $6 billion a year. without exclusive rights to certain pro- industry's total profits-in bookin~~ fees. As if to cement their market control, gams, local cable franchises would Without booking Pees, says Con Hitch- the big cable franchisers and the compa- never invest in risky new progranul~ing cock of the Aviation Consumer Action ?ies that sell them programming have ventures such as Turner [3roadcasting's Project, "you would see some savings for bought huge ownership stakes in each TNT, into which his company polo-ed consumers and you would not see so other. The nation's biggest cable opera- some $240 million. many small carriers endangered." tor, Tele-Communications Inc., owns 24 Still, many in Congress feel that wire- Expensive entry. Most economists percent of TNT and 4S percent of the less cable and other upstart technologies agree that the threat ofstart-up airlines is Discovery Channel Time Warner, which need a helping hand. The Senate takes essential to keeping airfares down. But to owns HBO and Cinemax, has expanded up debate this week on a bill to reregulate truly compete today. small airlines must into cable franchising and is now the na- cable, but until Washington acts, con- have theirown reservation systems. This, tion's No. 2 operator. sumers will continue to receive a monthly according to a GAO report, has become Time Warner says consumers benefit zapping from the cable industry. increasingly difficult: "The costs of es- tablishing anew [reservation system] are so hi~~h that establishing a new [system] is impractical for an entrant" ~ ~ ~ ~ Reservation systems help travelers by sifting among hundreds of tlights and fares. And the hid carriers argue that booking fees are a return on their invest- ment in thcsystems. "I don't know of any In 1938, the U.S. Justice Department sued five big Hollywood studios to other industry where a start-up firm force divestiture of their movie theater chains. The government said a could instalitly have their product in front of every retailer in the country, studio that controlled theaters could steer consumers to its own movies, says Greg Conley of Covia, corporate parent of Apollo. and the ensuing "Paramount" decrees struck a blow against vertical inte- But the GAO has launched a fresh study of reservation bias, and Congress gration. Yet today, 54 years later, this practice still riddles the American m~ly soon entertain a bill that would fur- thcr level the playing field between small airline industry. Eighty percent of airline tickets-accounting for more can-iers and bid computers. Thou~~h the bill's passage is uncertain, consumer ad- than 400 million t7ights a year-are price of tickets. In 1990, for example. vocatessay its time to crack down on this booked through travel agents using coin- the U.S. General Accounting Office high-tech competition crusher. ¦ puterizcd reservation systems that are found that tares were 27 percent higher owned by the seven biggest ail lines. at airports dominated by one carrier B~~ llavtn HAGF,. UoN L. BoKOticxs arru Some 70 percent of those tickets are than at airports with competition. Rl,riilzr P. BLACK wrrx RICHARD J. booked through two reservation In addition. smaller airlines pay mil- Nl~~~rni.a[v aNU ti-aR.a Coi.l.rvs systems, Sabre and Apollo. which are uwne.d or cx~- ~ ~ owned by the na- ~ tion~s two largest air- ` ~ ~~,a~ ~ A lln(,S, Afllll'IC111 and ~ y ~ i~` ~ ~ United, respectively. Y t ~ What riles regulator< ~ _ and smaller carriels i, `~j ~ ~ ~ ~t that studies show that travel agents steer custom- ~ ~ ers to the au~line that owns ~ ~ , their computer reservation ~ ~ system. Overt bias was banned ~ _ s,; t _ . from the computers in 1944, ~ ~ ~ but the U.S. Department of Trans ortation estimates that ~ v P ~ ` , remaining biases, together r with volume commissions to ~ ~ travel agents, shift $2 billion - `bus s~ _ to $3 hillion in ticket sales to ~ ~ ~ ~ ,1~. the big carriers that own the ~ computers. This tidal wave of ~ ~ ','y yJ business could add to the air- _ . -0A r - line industiy~s growing market n~~ . - s-:~; , concentration-and to the ~ ~ ,i~ lLS.NE\N~ d: N'(11tL.1) t.I~:PUI:I~. FGL'kUAltl L`i~~3 i s _ V 1~ ~ ~ Jf ~J - _ . . ~ ~ c~ town o~ vail ~ ~v ~ C~ .~\y Personal Memo from ~ Pam Brandmeyer 1/29/92 Annie: A couple requests, if you please. .and if possible... ATLANTIC MONTHLY - I believe an article appeared in either October or November re:the Forest Service and their new position on oil/gas exploration and leasing. Would you still have this? WALL STREET JOURNAL - I believe there was an article last week re: American-made cars. Would you have that? Sorry about this request, but if you can ~ind either one or both. .it would be a remendous help. Thanks! t . Pab - ~ ~ I ~ ~ - l v i V " • 1 0 ~I 1 e ©1992 Dow JoneJ E~ Company, Inc. ,llll Rights Reserved. • olTlorr ~ ~ FRIDAY, JANUARY 24, 1.992 DEr~vEx,Col.oltaoo . ~ I Inventories and ~acklogsM W8S~1111gt011 e11011'e C 1 S ~ W S In billions of dollars. ,Unfilled ~ Inventories A s eClal Week] Re ort From P Y P S E * * * $5401 ~ The Wall Street Journal's G; ' 520 ~27LQ7LCC ~ WOrld•Wide soo 'Capital Bureau . 480 ~ A~ aso ~ CONGRESSIONAL .DEMOCRATS find a restructur- A SOVIET AID CONFERENCE ENDED 44o the political tide flowing their way.. • •om investor with a series of modest proposals. ~ 4ao ~ Anew Wall Street JournallNBC News En vhch the CBS Officials from nearly 50 nations con- 40o I poll shows Democrats have opened anine- re Control of eluded their two-day meeting in Washington ~ 380 ~ • ' point lead when people are asked how they'll with proposals for improving their humani- I ~ vote for Congress-the largest such edge ye plan is one aso tarian a1d efforts and pledges to cooperate since Bush broke his no-new-taxes pledge. y is consider.- further. But artici ants said their talks 340 " ~ " eeze. Mac 's p p 1988 Isss 1990 1991 By 57% to 31%, voters prefer Democratic Y . +didn't cover the potentially costly problem control of Congress as a counterweight to ~e Causing ln• of helping former Soviet republics to over- INVENTORIES of manufacturers in Bush; even a third of Republicans prefer Th bank lenders. haul their economies. The U.S. announced November fell to $377.98 billion from a re- Democratic control. ?al an airlift in which 54 American military wised $378.06 billion in Octoher. Unfilled or- Speaker Foley will be even more concili- planes will fly food and medicine to the for- ders fell to $512.95 billion after seasonal ad- story than usual in his response to the State rose a stee er mer republics. (Story on Page A10 ) p justments, from a revised $515.59 billion a of the Union speech. He'll avoid blamesman- staff than one he Yeltsin suspended all import restric- month earlier, the Commerce Department ship on the recession and promise to work F ?st Americans ~ lions and declared Russia open to jor- reports. with Bush on a tax package. One reason for AmE cut plan Over eign investment. He also signed a decree the soft response: Party leaders don't waht lent] permitting individuals to buy and sell to overplay their strong political hand. The closr .ing to a Wall goods without special- permission. Gr0243Zy1g MOVement poll, conducted by Democrat Peter Hart and old t ws survey. A * ~ ~ ~ ~ Republican Vince Breglio, shows voters now to m 3yed opposes Israel revoked an expulsion order against T 0• B2G~1 A112er2C(l1"l favor the Democrats by 28%a to 23% as bet- "I c levy. one of 12 Palestinians facing deportation ~ ter able to deal with the economy. Last ndAlb) from the occupied territories following a Debates the Term Ways and Means Chairman Rosten- M spate of attacks on Jewish settlers. But the kowski, facing a rare primary challenge Mr. i ?pped 22% In army said four other Palestinians still faced * * ~ March 17, doesn't want a tax vote in his ing expulsion after a military panel rejected ~ p committee before then. were falling prod- their appeals, while the case of the remain- What IS an American Car. them alts at NCR. ing seven is with Israel's highest court. Firms Offering BOnllseS ~ OUST-SADDAM EFFORTS are stepped telec said its long- Secretary of State Baker Is expected to up by U.S. officials. ' ' ices nd its Credit- meet today with Israeli Ambassador Shoval TO Employees Disagree They- lay plans to move if simmering baser 'ong gales. in Washington to discuss Israel's request for Iraqi anger at Saddam Hussein boils over. evils column e? $10 billion in loan guarantees. According to The strategy of the ' think U.S. and Israeli officials, onl a fraction Of By JACQUELINE MITCHELL THE WALL Y U.S. and its Arab al- isn't. iger-than-ex- the request-$2 billion or less-is expected `SiaffRePOfLQTOJTHE WALL STREET JOURNAL lies is to incite a few Sa to be a roved at the outset for one ear. DETROIT -It's today's trend: More STREET amor PP Y rebellious actions profit after * * * and more companies are offering their em- 3, Sending its Vaccine researchers rotected test mon- ployees bonuses to buy American cars. But within Iraq, such as JOURNAL/ tome 22%, to $7, p the recent car bomb- down. ke s a ainst infection with the simian AIDS these are the '90s. Nothing's simple any- Y g more. So those tom anies are havin to ing at a Baghdad ho- NBC NEVIS ger, cuter maker virus by using a genetically engineered vac- p g tel, to show that dis- close] round. tine. Previously, researchers had success deal with a riddle: What, exactly, is an POLL "American" car? sent is possible. The come 1 by immunizing animals with whole, killed U.S. and its allies jeopa In Southfield, Mich., Franklin Bank's virus vaccines, and the safer gene-spliced then would move in with air power if a big that i tment banks vaccines had achieved only partial protec- Buy American plan excludes Honda Ac- rebellion begins, and have a credible opposi- Stooy lion. (Story on Pa' e Bl) cords built in Ohio, but, includes Chrysler of the Com- g lion leadership ready to go. minivans made in Canada. But Connecti- Th Iraqi opposition figures argue that a ]d other op- * * ~ cut-based Brown Paper Co. says neither it stru to $46. China and Israel prepared to establish of- Canadian Chryslers nor Ohio Hondas qua]- move against Saddam should be made in the tors a ficial diplomatic ties today, which would next six months. That would also please ver- ify for its plan. Its ef; clear the way for the Chinese to participate vous Bush political allies, who see the glow Monsanto Chemical Co. of St. Louis said vestitt in Mideast peace negotiations, due to re- from the war rapidly fading; the Journal/ bond prices sume in Moscow next week. Israeli Foreign Yesterday that Fords made in Mexico meet NBC poll shows that a third of the voters wave r rose. The Minister Levy told reporters in Beijing that .its definition of American. But most every- who last March considered the war the elimin body else disagrees. fourth 'opped 29.07 published acccounts of secret Israeli-Chi- proudest U.S. achievement in their lifetimes that c trading. But nese military links are exaggerated. `A Little Tricky' ~ no longer feel that way. ~ Ma edged, up. * * * To Bonnie Bell cosmetics of Cleveland, raise a point. The Senate accepted astripped-down ver;= "a car made in' the U.S. by a foreign- CLINTON S EMERGENCE rnakes him a lutnbe Sion of Bush's plan to create nontraditional owned corporation doesn't qualify," de- prime target. . ~ • ' sc(rools throughout .the country. The Senate Glares President Jess A. Bell. That puts The Journal/NBC poll shows he has. nesses version excludes - privatey, and,; parochial him at odds with Dr: William Lippy, the surged to lire front of the Democratic pack, petitiv woWd face- • . schools;from.`the program.' " , ~ surgeon, from Warren, Ohio, who 'has be- with 20%. Moreover, among voters who its con lei'' leg'isla- ~ ~ ' ~ come a.n overnight sensation by offering up know of hitn, he trails Bush by only four radica e SEC. The A federal report says there have been 127 to 5600 to ea.clt of his 35 employees who percentage points. He stockpiles a backlog office r fees t0 fi- significant accidents involving nuclear buys an American cai• by July 4. of prominent endorse?nents, many of them campu weapons production at the Hanford nuclear Dr. Lippy counts Ohio Hondas, brit isn't from California, that he will trot out to ere- cotnpu cement. facility in Yakima, Wash., since 1943. The sure about Kentucky Toyotas or Mazdas ate a sense of momentum. AT&T report, obtained by the Associated .Press, made in Flat Rock, Mich.-just 20 minutes._ But Democratic consultant Mark Mell- as the is to be released today. man sees him at a dangerous juncture, with ]eosin] ass another foes rowir Thy l~uy Ailn~rie~n Quiz gunning for him at a time when voters g nd benefits A small party in Ireland indicated it is still know little about him. The worry For But signs that prepared to bring down the government and tine of these cars is made only in: the Clinton's handlers: Persistent questions clay rr lilmself, force a national election unless Haughey re- United States. Can you-name N7 Fnr about his personal behavior could take on Year signs. The prime minister, who has led Ire- extra paints, match all the cars fo: their magnified importance in the heat of the that v land's dominant Fianna Fail Party since cavalries of-origin, race. Chaim ;les Stayed 1979, came under fire this week after afor- poetise LeMans A. Canada Though Clinton attacks Harkin and AT&T .lgh trucks mer ally accused him of lying about a 10- Kerrey jor noting jor the congressional Port. ] se comps- Year-old wiretapping scandal.. 2. Chevrolet Lumina , e. Korea pay raise, Wisconsin Rep. Obey tells col- m ro ' * leagues Clinton privately told him he ja- p ' f gains.. Tough arms•export curbs gained the ap- ' 3. Mercury Capri C. Mexico vas-ed it, too. busine prows] of the lower house of Germany's Par- 4. Honda Accord Coupe D. U.S. warns liament. The legislation, passed in reaction NO HELP: The Washington Post's highly Sooner well give to revelations that German companies 5. Dodge Stealth E. Japan favorable Quayle series, widely analyzed in- of rev. bents who helped Iraq build nuclear and chemical ar- 6. Mercury Tracer F. Canada side the Beltway, fails to boost his standing. Tha ~.ke of Grit- sepals, would allow customs investigators to By 62% to 30%, voters are uncomfortable 9uality rlCes. tap phones and open mail when.they are 7• plymoulhlloyager G. Australia with the thought of him as president=even pursuing illegal-weapons merchants. ' ~^F (Short Wheelbase) worse than in a poll last May. More voters The Netherlands acknowledged'that it al- still have negative than positive feelings to- lOWedU.S.-ins.nllfAf.tflPPlIIACPTnnnimm~nl~.+ w:SWtf3 1~ 4-C:] ~ ^.ti-'ns N-> n_i? ..yuyu.cuaw ~ - - •I nuau a.aau. ~,Ftry.x;.k~ ated $75 be shipped to Libya,ybut said the parts ` 5 Amati weren't on a list of restricted goods with from the Motor City. He says he'd have to NO SALE: Voters by four to one oppose ~nCies. strategic military applications. analyze what percentage of the parts are giving Israel $10 billion in loan guarantees - * ~ made in the U.S., but he hasn't done that to help resettle immigrants from the former - ` Estonia's government quit•after failirig to yet. "Look, I'm a physician," Dr. Lippy Soviet Union. A Jewish settlers' group says • " y% win parliamentary support for its strategy says. "I can't get that technical."' that even if Israel froze settlements now, ~ a., 68% in on tackling an economic crisis in the former "We'll review each case as it comes," plans already underway could double the mputer Soviet republic. Prime Minister Edgar Savi- says Dr. Lippy's son David, who is han- present 100,000 Jewish population of the oc- ' .2.125. Saar said he and his cabinet were unable to. dling his father's "Jump Start America" cupied territories within a few years. resolve food and energy shortages caused by campaign. "It gets a little tricky in some the collapse of the Soviet Union. cases." NO MORE: Sixty-four percent of voters Robe Cized t0 * * * That's putting it mildly. would favor a law limiting the tax deducti- Muslim fundamentalist leaders met in Al- There's no doubting the force behind bility of corporate salaries that are more need." I e infor- Biers to select a successor to their acting the Buy American movement sweeping the than 25 times the salaries of the company's ment ma naTket. chief, Abdelkader Hachani, a day after his U.S. On Wednesday, Los Angeles County, lowest-paid workers. Surprisingly, support is ing of it: rnment arrest. Meanwhile, Algeria's army-backed where more than half the cars on the road even stronger among Republicans than West Cor. y, authorities were gearing up for a possible have Japanese nameplates, scrapped a Democrats. work on confrontation during weekly prayer sessions contract for a Japanese company to build Somet scheduled today at mosques in the capita]. rail cars for its mass transit system. NO GORBY: Only a plurality of voters- up aren't * ~ And yesterday's Detroit Free Press re- 47% to 39%-think Yeltsin can be trusted to tourers Black political activists picketed outside ported on~ a nationwide poll in which 607 live up to treaties made with the former So- subcontr; res. Dow South Africa's Parliament to demand black adults were asked: "The next time you viet Union. He is viewed positively by 36%, other col transpor- participation in the legislative body. Presi- buy a ear, will you consider only foreign down from 50% in the immediate aftermath was doin; 13.51, off dent de Klerk is due to convene Parliament cars, only American-made cars, or will of the failed August coup. ice direc today and is likely to outline plans that you consider both?" The result: Just 4% dealer. Iry index could bring at least a handful of blacks into said they will consider only foreign cars JAPANESE TRADE dominates economic about $1, the national government for the first time. the next time and 51% said they will con- and political debates. pensive el, off 22 * * Sider only American cars, which may or This weekend's G-7 gathering is likely to should be ?3.07, off Sikh radicals ambushed two buses that may not be true but is certainly the right focus on Japan's mounting trade surplus knows m~ were joining an anti-terrorism motorcade thing to say these days. • with the U.S. and Europe. Last week's inter- I don't th 0 marks, organized by a right-wing Hindu party in In- Cars are a natural focus of the Buy vention to push up the yen has left financial feel like dia's northern state of Punjab. Please Turn to Page A9, Column 1 markets primed to respond to any hint the AT&T' • G-7 wants a further rise, which would help decades c T~DBY~~ ('.AI~T~NTS shrink the trade gap. But intra-European in two ye. _ . • voice .COI r 6 ~ workers, Mr. Potter explained, because . ~ Movement to Buy American Debates the Term, ~ they use U.S.-made parts and are sold and serviced in the U.S. "We view this as a What Exactly Constitutes an American Car, Anyway? positive," he said. But the United Auto Workers union views it as outrageous. "We would like ^ ~bers, traveled to Detroit to announce G. Potter said at a ress conference. So people to pledge allegiance to the U.S.," • Continued From First Page' - p declares David Perdue, president of the American movement: The auto industry "Project Get Rolling," which offers each Monsanto takes a broad view. It means UAW local at an Arlington, Texas, plant of the company's 12,000 employees 51,000 to . any vehicle assembled in the U.S., Canada that General Motors Co accounts for three-fourths of the U:S. trade rp. has threatened deficit with Japan. Besides, cars are just buy or lease a new American car. or Mexico. to close. Cars built in Canada and Mexico, so American. Yesterday, the president of "It's becoming more and more difficult Canada and Mexico? "All autos assem- says .Mr. PerduE, are "taking away our _ Monsanto, which sells auto makers every- to define what's American, given the com- bled in North America benefit the Big jobs in the U.S." - thing from paint resins to seat-cover fi- plexities of today's auto industry," Robert Three auto makers" as well as U.S. That's also the view of Douglas Brown, . S s . A stunning new catalytic converter with thin, rare metal inner walls increases airflow for still morE resourcefully, the VarioCam and converter efficiency also lower emissions a dramatic 22%: Handling is heightened~and refined as well. The famed transaxle platform with near perfect 50-5C ance is further buttressed for the.added performance, yet detail changes have actually increased com If~you were to drive an original Porsche 356, then climb behind the wheel of the new 968, the feelinj ulations would be much the same. Merely enhanced, with ever more potential and a feeling of confiden The bloodlines would be clearly intact. . It's the type of marque personafity•that has become regrettably rare today ~Pft hPh~nrl .n an ago . THE WALL ,~'REET JOURNAL: FRIDAY, JANUARY 24, 1992 A9 : ' president of Brown Paper of Greenwich, companies, such as Nissan. Motor Co:,••; - Conn. His workers, too, rill get $1,000 for Honda Motor Co. and Toyota Motor Corp: ' buying or leasing a new lmerican car, but "The only reason the 3apanese are build- they won't have [he sane wide choice as ing cars here is to clrcumvent criticism:. Monsanto employees. Nocars built in Can-. that they, got from flooding the market,'` ada or Mexico qualify, ;o the Canadian- Mr. Brown says. "It's more for show than made minivans that Chiysler Corp. once anything else. And the jobs they're provid- advertised as "born in Iinerica" are ,out. ing were stolen from the Big Three." " . "I don't•have anything a€ainst Canada, but But even some Big Three vehicles that it's no different than the Tars made in Ger- are made in the U.S. don't meet Mr. many or Mexico or any` place else," Mr. Brown's standards. The most notable is the , Brown says. Ford Probe.. It's built for Ford by Mazda'' The .Brown plan even excludes cars at Mazda's Michigan plant, which is repre.•. . made in the U.S. by foreign-based car sented by the UAW. On the other hand, the Geo Prizm built in California by a Toyota-;: General •Motors Corp. joint venture dogs.: qualify, because GM has an ownership • stake in the plant. ' Which doesn't matter a whit to Franklin • ' Bank in the Detroit suburb of Southfield; ; which disqualifies both the Probe and the Prizm. But unlike Brown, the bank doesn't' . mind Big Three cars built in Canada or; Mexico. "Canada hasn't wreaked havoc in the U.S: like the Japanese," declares bank, spokeswoman Rebecca J. Christian. Any,', . . ® company with a corporate checking ac-: ; count with the bank is covered:. $100 for;; the first 10 people at each company who ; buy an American car. Or a Mexican car. ' Mexican cars qualify because "the profits ; go to an American company,"'Ms. Chris-'. , tian says. Dr. Lippy, meanwhile, is riding his Buy;; American offer to national fame. The,,Ohio: , ' ear surgeon appeared on .ABC News la$t`;:' week, and on the CBS Morning Show yes= • terday. He has made his effort -a family,; ; affair. He has opened an office manned by ; power. Yet ~ two of his P ons and is trying to P er~uade other com anies to launch cam ai s of;.: their own. To date, Dr. Lippy says, "we..: • have signed up 140 companies with 35,000.'.' Weight ba I' employees." So far only two of his own em-~ ployees have bought a new American car;; , frt. but he hopes more will accept his offer ~rl~;; the spring. ~ . Despite all the confusion, Monsanto Is S arld Stem' thinking of exporting its effort to England; in- the form of a Buy British campaign.; .e to~use it. Monsanto has two plants that employ,; about 500 workers in the U.K., a country;.. ` where the major auto makers-Ford, Gen- eral Motors and Nissan-are all foreign•~ 1 ~ , owned. But so far, President Potter says, 'f~'`~ o"llt's just a thought as opposed to a pro;; .F= am.,, - - - ~ - - - 1 - e f 1 ~ THE ATLANTIC ~90NTHL1' ~s A critic argues that the U. S Forest Service, protected from congressional scrutiny by pork-barrel politics and imaginative bookkeeping, p is devastating America's national forests through needless and unprofitable timber sales. ~ A feasible and inexpensive policy .alternative is available 4 r 1`HE MISMANAGEMENT OF THE ~ ~ NATIONAL l~~GRESTS BY PERRI KNIZE ,HERE ONCE WAS A TIME WHEN IF A TREE'WAS FELLED IN THE FOREST, NO- body saw, and business went on as usual. But now a tree can't be felled anywhere in the national forests without causing violent tremors all the way to Washington, D. C. There the bureaucrats at the once-proud and formerly revered U.S. Forest Service, the administrators of the national forests, are ~ losing credibility as forty years of forest devastation come to light. e While our government supports schemes to trade When I joined the U.5. Forest Service as a volunteer Third World debt for intact Third World rain forests and wilderness guard, in the summer of 1983, I, like most dispatches American foresters to Ecuador and Honduras Americans, thought the Forest Service was a conservation to aid those countries in proper forest management, the organization dedicated to preserving the nation's wild Forest Service is deforesting our national timberlands at a lands. I was vaguely aware that the Forest Service sold rate chat rivals Brazil's. What remains of America's origi- trees, but was unprepared for the extensive logging roads nal virgin forests is being clipped away daily on our pub- and cutting I saw on the Beaverhead and Bitterroot na- lic lands, lands that contain the most biomass per acre of tional forests, in southwest Montana. Entire mountain- s ~ any forests on the planet. We are losing intact ecosys- sides were shorn of cover, and rough roads crisscrossed terns, watersheds, fish habitat, wildlife habitat, recre- their faces, creating terraces that bled topsoil into the riv- E; E; arson lands, and native-species diversity to a degree that ers when the snows melted in spring. Since that summer ~i may be irreparable. I've traveled to national forests all over the United States, Once, the land could accommodate this "manage- from the Carolinas to Alaska, and seen the same and worse: ment" without attracting much notice. The national for- Entire mountain ranges have their faces shaved in swaths ests, unlike. national parks, have traditionally provided of forty to a hundred acres which from the air resemble wood, grass, and minerals to the private sector. But popu- mange. From the ground these forests, charred and ration growth, shifting demographics, and reduced re- smoking from slash burning, sources mean that foresters are increasingly hard-pressed look like battlefields. ~ to find forest areas where nobody will see the clear-cuts. ~ a (f sI i ~ I ~ Y , ~ x ~ ~s ~ X .C 98 ILLUSTRATIONS BY NICHOLAS GAETANO OCTOBER 1991 • / THE .A'1'LAN't'fC MONTHLY I was shocked: the Forest Service seemed more con- minority of passionate nature lovers who are considered cerned about selling trees than about the vitality of the extremist, virtually everyone I've interviewed over the ~ public's forests. Yet I met many dedicated Forest Service past eight years says that ending national-forest logging is '1 employees at all levels of the agency who were terribly impractical if not impossible. unhappy about the emphasis on timber, and I felt com- A thoughtful look at the condition of our forests., the gelled to learn as much as I could about why the Forest needs of our communities, and the national demand for ! Service was pursuing such an apparently destructive policy. wood products reveals that ending national-forest logging z After all, the national forests supply only about 15 per- is not only possible but also highly pragmatic. In fact, we cent of the nation's wood, and Forest Service research can end logging on the national forests and at the same shows that if that timber were removed from the market, time improve the future economic stability of small com- half of the loss would be replaced by wood from private munities now dependent on Limber dollars, stabilize our industrial tree farms and half by wood substitutes that are wood supply, save and spend more wisely the billions already on the market. Seventy-two percent of all the now pouring out of. the federal Treasury, and preserve ' timberland in the United .States is privately the health of our virgin forests-if we decide owned. This land is far better suited to tree to. We can do it because, contrary to conven- farming than federal land-it is fertile, low- 1 tional wisdom, we don't need national-forest ~ elevation, accessible, and for the most part timber-not for jobs, certainly riot for the in- > does not have the intact ecosystems found on come, and not for the nation's wood supply. public land. Our national forests, although Most commercial-timber owners would actu- ~ they are richer in biological diversity, have comparative- t:;~; ly little value as tree farms. ~ ~L- ~~~`~a~; 1 . They are for the most part r~ r ~ ~ thin-soiled, steep, high-ele- w~®..~g9_' ~ ~ v,h vation less accessible lands that roduce low- ualit ~ ~ ~ :.b~ P 9 Y i- ~ b ob _ timber. They are the lands ~ ~ . Y Y nobody would take, even for <<;~. ~ ~ H - f' nothing, when the govern- ~ ~ ~ ~ - ' - - ment was divvying up the West. ' Despite the abundance of ~ merchantable private timber ~ . and the relatively low value ~~a of public timber, no one has a~, seriously considered ending national-forest logging. With the exception of a tiny ' f fi @'i ~ 3'7=t' . 1~~ 'fi'r ~ ~ r v~-. OCTOBER 199( 99 THE ATLANTIC MONTHLY WE DON'T NEED NATIONAL-FOREST TIMBER-NOT FOR e. I JOBS, NOT FOR INCOME, AND NOT FOR WOOD. COMMERCIAL-TIMBER OWNERS WOULD ACTUALLY BENEFIT IF THE GOVERNMENT WERE NOT COMPETING WITH THEM. ally benefit if the govern- .into pianos and armoires anyway, but are ground into ment were no longer com- pulp to make disposable diapers and cellophane for ciga- _ peting with them: as prices rette packs. Obviously, small-diameter trees from tree rose, long-term forest plan- farms would serve that purpose just as well. As for build- ning would become more ing materials, we can also create them from small-diame- feasible and profitable. The ter trees. Oriented-strand board, chipboard, finger-joint Forest Service itself would benefit, as it escaped the end- board, and particle board-made from chips or small less and expensive forest-management planning with an pieces of wood-are already available; they are stronger emphasis on timber which inevitably lands it in court. than regular wood and can be made from very young Forest Service employees could begin to inventory and trees grown in rows like a corn crop. study the national forests, as they were mandated to do in "Crop forests are where our timber supply really comes the National Forest Management Act of 1976, though from," says a" former logging manager at Weyerhauser without adequate funding for the job. They could begin Corporation, who asked not to be named. He explains repairing the damage of the past forty years, instead of that the industry wants the old timber on the national for- trying to produce board feet that can no longer be cut in ests only because with minimal processing these logs bring an environmentally responsible fashion. a premium price overseas. "As to old growth, everyone has gored that fatted calf long enough. Weyerhauser Timber Mythology made a fortune from old growth, but you can't cut the last one and say, `Gee, that was nice. What do we do now?"' N VIEW OF THESE BENEFITS, WHY ISN'T THE FOREST One Slgn thaC We have a gluC Of WOOd fibef In Che Un1C- Service eager to end national-forest logging? Why is ed States is that although we exported 4.2 billion board it adamant that that cannot or should not be done? feet of raw logs last year, we can still find plentiful, cheap The Forest Service rebuffs all such suggestions with toilet paper in the supermarket. Timber has such a low three arguments that I call collectively the Great Federal market value in this country that owners of private tim- Timber Mythology. berland often find that growing trees doesn't pay-the Myth No. 1: Federal timber is needed to meet an ever- rate of return isn't high enough. Many are selling off their escalating demand for wood fiber. forests and using the profits to reduce their debt. If tim- Myth No. 2: Timber sales overall make a profit for the ber were scarce-and valuable-this would be a poor federal Treasury. business practice. Myth No. 3: Federal timber, even if sold at a loss, aids The Forest Service exacerbates the situation by flood- timber-dependent communities. ing the market with cheap national-forest timber, driving Last year the Forest Service once again predicted, as it prices down. One could argue reasonably that the nation- has since its founding, in 1905, that demand for national- al-forest timber program, by competing with the private forest timber would continue to rise and that timber sector, is destroying the environmental quality of our pri- would remain in short supply. In fact the demand for tim- vale timberlands as well. _ ' ber has declined since the invention of the internal-com- It also empties the federal purse. "If we simply gave ' bustion engine and since we began using electricity and the loggers fourteen thousand dollars a year not to cut the fuel oil instead of wood for our energy needs. Many pri- trees, we'd be a lot better off," says K. J. Metcalf, a re- vately held forests logged in the nineteenth century are tired Forest Service planner in Alaska, about his review now regrown. Horse pastuie and farmland have returned of the Tongass forest plan in 1978. He echoed the senti- to forest. =We actually have more standing trees today ments of many of the agency's critics. The Forest Service than we did ninety years ago. So whereas the old-growth has long claimed that the government makes money on trees that provide the softwood lumber used for products timber sales, but an analysis performed at the request of like fine furniture and musical instruments are indeed in the House'Government Operations Subcommittee on short supply, particularly in the Pacific Northwest, we the Environment, Energy, and Natural Resources shows have plenty of wood fiber that can be made into less- that the Forest Service timber program has lost $5.6 bil- refined products. Most of our ancient trees are not made lion over the past decade. Robert Wolf, a retired staffer at 100 OCTOBER 1991 . . THE ATLANTIC MONTHLY ~ the Congressional Research Service, a forester, and a small communities with jobs. But national-forest timber road engineer, analyzed the Forest Service's timber- isn't keeping people employed; although timber produc- income accounting system at the request of Represents- tion and logging on federal lands have increased, induc- tive Mike Synar, the chairman of the subcommittee. At try employment has declined. Automation, exports of the time this was written, Wolf expected to submit his raw lumber, and competition for foreign labor are the testimony .in September. He says his original intention causes. As for small community sawmills wholly depen- was to show that sales ofnational-forest timber were prof- dent on old-growth national-forest timber, their timber itable and beneficial. Instead, he found that most of the supply is limited. The small family mill is destined to go ' 122 national forests have never earned a dime on timber, the way of the small family farm, and leveling the nation- ~ and only fifteen showed a profit last year. The Forest Ser- al forests won't save it. vice claims chat it made $630 million on its timber pro- The loggers and mill workers who depend on national- gram last year; that claim, Wolf says, stems from inflated forest timber are, like the forests, victims of federal poli- ~ revenues and discounted costs. cy. Since the end of the Second World War the Forest The "net" revenue figure doesn't make allowances for Service has fostered in their communities an expectation the 25 percent of gross receipts ($327 million last year) that federal timber would be available indefinitely, and a that must be paid to counties from which timber has been way of ]ife has evolved around that expectation. If the ~ removed, as compensation for property taxes lost be- Forest Service and the loggers' elected representatives cause those lands aren't privately owned. Nor does it take had been honest with their constituents even ten years into consideration road-maintenance expenses-another ago, and warned them that the supply of trees could not $80 million. Land-line location (surveying to confirm na- support their industry forever, mill owners and loggers tional-forest boundaries) cost another $24 million. The might not have invested further in lumber operations Forest Service also overlooked some $60 million spent on that are doomed, national-forest timber or no. These protection against insects and disease, maintenance of communities were misled, and they deserve aid in ad- staff buildings, map-making, and fire protection. justing to what is for them a catastrophe. 'i Another $575 million-funds earmarked for reforests- But aiding those affected by an end to national-forest Lion, brush disposal, timber salvage sales, roads built to logging is less problematic than it seems. The jobs that accommodate timber buyers, and other programs-was would be lost are not irreplaceable, nor are they as nu- depreciated over more years than appropriate for ac- merous as claimed by the timber industry, which wants to counting purposes. The Forest Service has used a num- maintain the flow of cheap national-forest old-growth ber of creative accounting gimmicks, including amortiz- lumber. A study funded by the timber industry predicted ing roads over 240 years. (One year roads on the Chugach that 100,000 jobs would be lost in the Pacific Northwest National Forest, in Alaska, were amortized over 1,800 as a consequence of restrictions to protect the spotted years.) The typical life of a logging road, however, .is owl. But according to a Forest Service assessment written twenty-five years; that's why 60 percent of each year's for other purposes, the true number is closer to 6,000. road-building budget is earmarked for reconstruction. The industry study counted jobs projected for the year Last year the Forest Service received appropriations of 2000 if logging continued to increase as was once $700 million for the timber program from the federal planned, and it included a loss of secondary jobs, such as Treasury, yet spent more than $1 billion. According to pumping gas and waiting tables, though the relatively Wolf's calculations, after a realistic amortization of costs, healthy economy of the Pacific Northwest is creating new the timber program actually generated a net loss co the jobs in many other sectors. federal Treasury of $186 million last year. The Forest Service says that only 106,000 jobs nation- ,One reason timber sales don't make money is that most wide-including approximately 15,000 in the agency it- national-forest timber is virtually worthless. Short grow- self-are related to national-forest timber. An agency re- ing seasons and poor, unstable soils mean that anational- port speculated that these jobs would be replaced in part forest tree may need 120 years to reach maturity. "No one by new logging jobs when wood production shifted to pri- m his right mind would pay what it costs to grow it," says vate industrial lands. And in communities without near- Wolf, who now calls the Forest Service timber program "a by industrial timberland new jobs could be created, in- fraud." Since the Forest Service was founded on the chiding jobs rehabilitating the national forests, with . promise that the timber program would make money, to federal funds saved when national-forest timber was no admit losses after so many years of false claims would longer being sold at a loss. threaten not only the agency's timber program, and Inevitably, the small communities dependent on na- therefore about.a third of its 45,000 jobs, but quite prob- tional-forest logging must diversify their economies or ably the existence of the Forest Service itself. die. But if we do not end logging before their timber sup- Even in the face of evidence that the timber market is ply is exhausted, the clear-cuts that surround these com- glutted, and chat its operations run at a net loss, the For- munities will bankrupt their future. Once the forests are ' est Service will justify selling trees as a way to provide gone, they will have neither the timber industry nor OCTOBER 1991 103 • THE ATLANTIC MONTHLI' property values nor the recreation potential that could ued timber-industry support for their re-election cam- help them build a stable economic future. Logging the paigns. And the White House wants to take care of its national forests results in the loss, rather than the friends. All use national-forest timber as a means to strengthening, of community stability. achieve their aims. So. if jobs are being lost despite increased logging, and More than a quarter of the money the Forest Service the U.S. government loses millions a year on that log- spends comes from selling timber-whether the sales Bing, and we don't even need the lumber, why does the make money or not-through alittle-known law called Forest Service persist in logging the national forests? the Knutson-Vandenberg Act of 1930. The K-V Act al- When environmentalists, economists, forest planners, lows the Forest Service to retain virtually all its gross tim- and policy-makers say it is not practical to end national- ber receipts in order to fund projects like tree-planting, forest logging, they mean it is not practical politically. wildlife-habitat improvement, and trail-building, and to buy equipment like computers, refrigerators, and so on. Political Realities It is a back-door way of funding the agency without going through the appropriations process. Last year K-V money ,HE NATIONAL FOREST MANAGEMENT ACT OF and similar timber funds added $475 million to~the Forest 1976 stipulates chat those who are most inti- Service budget, above and beyond congressional appro- mate with the national forests-the public and priations. Because Congress has limited its funding to the local Forest Service team-should work timber-sales development, fire fighting, and road-build- together to decide how they are to be managed. But in ing on the national forests, and has resisted the agency's practice the forests are ruled by competing and comple- . requests for support of other programs, K-V money is of- mentary agendas in Washington, D.C. Forest Service ad- ten the only resource on which the Forest Service can ministrators are concerned with maximizing their bud- rely to finance many of its non-timber activities. Erosion gets, holding on to their jobs, and preserving the status control, campground improvements, and plant and ani- quo. Congressmen want jobs in their districts and contin- mal inventory, for example, are all funded by timber sales. AT THE PIANO At the piano, the girl, as if rowing upstream, a present for her parents-tall and brass ' is driving triplets against the duple meter, because she thought the eighteenth was for brass. f one hand for repetition, Hers was the only gift. Her mother filled them i one hand for variation and for song. with thin candles; though never lit, they are twin She knows nothing, but Bach knows everything. lighthouses on the mantle's narrow strait Outside, in the vast disordered world, where the loud clock makes a metronome. the calves have been taken from their mothers; At the piano, hands in her lap- . both groups bawled and hooted all night long- what's given, and what's made from luck and will- she heard them from her quilted double bed. she also hears a diaphonic moan: Twice a day, she gives the young long before dusk the animals in the pens Vlll their frothy warm placebo. While her brother again have started calling for each other, ~ SuL steadies the cow with grain, her sister either hungry or too full, she can't tell leans in close from the little stool, which is which. Her mother's in the kitchen, Thy fingertips aligned on the wrinkled tits her father's in the hayloft pitching hay, i FQ] as if to pick some soft, fleshy fruit, she pushes off in her wooden boat- Now s{ but pressing in, hard, while pulling down, she knows nothing, she thinks ~ ~ ~°'og $9.95- she milks with both hands, two jets of milk no one could be happier than this. ~ serroTo spraying the metal pail as they go in. { Auuees The lrl must ut her whole hand in the ail ~ I aTV_ g p p -Ellen Bryant 1/oigt and push the head of the suckling toward it: ~ ssxnTo wet muzzle, corrugated tongue: Auueess when her last year's calf was in the bank she drew the money out for candlesticks- s 104 OCTOBER 1991 ~ .r. THE ATLAITIC 1\401~THL1' For this reason the K-V Act has led to absolutely has given the Forest Service. If the agency has said it will perverse management. According to Randal O'Toole, a sell 11 billion board feet of timber in return for its $700 natural-resource economist and the author of a tenden- million congressional appropriation, at the close of the tious book titled Reforming the Forest Service, mis- fiscal year Congress will want to know that in fact the management in the pursuit of K-V money is rampant. agency has sold the trees. To make sure they are sold, the O'Toole has analyzed the management of more than half Forest Service assigns sales targets to the nine national- the national forests. He found, for example, that when forest regions, according to their capacity. Each regional Gallatin National Forest, in Montana, needed funds to forester's performance rating depends in part on coming close roads to protect grizzly-bear habitat, its managers within five percent of his target. held timber sales and built roads in other prime grizzly Congress's concern about jobs is of a different nature. habitat. When the Medicine Bow National Forest, in Wy- To get votes, a public servant needs to get jobs and mon- oming, needed funds to inventory ancient Indian archae- ey for.his or her district, and in small communities in the ological sites, it sold timber on those very sites, destroy- West timber sales mean jobs, and money in the county ing them in the process. And in the Sequoia I~'ational coffers for roads and schools. Counties are entitled to 25 Forest, in California, when foresters needed funds fora percent of gross receipts from the national forests within pre"scribed burn to protect giant-sequoia groves from their boundaries, so county commissioners are deeply in- wildfire, a la Yellowstone ?National Park, they sold tim- terested in national-forest programs that generate re- ber in the groves to get the money they needed to pay ceipts, and many cannot meet their budgets without for the prescribed burn. But the clear-cuts left only a few them. These officials exert tremendous pressure on giant trees, surrounded by devastation. Instead of burn- members of Congress and agency officials to keep the ing, the foresters had to replant the area, at a cost of volume of timber cut in the national forests as high as $1,000 an acre. The point of these seemingly pointless possible. Congressmen from states with lots of national exercises was to get and spend money. Like most bu- forest are usually zealous about complying if they want to reaucracies, the Forest Service is deeply concerned with stay in office. keeping overhead accounts full and maximizing its They are also ready to express gratitude to the timber budget. industry for its campaign contributions. The industry Since a third of all K-V money is spent on administra- contributes to the campaigns of several key congressmen rive overhead for every level of the Forest Service, from on the appropriations committees who go to bat for tim- the Washington office down to the local districts, the ber interests every year when the timber and roads bud- promise of K-V funds encourages everyone in the Forest get comes up for review. Last fall, for example, the soon- Service, including wildlife biologists and recreation spe- to-be retired Senator James McClure, of Idaho, added to cialists, to support timber sales, even if those sales dam- the 1991 appropriations bill a promise of a five percent age the resources they are charged with protecting. funding bonus for wildlife and recreation to any Forest Because the Forest Service is so heavily dependent on Service region that meets or exceeds its timber targets-. timber sales, ensuring the future of the timber program is this at a time when regional foresters throughout the critical to the agency..That future depends on a vast net- West were insisting that they could no longer meet feder- work of access roads. In addition to the annual budget ap- ally mandated targets without damaging the land and vio- propriation and the K-V money, the Forest Service has a lating environmental laws. capital-investment fund-known as hard money-set -The 9.5 billion board feet of timber scheduled for sale aside by Congress just for building and reconstructing on the national forests this year, and the more than 2,000 roads. Last year this fund was $270 million. In addition miles of timber roads scheduled to be built, will continue to the 360,000 miles of roads already on the national for- to make following environmental standards and guide- ests-nearly one mile of road for every square mile offor- lines difficult. Former Forest Service officials have ad- est, or a system about eight times the length of the U.S. mitred to overcutting in the past, and timber targets re- interstate highway system-the Forest Service has ambi- main high, causing some in the agency to protest that not tious plans to build another 43,000 miles of roads over the enough trees are left to meet them. On a day I spent on next fifty years. Depending on the type of road and ter- the Willamette National Forest last year, no one was in rain, building these roads can cost as little as $5,000 or as the Blue River Ranger District office. The district had much as $500,000 a mile. The agency is anxious to get three days left to meet its timber target, and the rangers roads into even marginally productive areas, critics say, were out on the ground, scrambling to find trees that met ' because a roadless area can become a designated wilder- specifications for cutting. ness, off limits to logging forever. "Anybody-on the back of an envelope-could have Another way the Forest Service hopes to protect the figured out that the rate of [timber] harvest cannot be _ timber program is by rewarding forest managers with pro- sustained," said Max Peterson, a former Forest Service motions for meeting their timber quotas. Congress sets chief, when he met with agency, employees at the Wenat- these quotas as a means of accounting for the money it chee National Forest in 1989. He said the cut should go ,i 1t T OCTOBER 1991 107 THE .ATLAN"rIC MONTHLY down at least 25 percent; some forest planners, knowing protected than the Thomas report implied. The delay the Forest Service to be extremely conservative on such meant that timber sales in spotted-owl habitat continued matters, understood that to mean the cut should go down unrestricted by either report all summer; by the time at least 75 percent. Bush's task force made its announcement, the logging Heavy cutting in much of the Pacific Northwest over season was just about over. the past decade was caused in part by congressional or- The stalling continues. The Forest Service says it may ders to the Forest Service which resulted in a cut far larg- need another two or three years to come up with aman- er than the agency itself recommended. Last year Or- agement plan for the spotted owl. And last May a court egon's congressional delegation attached a rider to the ordered the agency to withdraw sales planned for 66,000 federal appropriations bill allowing the Forest Service to acres of prime spotted-owl habitat. Those acres would sell more timber than existing laws allowed, and greatly have been in addition to the 400,000 acres of owl habitat reducing the possibilities of judicial review. A federal ap- already logged since 1984, when the agency began pre- peals court recently declared the rider unconstitutional. paring guidelines for the spot>y~d owl. William L. Dwyer, But the impact of Congress on national-forest manage- the U.S. district judge presiding over the case in Seattle ment is mild compared with the negative influence of the (also, ironically, a Reagan appointee), wrote a stunning White House. My season with the Forest Service coin- denunciation of the White House in his decision: cided with the era of John Crowell, Jr., a former timber- industry attorney and lobbyist appointed by President More is involved here than a simple failure by an agen- cy to comply with its governing statute. The most re- Reagan, as assistant secretary of commerce for natural re- cent violation of the National Forest Management Act sources and the environment-the official who oversees exemplifies a deliberate and systematic refusal by the the Forest Service. Crowell, who had worked for Louisi- Forest Service and the Fish and Wildlife Service to ana-Pacific Corporation, one of the largest buyers of fed- comply with the laws protecting wildlife. This is not eral timber, dedicated his term in office to doubling the the doing of the scientists, foresters, rangers, and others amount of timber cut on the national forests, and he or- at the working levels of these agencies. It reflects deci- dered the Forest Service to ignore federal court orders sions made by higher authorities in the executive and national environmental laws to meet that goal. branch of government. Logging and road-building in forbidden areas was a fa- miliar occurrence in the national-forest system during the Biological Costs Crowell era, and it continues to this day. Logging in a designated wilderness has been discovered several times UDGE Dv«'ER'S DECISION UNDERSCORES THE FUNDA- on the Willamette National Forest. Crowell's successor, mental reason why we should not be harvesting the George Dunlop, another Reagan appointee, refused to national forests. Aside from the facts that we don't approve any national-forest plan in the Pacific Northwest need the lumber, that the timber program loses mon- that didn't increase logging. As a result, Forest Service ey, that the program is used to prop up faltering local Region Six is now under such pressure to meet its targets economies artificially, and that the real reasons for tim- that some districts have wandered into areas off limits to ber cutting continue to be unacknowledged, we have a timber sales. biological stake in an end to logging on our national The President's influence on timber management can forests. be far more direct. In June of last year the Forest Service The greatest threat represented by our current nation- was about to endorse the Jack Ward Thomas report, a al-forest policy is that it will destroy biological diversity study prepared by a team of scientists from the Forest on public lands. Forest scientists say that the national for- Service and other natural-resource agencies. The Thom- est are most valuable to us as founts of life. Our native as report spelled out which lands should be spared from and old-growth forests are intricate, fragile webs encom- logging in the Pacific Northwest in order to save the passing everything from bacteria, fungi, and insects to northern spotted owl from extinction. The week before grizzly bears, wolves, and ancient sequoias. They consti- Dale Robertson, the chief of the Forest Service, was to tute a complex, interdependent plant and animal com- announce the agency's endorsement of the report, tim- muniry that is the foundation upon which we human be- ber-industry representatives paid a visit to the White ings eat and breathe. Scientists say they understand little House. Shortly thereafter the Bush Administration an- about forest biological systems, but they do know that nounced that it was ordering its own special task force, the fresh air and clean water our forests produce are es- chaired by Clayton Yuetter, the Secretary of Agriculture, sential to our survival, because they are basic compo- to study the spotted-owl situation further and to come up nents of the food chains that keep all species alive. with more options. ~ Months later Bush's task force an- As species die off, the ecosystem is simplified, and the nounced its conclusions: the Thomas report's recommen- more simplified it becomes, the less life it is capable of dations should be accepted in principle, and the cut supporting. should be reduced, but less old-growth forest should be We are learning more about the value of the national 108 OCTOBER 1991 - . THE ATLA:'vTIC MONTHLY ~ 'ia~' as IF. THE FOREST SERVICE GETS FUNDS FOR ITS PROGRAMS - _ r~<. ~ ~ BY SELLING TIMBER, AND TIMBER MANAGEMENT lS DESTROY- R; ~ r ING THE FORESTS FOR OTHER USES, THEN WE MUST FIND A MEANS OTHER THAN TIMBER TO FUND THE PROGRAMS. forests every day. For exam- predators are lost, Although the young grasses growing in ple, scientists have recently clear-cuts do provide food for deer and elk, the loss of concluded chat forests playa cover drives away bear, turkey, squirrels, and other spe- major role in the absorption ties. Clear-cutting is also dangerous where rains are and storage of carbon diox- heavy and terrain is steep, as in southeast Alaska, on the ide. When very old trees, western slope of the Cascade'Mountains, and in the chose more than 200 years old, are cut down, vast stores northwest corner of the Rockies. Flooding, soil erosion, of carbon are released, owing to soil disturbance, decay, water contamination, and loss of fisheries as sediment and the burning that accompanies tree harvesting. The flushes into spawning streams are often the result. In resulting climatic changes are called global warming. some areas washouts and mud slides occur, and soil is re- With global warming, habitats that will nurture bio- moved down to bedrock. Clear-cutting changes the flow logical diversity become an even more pressing need. of streams, causing flooding during rains and drought When climates change, species must migrate if they are during dry periods. It also interferes with recreation: no to survi~-e, and land-based species must have connecting one wants to go hiking or camping in a clear-cut, and corridors of undisturbed forest through which to move clear-cutting often obliterates recreation trails. unmolested. The burden of protecting habitat that can We know that clear-cutting destroys the complexity of nurture diversity must fall on the public natural-resource forest ecology because we have the example of Europe, agencies, because virtually all the original, intact ecosys- which was essentially deforested more than 300 years terns remaining in the United States are on our public ago. Foresters there are still trying to figure out how to lands. ~ bring the forests back. Modern forestry techniques have Our national forests also embody other important val- evolved from the attempts, beginning in eighteenth-cen- ues. Anational forest is a place where you might awaken tury Germany, to regenerate old-growth forests like the to find a bull elk staring you down, startled from his drink ones that we are logging here. The forests that European at a glacier-fed lake. Snow-tipped crags and rocky cirques foresters so painstakingly tend are sterile: birds don't sing reflect in pools and creeks and waterfalls of penetrating in them; sticks, not logs, are harvested from them; and clarity; the water is so clear that to look at.it is to be men- now Europeans are worried about the long-term Fer~i!- merized and merged with it. Sometimes the only sound ity of their soil. "Look to Europe for what the future is the wind, roaring through the giant firs like a locomo- holds," says Paul Alaback, a research biologist for the rive. At other times the silence is so deep and inviolate Forest Service in Juneau, Alaska. "Is it really necessary that you can hear, seemingly, to infinity. To visit anation- to cut all the forests down before we learn from others' al forest is to let a bit of the harmony lacking in our con- mistakes?" temporan- lives seep in. A lifelong New Yorker visiting a The Forest Service is now experimenting with an al- Montana national forest last summer said that camping ternative to clear-cutting called new forestry. New forest- there was like staying in a five-star hotel-a city-dwell- ry is an attempt to protect diversity by simulating natural er's ultimate compliment, and a measure of how claustro- events like windstorms and fires..°~s I've seen it practiced phobic and diminished our everyday surroundings have at the Andrews Experimental Forest, in Oregon, new for- . become. The wildness, solitude, and silence of the entry looks like a messy version of clear-cutting. Instead national forests are now among our country's greatest of clearing the land of all timber and burning the remain- luxuries. ing debris, the foresters leave dead and living trees stand- The Forest Service's predominant logging method, ing in clusters, slash unburned, and dead trees and debris clear-cutting, destroys the visual beauty of the national on the ground and in streams. This new method can be forests. But the threat to biological diversity is more sub- just as ugly as a clear-cut and more expensive, because it tle. By law, clear-cuts must be reforested, and they are requires being more careful and yields fewer board feet usually replanted with ane favored tree species. These per acre. And no one knows for sure if it helps preserve ~ plantings then grow into even-aged monocultures-they long-term biological diversity, the purpose for which it ~ are tree farms, not forests. Diversity is reduced, and was created by Jerry Franklin, a Forest Service scientist. ~ wildlife is stressed as nesting sites, dens, and cover from It may not be biologically destructive, but new forestry is i ' OCTOBER 1991 111 . r THE ATLA1TiC MO~'THL1' _ almost always aesthetically destructive, and if it is adopt- have said they would be willing to pay, ranging from a ed in place of clear-cutting, more timber will be sold be- few dollars for picnicking to nearly thirty dollars a day for low cost and net returns will be reduced on those forests big-game hunting. As Randal O'Toole has pointed out, that do earn money. We'll lose more money on the na- this income, combined with the money saved by ending tional forests than ever. logging on the national forests, would fund the agency All of this points toward the conclusion that the Forest entirely from its own receipts; tax dollars would no longer Service shouldn't be in the timber business. Managing be needed to support the Forest Service. Instead, only the land co sustain its ecology is inherently incompatible those who used the national forests would pay, and their with managing it to turn a profit. The time frame allowed fees would ensure that the forests were managed in the under today's shortsighted economic system is far too best interests of recreationists. limited to take biological diversity into account, and al- When the agency's funding no longer came from Con- ternatives to clear-cutting will only increase deficit tim- gress, pork-barrel politics would no longer dictate how ber sales. Without regulation or financial incentives, the forests were managed. County commissioners would most private industry will never manage its land to en- stop putting pressure on their congressmen to appropri- hance biological diversity-long rotations (the number of ate funds for timber sales, because counties that depend years trees grow before harvest) don't help short-term on timber receipts for their roads and schools would get profit margins-so this role must fall to the Forest Ser- even more money from recreation than they did from vice. But as long as the Forest Service is in the timber timber. Private industry and landowners would benefit, business, its time horizon, too, will be far too short. because the value of their land and their timber would increase, and they, too, could charge recreation fees. A Proposal With part of the billions of taxpayer dollars we were no longer investing in the Forest Service, we could easily E NEED TO RECONSIDER THE PURPOSE OF create programs to help communities dependent on na- the national forests. Most people agree that tional-forest timber make the transition to a more diverse public lands should exist to benefit the pub- local economy, one chat would serve them for the long lit, with private use permitted only when it term. does not reduce that public benefit. Yet the Forest Ser- Without fees, all taxpayers are paying for the destruc- vice's timber program is beneficial chiefly to politicians in tion of the national forests. With fees, those who used Washington, to a small segment of the timber industry, the national forests would be paying to preserve their in- and to the Forest Service's administrators. Taxpayers, tegriry. Hikers, hunters, fishermen, backpackers, and small communities, recreationists, the owners of private skiers would begin to get the resources and management timberland-and the land itself-all lose. The national they need to enjoy the national forests, instead of getting forests without logging would not be the same as the na- leftovers after the interests of the timber industry have tional parks: hunting, grazing, mining, irrigation, and been served. With this new emphasis we could fund an other private uses that don't interfere with the public's inventory of, research on, and monitoring of national-for- right to enjoy its lands would continue. But without the est species and ecosystems to help us repair the damage logging program the Forest Service could, like the Na- done by forty years of overcutcing. tional Park Service, emphasize a stronger conservation To accomplish this revolution in national-forest man- ethic. agement, Congress must be persuaded that recreation Such a shift in management cannot be achieved with- fees and an end to national-forest logging are a sensible out confronting the political realities. That is why any and practical way to ensure a healthy future for our na- legislation to reform national-forest management must tional forests. Environmental groups should endorse change the incentives that motivate the Forest Service these recommendations as a means to preservation. and private users of the forests. If the Forest Service gets County governments should support this plan because it funds for its programs by selling timber, and timber man- would more than double their revenues from national- , agement is destroying the national forests for other uses, forest use. Large industrial timber farmers like Weyer- then we must find a means other than timber to fund the hauler and International Paper should favor it because it national forests. The most logical approach would be to would increase the value of their lands and their timber. charge recreation fees. Fiscal conservatives and those worried about the national In its 1990 planning paper the Forest Service estimat- debt should support this plan because it would save tax- ed that if it were allowed to charge fees for recreation, the payers the yearly cost of managing the national forests. _ income to the agency could be more than $5 billion a An unprecedented coalition of these interests would stop year, or three times whaCit earns in gross timber receipts. national-forest logging in its tracks. Congress and the The estimate is based on fees that national-forest users White House would have to comply. ? " Y 112 OCTOBER ]991 . _ . _ ~ ~ . ' REe'~ F E 8 - 6 199? ~ ~ ~ ~ ~ - - , - _ News Tips.Fronn the Vail Valley " A Mountain-Size Oasis of Art---Whether it's the enchanting children dancing ~ - - - ~ . around the Children's Fountain, the racing trio in action in Lionshead or the birds swooping down on their prey in Beaver Creek, art surrounds you in the Vail Valley. There are at least 150-publicly and privately owned statues and art pieces . ~ . that illuminate the landscape year-round. These treasures bring delight to the - - • community and the many visitors to the Vail Valley. - ~ - . Gea~,~ a Changing in the Vail Valley -When picturing the Vail Valley, skiers ~ ~ ~ ~ - g down the s opes come to rrund. But, imagine musing down these same - . - slopes on a mountain bike, through the fresh summer breeze of the Gore ~ - - Mountain lZange. More than .8,000 mountain-biking enthusiasts took to these ~ ~ , picturesque trails last ,year, and for 1992, the valley is expecting more than .1,000 . ~ - . peddlers a week. Look for on-going events and activities; such as the World Cup • ~ - Mountain Bike Finals over Labor Day weekend, thaf continue to make_the Vail ' ~ . " Valley the off-road mountain biking mecca of the Rocky Mountains. ~ ~ ' - Picnicking in a Hilltop Hideaway For anyone looking for the not-so-ordinary - . ' picnic, the Lodge at Cordillera offers picnicking in style. Groups of a minimum ' , ~ - of eight are escorted by a hiking instructor through the beautiful wildflowers of - ~ - - the pine and aspen forest to -a secluded picnic area tailored to their perfection. ~ , - . The menu, too, is far •from ordinary ranging from smoked salmon caviar, to cold ~ , ; herb pasta salad.. There is no limit to the chef's creations to please the appetites of - - the energetic hikers. - - ~ - _ - - ~ - . ~ ` .Alternative Guide with Character -Travel with an experienced "high country" _ llama on a journey through the Vail Valley. These sure.footed, gentle, hardy creatures carry all the baggage and gourmet food, while you hike through an ~ - -adventure you will never forget. Paragon Guides offers guided llama trekking . • and backpacking trips through the beautiful landscape of the Tenth Mountain, ~ . Trail and Hut System in the White.River National Forest of Colorado. - ~ . An Artist with Authentic Ability Artist Natalie'de Stefano has painted custom ~ ~ . ~ . murals in the Vail Valley for the past I3 years, specializing-in trompe 1'oeil,~a . : ~ - _ large three dimensional drawing, which means "to trick the eye." The 1?agle - - -River Inn, Jackalope Cantina and Minturn Country Club are homes to some of ~ • - her creations, along.with 50 private homes that reflect the personal signature of this talented artist. ~ ~ ~ For more information,.please contact Sharon Sherman or Carrie Hugus at _ ~ Schenkein/Sherman Public Relation, (303) 292-6655.. ~ ~ - - - . - February1992 / - • -r REC'~ FEB - 6 1992 KUTAK ROCK A PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS ATLANTA 2400 ARCO TOWER egroN ROUGE 707 SEVENTEENTH STREET Los ANGELES N ESN YORK DENVER, COLORADO 80202-3424 OKLAHOMA CITY OMAHA - (303) 297-2400 PHOENIX FACSIMILE (303) 292-7799 WgSHIN GTON February 5, 1992 VIA EXPRESS MAIL Mr. Larry Eskwith Town Attorney Vail Town Hall 75 South Frontage Road Vail, Colorado 81657 Re: Gillett Holdings,. Inc. Bankruptcy Proceeding Dear Larry: Enclosed are copies of the Debtor's Plan of Reorgan- ization and Disclosure Statement Pursuant to Section 1125 of the Bankruptcy Code which were filed yesterday in the Gillett Holdings, Inc. Chapter 11 bankruptcy proceeding. I under- stand that you will make additional copies and distribute them to the Town Council and to Ron Phillips. Pursuant to your request, Marlin Opperman and I will plan to attend the executive session of the Council on Tuesday, February 18 at 2:00 p.m. As you review and Plan and Disclosure Statement please let me know if there are any aspects which you would like to have us examine in particular detail. Naturally,,I will be reviewing both the Plan and the Disclosure Statement ~in the next few days. Sincerely, Charle~L: Borgman Enclosures cc: Marlin Opperman, Esq. (with enclosures) Robert Padjen, Esq. (with enclosures) ~ _1 i ' IN THE UNITED STATES BANKRUPTCY COURT DISTRICT OF .COLORADO In re ) Chapter 11 GILLETT HOLDINGS, INC.., ) Case No. 91-12465 SBB Debtor. ) DEBTOR'S PLRN OF REORGAYJIZRTION Douglas M. Tisdale, Esq. L. Louise Romero-Atwood, Esq. Brownstein, Hyatt, Farber & Strickland, P.C. 410 Seventeenth Street Denver, Colorado 80202-4468 (303) 534-6335 Attorneys for the Debtor and Debtor in Possession Lewis S. Rosenbloom, Esq. Thomas F. Blakemore, Esq. N. Theodore Zink, Jr., Esq. Wiastoa ~ Straws 35 West Wacker Drive Chicago, Illinois 60601-9703 (312) 558-5600 Special Counsel to the.Debtor and Debtor in Possession and Attorneys for the Subsidiaries February 4, .1992 ~ r k TABLE OF CONTENTS INTRODUCTION 1 ARTICLE I DEFINITIONS 1 ARTICLE II CLASSIFICATION OF CLAIMS AND INTERESTS 19 2.01 Class 1 Priority Claims 19 2.02 Class 2 General Trade and Service Claims 19 2.03 Class 3 Secondary Liability Claims. 19 2.04 Class 4 Intercompany Claims 20 2.05 Class 5 Bank Credit Agreement and Zero Note Claims 2 0 2.06 Class 6, Senior Subordinated Debentures 20 2.07 Class 7 Subordinated Debentures 20 2.08 Class 8' - - GNG Interests 21 ARTICLE III GENERAL PROVISIONS REGARDING TREATMENT OF CLAIMS AND INTERESTS 21 3.01 Distribution Date 21 3.02 Holders of Debt Securities Entitled to Receive .Distributions 21 3.03 Agent and Indenture Trustee Fees 22 3.04 Administrative Claims, Agent Expenses and Indenture Trustee Expenses 23 a. General 23 b. Bar Date. for Administrative Claims, Agent Expenses and Indenture Trustee Expenses, 23 3.05 Tax Claims 24 ARTICLE IV TREATMENT OF PRIORITY CLAIMS 25 ARTICLE V TREATMENT OF CLASSES IMPAIRED UNDER THE PLAN 25 5.01 General Trade and Service Claims 25 5.02 Secondary Liability Claims 25 5.03 Intercompany Claims L 25 5.04 Bank Credit Agreement Claims and Zero Note Claims 25 (a) Type 1 Distribution 26 , (b) Type 2 Distribution 27 (c) Type 3 Distribution 28 (d) Excess Distribution . 29 (e) Effect of Oversubscription of Distributions - in Class 5 30 5.05 Senior Subordinated Debentures 31 (a) If Class 7 Accepts the Plan . 31 (b) If Class 7 Rejects the Plan 32 (c) Resolution of Claims Regarding Subordination Provisions . 32 5.06 Subordinated Debentures 33 (a) If Class 7 Accepts the Plan . 33 i ~ t` ti T'` (b) If Class 7 Rejects the Plan 37 (c) Resolution of Claims Regarding Subordination Provisions. 37 5.07 GNG Interests : 3 8 5.08 Determination of Class 5, 6 and 7 Claim Amounts 38 5.09 Reallocation of Holders' Designated Distributions 38 5.10 Impaired Classes 39 . ARTICLE VI PROVISIONS FOR NEW INVESTOR 39 ARTICLE VII PROVISIONS FOR TREATMENT OF DISPUTED, CONTINGENT AND UNLIQUIDATED CLAIMS AND ADMINISTRATIVE EXPENSES 40 7.01 Characterization of Claims as Disputed 40 7.02 Resolution of Contested Claims 40 ARTICLE VIII IMPLEMENTATION OF THE PLAN 41 8..01 New Securities, Collateral Trust Agreement. and Purchase Agreements 41 8.02 Cancellation of Old Securities, Old Collateral Trust Agreement and Indentures 41 8.03 Certificate of Incorporation and Bylaw Amendments 42 8.04 Management of the Debtor 42 8.05 Management of GHTV 43 8.06 Method of Distribution Under the Plan 43 8.07 Release of the WMAR Sale Proceeds to the Debtor 43 8.08 Investment in Cash 43 8.09 Manner of Payment Under the Plan 44 8.10 Manner of Distribution of Other Property 44 8.11 Setoffs 44 8.12 De Minimis Distributions 44 8.13 Saturday, .Sunday or Legal Holiday 44 . 8.14 Other Documents and Actions 45 8.15 Corporate Actions 45 8.16 Subsidiary Restructuring 45 8.17.Resolution of GNG Related Claims and Acquisition of Assets. 46 ARTICLE IX ACCEPTANCE OR REJECTION OF THE .PLAN 46 9.01 Appropriately Marked Ballots by Holders of Claims in Classes 5, 6 and 7 Shall be Deemed as Releases of the Subsidiary Guarantees and Pledges 46 9.02 Nonconsensual.Confirmation 47 ARTICLE X CONDITIONS PRECEDENT 47 10.01 Conditions to Confirmation 47 10.02 Conditions to the Effective Date 49 10.03 Effect of Non-occurrence of Conditions to Effective Date 50 ii ~ $ a _T ~ ARTICLE XIEFFECTS OF PLAN CONFIRMATION 51 11.01 Discharge 51 11.02 Termination of Certain Subordination Rights and Settlement of Related Claims and Controversies 52 11.03 Reverting 55 11.04 Retention of Jurisdiction 55 11.05 Post-Consummation Effect of Evidences of Claims ' or Interests 56 11.06 Failure of Court to Exercise Jurisdiction 57 11.07 Term of Injunctions or Stays 57 ARTICLE XII MISCELLANEOUS PROVISIONS 57 12.01 Surrender of Instruments 57 12.02 Executory Contracts 58 12.03 Unclaimed Distributions 59 12.04 Fractional Dollars and Shares . 60 12.05 Modification of Plan 60 12.06 Withdrawal of Plan _ 60 12.07 Payment Dates 61 12.08 Committees; Appointees 61 12.09 Headings 61 12.10 Successors and Assigns 61 12.11 Limitation of Liability 61 12.12 Indemnification Obligations 62 12.13 Payment of Statutory Fees 62 12.14 Releases 63 12.15 Governing Law 63 12.16 No Original Issue Discount 64 12.17 Severability of Plan Provisions 64 12.18 Exhibits 64 12.19 No Admissions 65 ARTICLE XIII CONFIRMATION REQUEST 66 EXHIBITS A. Restated Certificate of Incorporation and the Amended Bylaws of the Debtor B. Class 6 Purchase Agreement C. Class 7 Purchase Agreement D. GHI Management Agreement E. GHI Restructuring Transactions F. GHTV Management Agreement G. Junior Debenture Indenture H. New Collateral Documents I. New Investor Agreement J. New Senior Secured Note Indenture K. New Senior Subordinated Secured Note•Indenture L. Stockholders Agreement iii I c EXHIBITS (continued) M. Summary~of Restructuring of the ownership of the Debtor's Subsidiaries N. Corporate Organizational Structure of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV, and the GHTV Subsidiaries iv t _ t I~~oooe~IO~a Gillett Holdings, Inc., (the "Debtor") proposes the following plan of reorganization (the "Plan") for the resolution of the Debtor's outstanding creditor claims and equity interests Reference is made to the Debtor's Disclosure Statement, filed contemporaneously with the Plan, for a discussion of the Debtor's history, businesses, properties, results of operations and projections for future operations, and for a summary and analysis of the Plan and certain related matters. The Debtor is the proponent of the~Plan within the meaning of section 1129 of the Bankruptcy Code, 11 U.S.C. § 1129. All holders of Claims against. and Interests in the Debtor are encouraged to read the Plan and the Disclosure Statement in their entirety before voting to accept or reject the Plan. A1tTICL~ I DSFII~ITIOI~TS Certain capitalized terms used throughout this Plan are defined in this Article I. Other capitalized terms found in this . Plan are defined in the text at the place where they are used. Any capitalized term used in this Plan that is not defined herein shall have the meaning assigned to such teen in the Bankruptcy Code or the Bankruptcy Rules (and shall be construed in accordance with the rules of construction thereunder). Unless the context otherwise requires, defined terms shall be equally applicable to both the singular and plural forms of such teens. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Plan as a whole and not to any. particular Article, section, subsection or clause contained. in this Plan, ~ ~ unless the context requires otherwise. Exhibits referred to in the definitions or elsewhere in the Plan shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed to certain creditors and other parties in interest in accordance with Bankruptcy Rule 3017(a). Any reference in the Plan to an agreement or document being in a particular form or on particular terms and conditions means that such document shall be in substantially such form or on substantially such terms and conditions. Any reference in the Plan to an existing document or Exhibit filed or to be filed means such document or Exhibit as 'it may have been or may be amended, modified or supplemented. .Administrative Claim means a Claim for payment of an administrative expense of a kind specified in section 503 (b) of the Bankruptcy Code and referred to in section 507 (a) (1) of the -Bankruptcy• Code, including, without limitation, the actual, necessary costs and expenses incurred after the c~.~~..encement of • the Reorganization Case of preserving the Debtor's estate and operating the business of the Debtor, including wages, salaries or • commissions for services, c~~a~rensation for legal and other services •and reimbursement of expenses awarded under sections 3.30(a) or 331 of the Bankruptcy Code, and all fees and charges assessed. against the estate under Chapter 123 of title 28, United States Code. Agent means Manufacturers Hanover Trust Company as .successor agent under the Bank Credit Agreement, and any predecessor or successor agent thereto. -2- 1 Agent Expenses means any unpaid agent's fees, and reasonable unpaid out-of-pocket costs or expenses incurred by the Agent through the Effective Date, including, without limitation, _ reasonable out-of-pocket costs and expenses and reasonable fees of legal counsel to the Agent, ford-which the Agent .has a right to indemnification from the Banks under the Bank Credit Agreement and related loan documents. Allowed Administrative Claim means all or that portion of any Administrative -Claim which either (a) has been allowed by a Final Order, or (b) was incurred by the Debtor in the ordinary . course of business during the Reorganization Case and is due, owing, valid and enforceable. Allowed Claim means that portion of any Claim, other than _an Administrative Claim, (a) as to which (x) no proof has been :filed with the Court and (y) the liquidated and noncontingent amount of which is scheduled by the Debtor .pursuant to the Bankruptcy Code as undisputed, or (b) as to which proof has been timely filed in a liquidated amount with the Court pursuant to the Bankruptcy Code or any order of the Court, or late filed with leave of 'the Court after notice and a hearing, provided that (x) no . ..objection to the allowance of such Claim or motion to expunge such °~Claim has been interposed before any final date for the filing of such objections or motions set forth in the order of the Court . confirming the Plan or other Court order or (y) if such objection. :or~motion has been filed, .:such objection or motion has been .overruled by a Final Order (but only to the extent such objection -3- b , . or motion has been overruled), or (c) as to which a Final Order has been entered allowing such Claim. Bank Credit Agreement means the Credit Agreement dated . as of June 19, 1987, among GHI, Manufacturers Hanover Trust .Company, as successor agent, and the .Banks that are ..parties thereto, as amended, modified or supplemented through the Effective Date of this Plan. Bank Guaranty Agreement means that certain Guaranty Agreement, dated June 17, 1987, pursuant to which certain Subsidiaries guaranteed GHI's obligations under the Bank Credit Agreement, as amended, modified or supplemented through the Effective Date of the Plan. Banks means the lenders from time to time who are parties to the Bank Credit Agreement, and their successors and assigns. Bankruptcy Code means title 11 of the United States Code, .as amended. • Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as amended, promulgated under 28 U.S.C. §2075 .and the local rules of the Court, as , appli~~~~'~le from time to time to the Reorganization Case. Business Day means any day except Saturday, Sunday or any other day on which commercial banks are authorized•by law to close. • Certificate of Incorporation and Bylaw Amendments means the Restated Certificate of Incorporation and the Amended Bylaws of the Debtor in the form of Fsrhibi~y A hereto. -4- r Claim means a claim against the Debtor, whether or not asserted or allowed, as defined in section '101 (5) of the Bankruptcy Code. . Class means a category of holders of Claims or Interests . defined in Article II of the Plan. ~ ' Class 1 and Class 2 Common Stock means, respectively, the classes of common stock of the Reorganized Company described - in the Certificate of Incorporation and Bylaw Amendments. Class 6 Purchase Agreement means a Purchase Agreement in the form of Exhibit B hereto, duly executed and delivered by a holder of Class 6 Claims making the Class 6 Purchase Election - pursuant to Section 5.05'(a). Class 7 Purchase Agreement means a Purchase Agreement in the form of Exhibit C hereto, duly executed and delivered by a holder of Class 7 Claims making the Class 7 Purchase Election pursuant to Section 5.06(a)(4). Common Stock means the Class 1 and Class 2 C".~LL«On Stock of the Reorganized Company to be issued under the Plan, comprising in the aggregate 10,000,000 shares on a fully diluted basis assuming full subscription to, and complete conversion of, the Junior Debentures, and assuming issuance of 500,000 shares of Class 1 Common Stock to be issued to the Management Company in the future under the GHI Management Agreement, but not assuming for this purpose issuance of any additional stock or warrants under the GHI Management Agreement. Confirmation Date means the date on which the Court enters the Confirmation Order. -5- 1 Y , Confirmation Order means the order confirming the Plan pursuant to section 1129 of the Bankruptcy Code. Consummation means with respect to~ the Plan the "substantial consummation" of the Plan, as such term is defined in. section 1101(2) of the Bankruptcy Code. Court means the United States Bankruptcy Court for the District of Colorado and, to the extent it may exercise jurisdiction in the Reorganization Case, the United States District Court for the District of Colorado, or if either such court ceases to exercise jurisdiction over the Reorganization Case, such other court that exercises jurisdiction over the Reorganization Case. Creditors' Committee means the Official Creditors' Committee appointed in the Reorganization Case. Debentures means the Senior Subordinated Debentures and the Subordinated Debentures. • Debtor means GHI as a debtor and debtor in possession in the Reorganization Case under the Bankruptcy Code. Disbursing Agent means the Reorganized Company, or such . other designee appointed by the Court on request of the Debtor following notice and a hearing. Disclosure Statement means the Debtor's Disclosure Statement, dated February 4, 1992, and filed with the Court in connection with this Plan, as it may be amended or modified.by the Debtor from time to time in accordance with the Bankruptcy Code and the Bankruptcy Rules. Distribution Record Date means the date fixed by the Court as the record date for determining the holders of Old -6- ~ ~ t ~ Securities who are entitled to receive distributions under this Plan. Effective Date means a date selected by the Debtor that is no more than ten Business Days following the date on which all conditions to the Effective Date set forth in Section 10.02 of the Plan have been satisfied or, if waivable, duly waived. _ Equitable Adversary Proceeding means that adversary proceeding, numbered 91-1622 PAC, filed with the Court on August 16, 1991 and pending in this Reorganization Case and captioned "The Equitable Life Assurance Society of the United States and EQJ Partnership, Plaintiffs v. Gillett Holdings, Inc., Gillett Broadcasting of Maryland, Inc., Gillett Group, Inc., The First National Bank of Chicago, and Norwest Bank Minnesota, National Association, Defendants." , Exchange Agent means an entity to~.be designated by the Debtor not less than ten days prior to the hearing on the Debtor's ,Disclosure Statement_to be conducted pursuant to Bankruptcy Rule 3017. . Expiration Date means the date fixed by the Court after which ballots with respect to the Plan may no longer be accepted by the Debtor without leave of the Court. Final Order means an order as entered on the docket by the Court or any other court exercising jurisdiction. over the subject matter and the parties as to which the time to appeal, petition for certiorari or seek rehearing has expired and no appeal or petition for certiorari or rehearing has been timely filed or requested or is~ still pending, or as to which any motion for -7- rehearing, appeal or petition for certiorari that has been filed has been resolved by the highest court to which the order was timely appealed, or from which certiorari or rehearing was sought. Forest Service Permits means the permits issued by the U.S. Forest Service for Vail's use of federal land in connection with its ski operations. General Trade and Service Claims means a11~Claims (other than the GHI Guarantee Claims) against the Debtor arising prior to the Petition Date and that are not otherwise included in another Class, including Claims arising out of the rejection of executory contracts or unexpired leases. GHI means Gillett Holdings, Inc., a Delaware corporation. GHI Guarantee Claims means all contingent or unliquidated Claims against the Debtor arising out of all guarantees of payment or performance of the obligations of (a) Vail and/or Packerland under (x) industrial development bonds, (y) reimbursement ~~agreements executed in connection with letters of credit, (z) interest rate swap agreements; (b) Beaver Creek Resort Comp.:~ty of Colorado under a loan agreement with NCNB Texas National Bank; (c) _ GHTV, Inc. under an interest rate exchange agreement with The First National Bank of Chicago; and (d) RSBY, Inc., KSHW, Inc., Gillett Broadcasting of Tennessee, Inc., and W'TV'T, Inc. under certain representative agreements with TeleRep, Inc. - GHI Management Agreement means the Management Agreement between the Management Company, the Reorganized Company and certain of the Reorganized Company Subsidiaries, dated as of the Effective Date, in the form of Exhibit D hereto. -.8- ~ ~ GHI Restructuring Transactions means the series of transactions described in Exhibit E hereto. GHTV means GHTV, Inc., a Delaware corporation which was formerly known as Gillett Group, Inc. GHTV Managerr?ent Agreement means the Management Agreement between the Management Company, GHTV and the GHTV Subsidiaries, dated as of the~Effective Date, in the form of Exhibit F hereto. ' ~ GHTV Subsidiaries means any .corporation of which more than 50~ of the outstanding capital stock entitled to vote for the. election of directors (other. than as a result of a dividend arrearage or other default) is owned or controlled, directly or indirectly, by GHT'V, by one or more GHTV subsidiaries or by GHTV and one or more GHTV Subsidiaries. GNG means George. N. Gillett, Jr. GNG Affiliate means any member of the GNG Immediate Family and any Person .or group acting in concert with GNG or that controls or is controlled by or is under common control of GNG (other than GHI and its Subsidiaries). "Control" (including, with correlative meanings, the terms "controlled by" and "under common control with") means the ownership of 10~ or more of another Person, or the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. GNG Immediate Family means GNG's children, step children, grandchildren, parents, grandparents, spouse, siblings, mother- ~in-law, father-in-law, sons-in-law, daughters-in-law, brothers- -9- ~ , Y in-law, and sisters-in-law (including adoptive children) as of the Effective Date.. GNG Interests .means the 1,000 shares of common stock of GHI, which common stock as of the date hereof is owned by GNG. .Indenture Trustees means, ,collectively: (a) Norwest_Bank Minnesota, National Association, as successor trustee under the Zero Coupon Senior Notes Series A-C and Series D-E Indentures dated as of August 1, 1986 and August 1, 1987 respectively; (b) Bankers Trust Company, as trustee under the Senior Subordinated Debenture Indenture dated as of August 1, 1986; (c) the First National Bank of Minneapolis, as trustee under the Subordinated Debenture Indenture dated as of August 1, 1987; and (d) First Wisconsin Trust Company, as trustee under the Old Collateral Trust Agreement, and any predecessor or successor trustees to any of the aforementioned trustees . Indenture Trustee Expenses means any unpaid Indenture Trustees .fees, and reasonable unpaid out-of-pocket costs or expenses incurred through the Effective Date by an Indenture Trustee, including, without limitation, reasonable out-of-pocket costs and expenses and reasonable fees of legal counsel to an Indenture Trustee, which are secured under the respective Indentures or Old Collateral Trust Agreement by a lien or other priority in payment against distributions to be made to holders of Claims under the Indentures. Indentures means, .collectively, the Zero Coupon Senior Notes, Series A-C Indenture dated as of August 1, 1986 by and between GHI and Norwest Bank Minnesota, National Association, as -10- 1 ~ T t ~ successor trustee; the Zero Coupon Senior Notes, Series D-E Indenture dated as of August 1, 1987 by and between GHI and Norwest Bank Minnesota, National Association, as successor trustee; the Senior Subordinated Debenture Indenture dated as of August 1, 1986 by and between GHI and Bankers Trust Company, as trustee; and the Subordinated Debenture Indenture dated as of August 1, 1987 by and .between GHI and First National Bank of Minneapolis, as trustee. Intercompany Claim means a Claim held by a Subsidiary, GNG or a GNG Affiliate. Interest means the interest of any equity security holder of the Debtor, whether or not asserted, as defined in section 101 (17 ) of the Bankruptcy Code . Junior Debentures means the Junior Debentures of the Reorganized Company, dated as of the Effective Date and issued pursuant to the Junior Debenture Indenture, the form of which is Exhibit G hereto. Management Company means the entity which shall., on the Effective Date, enter into the GHI Management Agreement and the GHTV Management Agreement. New Collateral Documents means the documents, instruments and agreements, dated as of the Effective Date, pursuant to which the Reorganized Company and certain Reorganized Company Subsidiaries will grant liens. in property to secure the,New Senior Secured Notes and New Senior Subordinated Secured Notes in the form of F~rhibi t H hereto . New Indentures means the indentures under which the New Securities will be issued. -11- i, New ,Investor means an investment entity organized on behalf of Altus' Finance, Apollo Investment Fund, L.P. and other identified investors, if any, that shall enter into the New Investor Agreement. New Investor .Agreement means the investor Agreement; dated as~of the Effective Date, between the New Investor and the Debtor, in the form of Exhibit I hereto. New Securities means, collectively, the New Senior Secured Notes, the New Senior Subordinated Secured Notes and the Junior Debentures. New Senior Secured Notes means the Senior Secured Notes of the Reorganized Company, dated as of the Effective Date and issued pursuant to the New Senior Secured Note Indenture, the form of which is Exhibit J hereto, the total principal amount of which shall not exceed $200,000,000. - New Senior Subordinated Secured Notes means the Senior Subordinated Secured Notes of the Reorganized Company, dated as of the Effective Date and issued pursuant to the New .Senior Subordinated Secured Note Indenture, the form of which is Exhibit R hereto, the total principal amount of which shall not exceed $207,500,000. Non-Settling Class 6 Claimant means any holder of a Claim in Class 6 who is not a Settling Class 6 Claimant. Non-Settling Class 7 Claimant means any holder of a Claim in Class 7 who is not a Settling Class 7 Claimant. -12- ~ f x P . Old Collateral Trust Agreement means the Collateral Trust Agreement, dated as of June 19, 1987 by and between GHI and First Wisconsin Trust Company, as trustee, as amended. - Old Pledge and Security Agreement means the -Pledge and Security Agreement, dated as of June 19, 1987, by and between GHI, certain Subsidiaries and First Wisconsin Trust Company, as trustee, as amended. O1d.Securities means, collectively, the Zero Notes and the Debentures. ~ - Old Subordinated Indentures means the Senior Subordinated - Debenture Indenture and the Subordinated Debenture Indenture. Packerland means Packerland Packing Company,. Inc., a Delaware corporation, Packerland Exports, Ltd., a Virgin Islands .corporation, Packerland Exports II, Ltd., a Barbados corporation, - .and Packerland Transport, Inc., a Delaware corporation. Person means a."person" as defined in section 101(41) of the Bankruptcy Code or an "entity" as defined in section 101(15) ~ of the Bankruptcy Code. Petition Date means February 27,.1991, the date on which three creditors filed their petition for involuntary relief ,commencing the chapter it case of the Debtor. 'Plan means this Plan of Reorganization, as it may be H amended or modified by the Debtor from time to time in accordance ° with the Bankruptcy Code and the Bankruptcy Rules. Pledges means the pledges made, and security interests and liens granted, by GHI and certain Subsidiaries pursuant to the Old Pledge and Security Agreement and the Old Collateral Trust -13- - ~ ~ ti. R Agreement to`secure GHI's obligations under the Bank Credit Agreement and the Zero Notes. . Priority Claim means a Claim for an amount entitled to priority under section 507 (a) of the Bankruptcy Code, other than an Administrative Claim or a Tax Claim. Proceeds Investment Agreement means that certain WMAR Proceeds Investment Agreement approved by the Court by order dated May 23', 1991, by and among the Debtor, Gillett Group, Inc., Gillett Broadcasting of Maryland., Inc., and Wilmington Trust Company, as custodian, pursuant to which the WMAR Sale Proceeds are held by Wilmington Trust Company. Reorganization Case means the Debtor's case under chapter 11 of the Bankruptcy Code. Reorganized Company means the Debtor on and after the Effective Date. Reorganized Company Subsidiary means any corporation of which more than 50~ of the outstanding capital stock entitled to vote for the election of directors (other than as a result of a dividend arrearage or other default) is owned or controlled, directly or indirectly, by the Reorganized Company, by one or more of the Reorganized Company Subsidiaries or by the Reorganized Company and one or more Reorganized Company Subsidiaries. SCI Stock means the 40~ non-voting common equity interest held by Gillett Subsidiary Corp., a Delaware corporation and a Subsidiary of the Debtor, in SCI Television, Inc., a Delaware corporation. - ~14 - ~ A ~ Secondary Liability Claims means all contingent, unliquidated or disputed Claims against the Debtor arising prior to the Petition Date, including, without limitation, all guarantees of payment or performance, all suretyship obligations, all indemnification obligations, and .all obligations not otherwise included in another Class for which any Subsidiary is or may be a co-obligor or is jointly and severally liable, except the GHI rGuarantee Claims. Senior Subordinated Debentures means the 12-5/8~ Senior Subordinated Debentures of GHI due August 1, 1998 issued pursuant to the Senior Subordinated Debenture Indenture between GHI and Bankers Trust Company, as trustee, dated August 1, 1986. Senior Subordinated Debenture Indenture means the Indenture between GHI and Bankers Trust Company, as trustee, dated ~-~August 1, 1986, pursuant •to which the Senior Subordinated Debentures were issued, as such Indenture may have been amended, modified or otherwise supplemented from time to time. . Settling C1.ass b Claimant means each holder of a Claim in Class 6 who: (a) has not commenced or joined in any adversary proceeding, motion, objection or other action or proceeding, and has not othezvaise filed and does not at any time prior to the ~:~Effective Date otherwise file any pleading with any court, which yin any way: (i) seeks to challenge, contest, limit or modify the scope, effectiveness or applicability of the contractual subordination provisions contained in any .of the Old Subordinated "Indentures or (ii) asserts any claim, right or cause of action against any holder of a Class 5 Claim which is based upon, arises -15- ~ f t . out of, or relates to the issuance of any of the Zero Notes, the incurring of any indebtedness under the Bank Credit Agreement or the Bank Guaranty Agreement, or the scope, validity, effect or enforceability of any subordination provision contained in any of the Old Subordinated Indentures or any purported amended thereto; or (b) has commenced or joined in any such adversary proceeding, motion, objection or other action or proceeding, or has otherwise filed any pleading with any court, which falls within the scope of subsection (a) above, who waives, withdraws and dismisses any such challenge, contest, attempt to limit or modify, claim, right or cause of action, all with prejudice, in a pleading filed with the Court and any other applicable court, no later than the tenth day prior to the commencement of the hearing on the approval of the Disclosure Statement. For purposes of applying this definition, a Class 6 Claim held by a record holder of any Senior Subordinated Debentures who is not also the beneficial holder of such Senior Subordinated Debentures shall be deemed to be held by a Settling Class 6 Claimant only to the extent that the beneficial holder of such Claim would be deemed to be a Settling Class 6 Claimant if such beneficial. holder were treated as the holder of the Claim for all purposes under the Plan. Settling Class 7 Claimant means each holder of a Claim in Class 7 who: (a) has not commenced or joined in any adversary proceeding, motion, objection or other action or proceeding,~and has not otherwise filed and does not at any time prior to the Effective Date otherwise file any pleading with any court, which in any way: (i) seeks to challenge, contest, limit or modify the -16- i. scope, effectiveness or applicability of the contractual subordination provisions contained in any of the Old Subordinated Indentures or (ii) asserts any claim, right or cause of action against any holder of either a Class 5 Claim or a Class 6 Claim which is based upon, arises out of, .or relates to the issuance of any of the Zero Nates, the incurring of any indebtedness under the Bank Credit .Agreement or the Bank Guaranty Agreement, or the scope, . validity, effect or enforceability of any subordination provision contained in any of the Old Subordinated Indentures or any purported amendment thereto; or (b) has commenced or joined in any such adversary proceeding, motion, objection or other action or proceeding, or has otherwise filed any pleading with any court, which falls within the scope of subsection (a)~above, who waives, withdraws and dismisses any such challenge, contest, attempt to limit or modify, claim, right or cause of action, all with prejudice, in a pleading filed with the Court and any other applicable court, no later than the tenth day prior to the commencement of the hearing on the approval of the Disclosure Statement. For purposes of applying this definition, a Class 7 Claim held by a record holder of any Subordinated Debentures who is not also the beneficial holder of such Subordinated Debentures shall be deemed to be held by a Settling Class 7 Claimant only to ° -the extent that the beneficial holder of such Claim would be deemed to be a Settling Class 7 Claimant if such beneficial holder were . treated as the holder of the Claim for all purposes under this Plan. -17- i i , 1 Stockholders Agreement means the Stockholders Agreement between the Management Company and the New Investor, dated as of . the Effective Date, in the form of Exhibit L hereto. Subordinated Debentures means the 13-.7/8~ Subordinated Debentures of GHI due August 15, 1999 issued pursuant to the Subordinated Debenture Indenture between GHI and the First National Bank of Minneapolis, as trustee, dated August 1, 1987. Subordinated Debenture Indenture means the Indenture between GHI and First National Bank of Minneapolis, as trustee,• dated August 1, 1987, pursuant to which the Subordinated Debentures were issued, as such Indenture may have been amended, modified or otherwise supplemented. Subsidiary means any corporation of which more than 50~ of the outstanding capital. stock entitled to vote for the election of directors (other than as a result of a dividend arrearage or other default) is owned or controlled, directly or indirectly, by ,,the Debtor, by one or more Subsidiaries of the Debtor or by the Debtor and one or more of its Subsidiaries. Subsidiary Guarantees means, collectively, the Bank • Guaranty Agreement and the guarantees executed by certain Subsidiaries of the obligations of the Debtor outstanding under the Bank Credit Agreement and the Old Securities. Tax Claim means a Claim for an amount entitled to priority under section 507(a)(7) of the Bankruptcy Code. Vail means Vail Associates, Inc., a Colorado corporation., and its subsidiaries. -18- WMAR Sale Proceeds means the cash proceeds, and accrued interest thereon, received upon the sale of the assets of Gillett Broadcasting of Maryland, Inc. to Scripps Howard Broadcasting Company, which were deposited with, and are held by, Wilmington Trust Company pursuant to the. Proceeds Investment Agreement. Zero Notes means the Series A - E Serial Zero Coupon . Senior Notes of GHI issued pursuant to the Zero Coupon Senior Note Indentures between GHI and Norwest Bank .Minnesota, National Association, as successor trustee; dated, in the case of Series A- C, August 1, 1986 and, in the case of Series D-E, August 1, 1987. ARTICLE II CLA,SSIFICATIOId OF CLAIbTS AYdD IRTTERESTS The categories of Claims and~Interests listed below are classified for all purposes, including voting, confirmation and. distribution pursuant to the Plan. A Claim or Interest is in a particular Class only to the extent that the Claim or Interest is an Allowed Claim or allowed interest in that Class and has not been paid, released, or otherwise satisfied before the Effective Date. • 2.01 Class 1 Priority Claims. Class 1 consists of -all Priority Claims. Status - - I~ot i~pair®d. ~ . 2.02 Class 2 General Trade and Service Claims. Class 2 consists of all General Trade and Service Claims. Status Impair®d. 2.03 Class 3 Secondary Liability Claims. Class 3 consists of all Secondary Liability Claims. -19- / ' T ~Statua Impaired. 2.04 Class 4 Intercompany Claims. Class 4 consists of all Intercompany Claims. Status Impaired. 2 .05 Class 5 - - Bank Credi t Agreement and 'Zero Note Claims. Class 5 consists of all Claims of the Banks and the Agent under or evidenced by the Bank Credit Agreement and all documents, instruments and agreements related thereto, all Claims of holders under or evidenced by the Zero Notes, and of the Indenture Trustee for the Indentures governing the Zero Notes, and all documents, instruments and agreements related to such Claims, and all Claims of the Indenture Trustees under the Old Collateral Trust Agreement and all documents, instruments and agreements related thereto. Statue Impaired. 2.06 Class 6 Senior Subordinated Debentures. Class 6 consists of all Claims of holders under or evidenced by the Senior Subordinated Debentures, and of the ?:ndenture Trustees for the' Senior Subordinated Debenture Indenture, and all documents, instruments and agreements related thereto. Statue Impaired. 2.07 Class 7 Subordinated Debentures. Class 7 consists of all Claims of holders under or evidenced by the Subordinated Debentures, and of the Indenture Trustees for the Subord.i.nated Debenture Indenture, and all documents, instruments and agreements related thereto. Statue Impaired. -20- . 2.08 Class 8 GNG Interests. Class 8 consists of the GNG Interests. Status Impaired. ARTICL$ III GEZdSRAL PROVISIONS R$GARDING TRBAZ'D~ffi~TT OF CLAIMS AND It~~aRBSTS 3.01 Distribution Date. Except as otherwise provided in the Plan, property to be distributed under the Plan to an impaired Class (a> shall be distributed on or as soon as practicable after the Effective Date to each holder of an Allowed Claim of that Class that is an Allowed Claim as of the Effective Date, and (b) shall be distributed to each holder of an Allowed Claim of that Class that is allowed after the Effective Date, to the extent allowed, as soon as practicable after the order of the Court allowing the Claim becomes a Final Order. Property to be distributed under this Plan to a Class that is not impaired or on account of an Administrative Claim, the Agent Expenses or the Indenture Trustee Expenses shall be distributed on the latest of (i) the later of the two dates specified in the preceding sentence and (ii) the date on which the distribution to the holder of the Claim would have been due and payable in the ordinary course of business or under the terms of the Claim the Bank Credit Agreement or the Indentures in the absence of the Reorganization Case. 3.02 Holders of Debt Securities En ti tled to Receive Distributions. The distributions under this Plan on account of an -21- ` . Allowed Claim° under or evidenced by the Old Securities shall be distributed to holders of record as of the Distribution Record Date. At the close of business on the Distribution Record Date, the transfer ledgers for `the Old Securities shall be closed, and there shall be no~further changes in the record holders of the Old Securities. The Debtor and the Indenture Trustees shall have no obligation to recognize, any transfer of the ,Old Securities occurring on or after the Distribution Record Date. The Debtor and the Indenture Trustees shall be entitled instead to recognize and deal for all purposes hereunder with only those record holders stated on the transfer ledgers of the Indenture Trustees as of the close of business on the Distribution Record Date. 3.03 Agent and Indenture Trustee Fees. In full satisfaction of the Agent Expenses and the Indenture Trustee Expenses, the Debtor shall pay to the Agent and the Indenture Trustees an amount equal to the amount of such Agent Expenses and Indenture Trustee Expenses; provided that the aggregate amount so paid to the Agent and the Indenture Trustees on account of Agent . Expenses and Indenture Trustee Expenses shall not exceed $ Payment of such expenses shall constitute distributions on account of Claims in the Clasa to which such, expenses relate, provided that distributions otherwise provided under the Plan to holders of Allowed Claims under the Bank Credit Agreement and the Old Securities shall not.be reduced on account of such payment of Agent Expenses and Indenture Trustee Expenses. Notwithstanding anything in this Section 3.03 to the contrary, the Debtors obligation to pay the Agent Expenses and the Indenture -22- .Trustee Expenses shall be subject to the same bar date and procedural provisions set forth in Section 3.04 of the Plan, and the procedures regarding resolution of contested Claims set forth in Section 7.02 of the Plan a 3.04 Administrative Claims, Agent Expenses and Indenture Trustee Expenses. a. General. Subject to the bar date provisions herein and the provisions of Section 3.03, and notwithstanding the bar date set for any other types of Claims, each holder of an Allowed Administrative Claim, the Agent and the Indenture Trustees shall receive, on account of and in full satisfaction of such Allowed Claim, Agent Expenses or Indenture Trustee Expenses, cash equal to the amount of such Allowed Claim, unless the holder agrees to less favorable treatment .of such Claim. b. Bar Date for Administrative Claims, Agent Expenses and Indenture Trustee Expenses. All applications for final compensation of professional persons for services rendered and for reimbursement of expenses incurred on or before the Effective Date (including, without limitation, any compensation requested by any professional or any other entity for making a substantial contribution in the Reorganization Case) and all other .requests for payment of administrative costs and expenses incurred before the Effective Date under sections 507(a)(1) or 507(b) of the Bankruptcy Code (except only for Claims for trade debt incurred in the ordinary course of business and claims under 28 U.S.C. § 1930) and requests for payment of Agent Expenses and Indenture Trustee Expenses shall be filed no later than 60 days after the Effective -23- ' Date. Any such Claim or request for payment of Agent Expenses or. Indenture Trustee Expenses that is not filed within this deadline . shall be forever barred; and any holders of Administrative Claims, requests for Agent Expenses or Indenture Trustee Expenses who are required to file a request for payment of such Claims and who do not file such requests by the applicable bar date shall be forever barred from asserting such Claims against the Debtor, any of its property or any distributions under this Plan. ,'3.05 Tax Claims. .Unless otherwise agreed to by the parties, each holder of a Tax Claim that is an Allowed Claim will . receive cash equal to the unpaid portion of such Tax Claim on or within ten Business Days after the later of (i) the Effective Date, and (ii) the date on which such Tax Claim becomes an Allowed Claim; provided, however, that at the Reorganized Company~s option, the Reorganized Company may pay Tax Claims over a.period not exceeding six (6) years after the date of assessment of the Tax Claims as provided in subsection 1129(a)(9)(C) of the Bankruptcy Code. If the Reorganized Company elects this option as to any Tax Claim, then the payment of such Tax Claim shall be made in equal semiannual installments, with the first installment due on the latest of: (i) the Effective Date, (ii) 30 calendar days after the date on which an order allowing such Tax Claim becomes a Final Order, and (iii) such other time as may be agreed to by the holder of such Tax Claim and the Reorganized Company. Each .installment shall include ,simple interest on the unpaid portion of such Tax Claim, without penalty of any kind, at the statutory rate of interest provided-for such taxes under applicable nonbankruptcy -24- r r law; provided, however, that the Reorganized Company shall reserve " the right to pay any Tax Claim,.or any remaining balance of such Tax Claim, in full, at any time on or after the Effective Date, without premium or penalty. ' ARTICLE Iii . TRRAT~NT OF PRIORITY CLAIB2S Each holder of an Allowed Claim in Class 1 will be paid the allowed amount of such Claim in full in cash. ARTICLE V ~ . TR$ATb~NT OF CLASSZS I~iPAIR~ UATDBR `a-~ PLC 5.01 General Trade and Service Claims. Each holder of a Claim in Class 2 shall receive under the Plan in complete settlement, satisfaction and discharge of its Class 2 Claims cash ,.~.in an amount equal to the lesser of (i) 100 of its Class 2 Claim; .or (ii) its pro rata share of $ if the total amount of .all Allowed Claims in Class 2 exceeds $ :s. 5.02 Secondary Liability Claims. Each holder of a Claim in Class 3 will receive no distribution under the Plan on account of such Claim and such Claims shall be cancelled as of the Effective Date. 5.03 Intercompany Claims. Each holder of a Claim in v, Class 4 will receive no distribution under the Plan on account of such Claim and such Claims shall be cancelled as of the Effective Date. 5.04 Bank Credit Agreement Claims and Zero 1Vote Claims. -25- Each holder o'f a Claim in Class 5 (other than Claims constituting Agent Expenses=or Indenture Trustee Expenses) shall be entitled to elect under the Plan, in complete settlement, satisfaction and discharge of its Class 5 Claims, either (i) a Type 1 Distribution, . (ii) a Type 2 Distribution or (iii) a `Type 3 Distribution. Each such holder shall be entitled to split the aggregate amount of its Class 5 Claims between one or more types of distributions under this Section 5.04, as .such holder shall designate on its ballot, provided the amount of such holder's Class 5 Claims allocated to different types of distributions under this Section 5.04 shall not • exceed in the aggregate 100 of such holder's Class 5 Claims. Each holder that does not submit a ballot or does aot mark its distribution preference on the ballot in c~~.~lete accordance with the instructions set forth is the ballot shall be deemed conclusively to have elected as its preferred distribution any type of distribution selected by the Debtor in its sole discretion after the deadline for receipt of ballots has expired and before the entry of the Confirmation Order. The Debtor shall be entitled to split such holder's Class 5 Claims among different • types of distributions wader this Sectioa 5.04, provided the Debtor shall use reasonable ®fforts to place the maximum amount of such Claims within one type of distribution and to minimize the amount of such Claims that are. treated purauaat to the Excess Distribution provisions of Sectioa 5.04(d). (a) Type 1 Distribution.. Each holder of Claims in Class 5 electing a Type 1 Distribution (such holder's "Type 1 Distribution") shall receive New Senior Secured Notes in a face -26- • principal amount equal to 91.0 of the amount of such holder's Class 5 Claims designated by such holder to receive a Type 1 Distribution, provided that the aggregate principal amount of New Senior Secured Notes issued to holders of Class 5 Claims under the . Plan shall not exceed $200,000,000 (the "Type 1 Note Distribution - Cap"). (b) Type 2 Distributioa. Each holder of a Claim in Class 5 electing a Type 2 Distribution (such holder's "Type 2 Distribution") shall receive cash in an amount equal to 75~ of such holder's Class 5 Claims designated by such holder to receive.a Type 2 Distribution, provided that the aggregate amount of cash paid to holders of Class 5 Claims under the Plan shall not exceed $73,600,000 or such greater amount as the Debtor may designate in writing sent to all interested parties after the Expiration Date ~~and prior to the Effective Date (the "Type 2 Cash Distribution Cap , Y7 In the event that such holders elect in the aggregate to ••receive cash in excess of the Type 2 Cash Distribution Cap, such • ~ holders in lieu .thereof shall receive a portion of the cash otherwise distributable to them in an amount equal to the product of t (i) a fraction (such holder's "Type 2 Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 5 Claims designated by such holder to receive a Type 2.Distribution and the denominator of which is the aggregate amount of all Class 5 Claims .making such election, times -27- (ii) the Type 2 Cash Distribution Cap. To the extent that the aggregate amount of Class 5 Claims making the Type 2 Distribution election '(the "Type 2 Electing Claims") exceeds the Type 2 Cash Distribution Cap divided by 0.75 (the "Type 2 Distribution Excess Amount"), each such Class 5 Claim holder will be entitled to participate, as .set forth herein, in the Excess Distribution (as defined in Section 5.04(d)) in an amount equal to its Type 2 Pro Rata Fraction times the Type 2 Distribution Excess Amount (such holder's "Type 2 Excess Distribution Claim"). (c) Z`yp® 3 Distribution. Each holder of a Claim in Class 5 electing a Type 3 Distribution (such holder's "Type 3 Distribution") shall receive New Senior Subordinated Secured Notes in a face principal amount equal to 89.67$ of the amount of such holder's Class 5 Claims designated by such holder to receive a Type 3 Distribution, provided that the aggregate principal amount of New Senior Subordinated Secured Notes issued to holders of Clasp 5 Claims under the Plan shall not exceed $207,500,000 (the "Type 3 Note Distribution Cap"), together with the number of shares of . Class 2 Common Stock equal to the' product of: (A) a fraction (such holder's "Type 3 Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 5 Claims designated by such holder to receive a Type 3 Distribution, and the denominator of which is the aggregate amount of all Class 5 Claims making such election, times (B) 2,500,000 shares of Class 2 C~..~«on Stock. -28- In the event that such holders elect in the aggregate to receive New Senior Subordinated Secured Notes in excess of the~Type 3 Note Distribution Cap, each such holder in lieu thereof shall receive a portion of the New Senior Subordinated Secured Notes otherwise distributable to it in an amount equal to the product of (A) such holder's Type 3 Pro Rata Fraction times (B) the Type 3 Note Distribution Cap. - To the extent that the aggregate amount of Class 5 Claims making the Type 3 Distribution election (the "Type 3 Electing Claims") exceeds $231,404,037 (the "Type 3 Distribution Excess - Amount"), each such Claim holder will be entitled to participate, as set forth herein, in the Excess Distribution (as defined in Section .5.04 (d) ) in an amount equal to its Type 3 Pro Rata Fraction times the Type 3 Distribution Excess Amount (such holder's "Type 3_Excess Distribution Claim"). (d) Bxcess Distributioa. To the extent, if any, that - (i) the Type 1 Note Distribution Cap exceeds the amount of New Senior Secured Notes to be distributed to holders of Class 5 Claims that elected the Type 1 Distribution ' (the "Excess New Senior Secured Notes"), or (ii) the Type 2 Cash Distribution Cap exceeds the amount of cash to be distributed to holders of Class 5 Claims that elected the Type 2 Distribution (the "Excess Cash"), then the Excess New Senior Secured Notes and the Excess Cash shall be distributed (the "Excess Distribution")~ to holders of Class 5 Claims entitled to participate in the Excess Distribution as follows: ~ - -29- (A) Z~rpe Z Excess Distributioa. Each holder of a Type 2 Excess Distribution Claim shall receive, as its Excess'Distribution, New Senior Secured Notes equal to the product ~of (a) a fraction, the numerator of which is such holder's Type 2 Excess Distribution .Claim, and the denominator'.of~ which is the aggregate amount of Type 2 and Type 3 Excess Distribution Claims held by holders of Class 5 Claims, times (b) the principal amount of the Excess New Senior Secured Notes. (e) T~+pe 3 Excess Distribution. . Each holder of a Type 3 Excess Distribution Claim shall receive, as its Excess Distribution: (i) New Senior Secured Notes equal to the product of (a) a fraction, the numerator of which is such holder's Type 3 Excess Distribution Claim, and the denominator of which is the aggregate amount of Type 2 and Type 3 Excess Distribution Claims held by holders of Class 5 Claims, times (b) the Excess Senior Notes, and (ii) Cash, equal to the product of (a) a fraction, the numerator of which is such holder's Type 3 Excess Distribution Claim, and the denominator of which is the aggregate amount of Type 3 Excess Distribution~Claims held by holders of Class 5 Claims, times (b) the Excess Cash. (e) Effect of Ov®raubacription of Distributions in Class 5. After determining the final Class 5 elections pursuant to Section 5.09, the Effective Date shall not occur if either (i) the-Type 1 Electing Claims exceed $219,780,220 or -30- (ii) the sum of the Type 1 Electing Claims and Type 2 Electing Claims exceeds the sum of $219,780,220 plus an 7 amount equal to the Type 2 Cash Distribution Cap divided by 0.75. 5.05 Senior Subordinated Debentures. Each holder of a Claim in Class 6 (other than Claims constituting Indenture Trustee Expenses) shall receive under the Plan in complete settlement, satisfaction and discharge of its Class 6 Claims: (a) Yf Class 7 Accepts the Plan. If, and only if Class 7 accepts the Plan within the meaning of section 1126(c) of the Bankruptcy Code, then each holder of a Class 6 Claim shall receive cash in an amount equal to 32.42~r of such holder's Class 6 Claims. In addition, if and only if Class 7 accepts the Plan within the meaning of section 1126(c) of the Bankruptcy Code, then each holder of a Class 6 Claim who qualifies as an Accredited Investor within the meaning of Regulation D under the Securities Act of 1933 shall be entitled to purchase, if such holder has so designated on its ballot and if such holder certifies that it is an Accredited Investor (such holder's "Class 6 Purchase Election") ~an amount of Junior Debentures equal to the lesser of (i) the face principal amount of Junior Debentures such holder designates on its ballot as its Class 6 Purchase Election, and (ii) a face principal amount of Junior Debentures equal to the product of (A) a fraction, the numerator of which is the amount of such holder's Class 6 Claims and the denominator of which is the aggregate amount of all Class 6 Claims, times -31- r ~ (B), the difference of $12,750,000 less the aggregate face principal amount of Junior Debentures issued to holders of Class 7 Claims pursuant to Section 5.06(a)(4) of the Plan. On the Effective Date, each holder making a Class 6 Purchase Election shall pay the Reorganized Company cash in an amount equal to the face principal amount of the Junior Debentures to be purchased by such holder. A holder shall not be deemed to have made the Class 6 Purchase. Election unless such holder shall have returned with.its ballot a duly executed Class 6 Purchase Agreement in the form of Exhibi t B. (b) If Class 7 Rejects the Plan. If Class 7 does not accept the Plan within the meaning of section 1126 (c) of the Bankruptcy Code, then each holder of a Class 6 Claim shall receive: (i) cash in an amount equal to 32.42 of such holder's Class 6 Claims; and (ii) the number of shares of Class 2 Common Stock equal to .0116437 times the amount of such holder's Class 6 Claims, not to exceed in the aggregate for all such holders, 2,957, 500 shares of Class 2 C~~?u«on Stock (equal on the Effective Date to approximately 29.6 of the fully diluted Common Stock) , but . shall not have the right to purchase any Junior Debentures. (c) Resolution of Claims Regarding Subordination Provisions. Notwithstanding the foregoing or any other provision of . this Plan,, except as otherwise provided in Section 11.02, which addresses the resolution of contractual subordination rights, any -32- 0 distribution to the holder of a Claim in Class 6 shall remain subject to any contractual subordination rights of a holder of a Claim in Class 5 under the Senior Subordinated Debenture Indenture. • 5.06 Subordinated Debentures. (a). If Class 7 Accepts the Plaa. If and only if Class 7 accepts the Plan within the meaning of section 1126(c) of the Bankruptcy Code, each holder of a Claim in Class 7 (other than Claims constituting Indenture Trustee Expenses) shall be entitled to elect under the Plan in complete settlement, satisfaction. and discharge of its Class 7 claims, either (i) a Type A Distribution or (ii) a Type B Distribution. Each such holder shall be entitled to split the aggregate amount of its Class 7 Claims between such types of distributions under this Section 5.06, as such holder shall designate on its ballot, provided the amount of such holder's Class 7 Claims allocated to the types of distributions under this Section 5.06 shall not exceed in the aggregate 100 of such holder',s Class 7 Claims. Bach holder of Class 7 Claims that does sot submit a ballot or does sot mark its distribution prefereace on the ballot is complet® accordaace c~ith the instructions set forth in the ballot shall b® de®med conclusively to hav® elected ~as its preferred distribution any type of distribution selected by the Debtor in its sole diseretion after the deadline for receipt of ballots has expired and before the entry of the Coafia~atioa Order. The Debtor shall be entitled to split such holder's Class 7 Claims among the types of distributioas.uader this Section 5.06, provided -33- t s the Debtor shall use reasonable efforts to place the maximum amount of such Claims within one type of distribution and to minimize the amount of such Claims that are treated pursuant to the' Excess Distribution provisions of Section 5.06(x)(3). (1) Z~?pe A Distribution. Subject to Section 5.06 (b) each holder of Claims in Class 7 electing a Type A Distribution (such holder's "Type A Distribution") shall receive cash in an amount equal to 15.84 of the amount of such• holder's Class 7 Claims designated by such holder to receive a Type A Distribution, provided that the aggregate amount of cash distributed to holders of Class 7 Claims shall not exceed $13,090,000 (the "Type A Cash Distribution Cap"). In the event that such holders elect in the aggregate to receive cash in excess of the Type A Cash Distribution Cap, such holders in lieu thereof will receive a portion of the cash -otherwise distributable to them in an amount equal to the product of (i) a fraction (such holder's "Type A Pro Rata • Fraction"), the numerator of which is the aggregate amount of such holder's Class 7 Claims designated by such holder to receive a Type A Distribution and the denominator of which is the aggregate amount of all Class 7 Claims making such election, times (ii) the Type A Cash Distribution Cap. To the extent that the aggregate amount of Class 7 Claims making the Type A Distribution election (the "Type A Electing Claims") exceeds $82,638,889 (the "Type A Distribution Excess Amount"), each such Class 7 Claim holder will be entitled to -34- participate, as set forth herein, in the Excess Distribution (as defined. in Section 5.06 (a) (3) ) in an amount equal to its Type A Pro Rata Fraction times the Type A Distribution Excess Amount (such holder's "Type A Excess Distribution Claim"). . .(2) Type .H .Distribution. Subject to Section -5.06 (b) each holder of a Claim in Class 7 electing a Type B Distribution (such holder's "Type B Distribution") shall receive the number of shares of Class 2 Common Stock equal to .02060413 times the amount of such holder's Class 7 Claims designated by such holder to receive a Type B Distribution, provided that the aggregate amount of shares of Class 2 Common Stock distributed to holders of Class 7 Claims under the Plan shall not exceed 1,800,000 shares (equal on the Effective Date to 18~ of the fully diluted Common Stock) (the "Type B Stock Distribution Cap"). In the event that such holders elect in the aggregate to .receive Class 2 Common Stock in excess of .the Type B Stock ..Distribution Cap, such holders in lieu thereof shall receive a .portion of such stock otherwise distributable to them in an amount equal to the product of (i) a fraction (such holder's "Type H Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 7 Claims designated by such holder to receive a Type B Distribution, and the denominator of which is the aggregate amount of all Class 7 Claims making such election, times (ii) the Type B Stock Distribution Cag. -35- . ` To the extent that. the aggregate amount of Class 7 Claims making the Type B Distribution election (the "Type B Electing Claims") exceeds $87,361,111 (the "Type B Distribution Excess Amount"), each such Class 7 Claim holder will be entitled to participate, as set forth herein, in the Excess Distribution (as defined in Section 5.06 (a) (3) ) in an amount equal to its Type B Pro Rata Fraction times the Type B Distribution Excess Amount (such holder's "Type B Excess Distribution Claim"). (3) Excess Distributions. Subject to Section 5.06(b)~ each holder of a Type A Excess Distribution Claim shall receive the number of shares of Class 2 Common Stock equal to .02060413 times the amount of its Type A Excess Distribution Claim. Each holder of a Type B Excess Distribution Claim shall receive cash in an amount equal to 15.84 of its Type B Excess Distribution Claim. (4) Junior Debenture Purchase Election. In addition, each holder of Class 7 Claims who qualifies as an Accredited Investor within the meaning of Regulation D under the Securities Act of 1933 shall be entitled to purchase, if such holder has so . designated on its ballot and if such holder certifies that it is an Accredited Investor (such holder's "Class 7 Purchase Election") an amount of Junior Debentures equal to the .lesser of (i) the face principal amount of Junior Debentures such holder designates. on its ballot as its Class 7 Purchase. Election, and (ii) a face principal amount of Junior Debentures equal to the product of (A) a fraction, the numerator of which is the amount of such holder's Class 7 Claims and the denominator of which is the aggregate amount of all Class 7 Claims, times -36- (B) $12,750,000. On the Effective Date, each holder making the Class 7 Purchase Election shall pay the Reorganized Company cash in an amount equal to the face principal amount of the Junior Debentures <to be purchased by such holder. A holder shall not be deemed to have made the Class 7 Purchase Election unless such holder shall have returned with its ballot a duly executed Class 7 Purchase Agreement in the form of Exhibit C. (b) If Clara 7 Rejects th® Plan. If holders of Claims in Class 7 do not accept the Plan within the meaning of section 1126(c) of the Bankruptcy Code, the distributions and elections described in subsection (a) of this Section 5.06 shall not be made. Each holder of a Class 7 Claim (other than Claims constituting -Indenture Trustee Expenses) shall receive in lieu thereof only the number of shares of Class 2 Common Stock equal to .00294118 times the amount of such holder's Class 7 Claims, not to exceed in the aggregate for all such holders, 500, 000 shares of Class .2 C~~a~.«on Stock (equal on the Effective Date to 5~ of the fully diluted Common Stock), and shall not receive any cash or have the right to purchase any Junior Debentures. (c) R®eolutioa of ~Clmi~ R®gardiag Subordination ~Provisioase Notwithstanding the foregoing or any other provision of this Plan, except as otherwise provided in Section 11.02, which addresses the resolution of contractual subordination rights, any distribution to the. holder of a Claim in Class 7 shall remain subject to any contractual subordination rights of a holder of a -37= Claim in Class 5 or a holder of a Claim in Class 6 under the Subordinated Debenture Indenture. 5.07 GNG Interests. Class 8 Interests shall receive no distribution under the Plan. . 5.08 DeterTttination of Class 5, 6. and 7 Claim Amounts. The amount of all Claims in Classes 5, 6 and 7 (other than Agent and Indenture Trustee Expenses) shall be determined as of the Petition Date. For the purpose of calculating the distributions under Sections 5.04, 5.05 and 5.06 however, and solely for such purpose, the amount of Claims in Classes 5, 6 and 7 (other than Agent and Indenture Trustee Expenses) shall be determined as follows: (i) Class 5, 6 and 7 Claims to be determined without including any unpaid default interest, unpaid interest on interest, or unpaid fees, costs and expenses; (ii) Class 5 Claims under the Bank Credit Agreement shall include accrued interest to the Petition Date; (iii) Class 5 Claims under the Zero Notes to be determined based on the accreted amounts of such Claims on the Petition Date; and (iv) Class 6 and 7 Claims to be determined based on outstanding principal amounts without giving effect to any original issue discount and without including any accrued and unpaid interest. . 5.09 Reallocation of Holders' Designated Distributions. 'After the Expiration Date and prior to the entry of the Confirmation Order, the Debtor may, in its sole discretion but . ~ -38- subject to the consent of the holder of a Claim in Classes 5, 6, or 7, reallocate any of such holder's distributions available to holders of Claims in the same Class. 5.10 Impaired Classes. By virtue of the foregoing provisions of this Article V; the Claims in Classes 2, 3, 4, 5, 6 and 7 and the Interests in Class 8 are impaired under the Plan. ARTICLE `TI PROVISIONS FOR NEB INVESTOR On or before the Confirmation Date, the Debtor and the New Investor shall enter into the New Investor Agreement. Pursuant to the New Investor Agreement, the New Investor shall, subject to the conditions and on the terms described therein, purchase on or prior to the Effective Date $27,250,000 face principal amount of Junior Debentures, and, if and only if Class 7 accepts the Plan, the face principal amount of Junior Debentures equal to the difference of $12,750,000 minus the aggregate face principal amount of Junior Debentures that are issued under Sections 5.05 (a) and . 5.06(a)(4) of the Plan (the "Excess Junior Debentures"). The Junior Debentures purchased by the New Investor under this Article VI shall. be convertible into. Class 1 C~.~u«on Stock in an aggregate amount equal to the groduct of .13 times the aggregate `-amount of Junior Debentures, including .Excess. Junior Debentures, so purchased. -39- ARTICLE VII PROVISIONe FOR TREATb~NT OF DISPuiisU, CONTINGENT AND uivLIQIIIDAa~ CLAID~.S AND ADB2INISTRATIVE EXPENSES 7.01 Characterization of Claims as Disputed. Pursuant to subsection 1111(a) of the Bankruptcy Code, proof of a claim is deemed filed under section 501 of the Bankruptcy Code if that claim is included in the schedules filed under section 1106(a)(2) of the Bankruptcy Code except if the claim is scheduled as disputed, contingent, or unliquidated. ;"~;zch a disputed, contingent, or unliquidated claim must be ase.~:t.ed by its holder, or an Indenture Trustee representing such holder, by the timely filing of a proof . of claim. If a proof of claim is not filed in a timely manner, the claim may be deemed to be disallowed. Except as otherwise provided by the Plan, the Debtor shall have the right to object to and contest the allowance of any Claim filed with the Court, whether or not such Claim was scheduled as disputed, contingent or unliquidated. 7.02 Resolution of Contested Claims. Unless otherwise ordered by the Court after notice and a hearing, objections to Claims, including Administrative Claims or to requests for payment of Agent Expenses or Indenture Trustee Expenses, shall be filed and served upon the holder of such Claim or Administrative Claim or upon the Agent or Indenture Trustee, as applicable, as soon as practicable, but not later than the later of (a) sixty (60) days after the Effective Date, and (b) sixty (60) days after a proof of claim or request for payment of such Claim, Administrative Claim, Agent Expense or Indenture Trustee Expense . - -40- - - . is filed, unless this period is extended by the Court. The Debtor shall have the exclusive right to object to Claims other than Administrative Claims. ARTICLE VIII IB~SPLB~TTATION OF -1.~ PLAN 8.01 New Securities, Collateral Trust Agreement and Purchase Agreements. On the Effective Date, the Reorganized Company shall issue, in accordance with the provisions of Article V of the Plan, the New Senior Secured Notes, the New Senior - Subordinated Secured Notes, the Junior Debentures, and the Common Stock and shall execute and deliver the New Collateral Documents and New Indentures, and if, and only if, Class 7 accepts the Plan, -the Class 6 and Class 7 Purchase Agreements. 8.02 Cancellation of Old Securities, Old Collateral Trust =Agreement and Indentures. Except as expressly provided iri the Plan ~~or in the Confirmation Order, on the Effective Date the Bank Credit . Agreement, the Bank Guaranty Agreement, the Zero Notes, the Senior - Subordinated .Debentures, the Subordinated Debentures, the Old Collateral Trust Agreement, the Old Pledge and. Security Agreement, the Indentures, the Proceeds Investment Agreement, the GNG Interests and all obligations of the Debtor, its Subsidiaries, GHTV and the GHTV Subsidiaries, under any of the foregoing, shall be~ terminated and cancelled; provided, however,. that eancellation of- the Indentures shall not affect any contractual subordination rights which are preserved by Section 11.02. -41- L 8.0.3 Certificate of Incorporation and Bylaw Amendments. On or before the Effective Date, the Debtor shall effect the Certificate of Incorporation and Bylaw Amendments. 8.04 Management of the Debtor. Upon the Effective Date, the operation of the Reorganized Company shall become the general responsibility of the Board of Directors, who shall, thereafter, have the responsibility for the management, control, and operation of the Reorganized Company. The Board of Directors of the Reorganized Company shall be comprised of nine (9) persons whose names are listed in the accompanying Disclosure Statement. Such persons shall be deemed elected pursuant to the Confirmation Order. The initial Chairman of the Board of Directors .of the Reorganized Company shall be George N. Gillett, Jr. Upon the Effective Date, the Board of Directors of the Reorganized Company shall delegate to the Management Company, pursuant to the GHI Management Agreement, and to the Operating Committee, pursuant to the Certificate of Incorporation and Bylaw Amendments of the Reorganized Company, certain responsibilities for the management and control of the operation of the Reorganized Company and the Reorganized Company Subsidiaries, as more fully described in FS'xhibits A and D. Beginning on the first anniversary of the Effective Date, the Reorganized Company shall issue 500,000 shares of Class 1 . Common Stock and warrants 'to purchase an additional 3~ of the Common Stock to the Management Company, subject to the terms and conditions, and on the dates set forth in the. GHI Management Agreement. The Reorganized Company shall also issue up to an -42- additional 2~ of the Common Stock to the Management Company in the amounts, subject to the terms and conditions, and on the dates set forth in the GHI Management Agreement. 8.05 Management of GHTV. Upon the Effective. Date, the Board of -Directors of GHTV shall delegate to the Management Company, pursuant to the GHTV Management Agreement, certain responsibilities, for the management and control of the operation of GHTV and the GHTV Subsidiaries, as more fully described in Exhibit F. 8.06 Method of Distribution Under the Plan. All cash distributions are to be made by the Disbursing Agent. The Disbursing Agent shall establish such account or accounts in a depository bank approved by the U.S. Trustee for the District of Colorado as may be necessary to carry out the Plan. 8.07 Release of the daM~lR Sale Proceeds to the Debtor. On the Effective Date, Wilmington Trust Company, the custodian under the Proceeds Investment Agreement, shall release the WMAR Sale Proceeds to the Reorganized Company in accordance with the Confirmation Order and the provisions of the Proceeds Investment Agreement. The Reorganized Company shall ,use the WMAR Sale ,Proceeds to make cash distributions under the Plan and for general corporate purposes after the Effective Date. 8.08 Investment in Cash. Cash held shall be invested by the Disbursing Agent in United States Treasury Bills, interest bearing certificates of deposit, interest bearing savings accounts, and investments permitted by section 345 of the Bankruptcy Code, using its best efforts to maximize the rates of interest without -43- • increasing the risk of~the investment. All interest earned on such cash shall be held by the Disbursing Agent and distributed as part . of the estate in accordance with the Plan. 8.09 Manner of Payment Under the Plan. Any payment of cash made by the Disbursing Agent pursuant to the Plan may be made either by check drawn on a domestic bank or by wire transfer from a domestic bank, at the option of the Disbursing Agent. 8.10 Manner of Distribution of Other Property. Any distribution under the Plan of property other than cash shall be made by the Reorganized Company or its designee in accordance with the terms of the Plan. 8.11 Setoffs. The Debtor may, but shall not be required to, set off against any Claim (for purposes of determining the " allowed amount of such Claim on which distribution shall be made) other than Class 5, 6 and 7 Claims, any claims of any nature .whatsoever the Debtor may have against the claimant, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtor of any such claim the Debtor may have against such claimant. 8.12 De Minimis Distributions. No cash payment of less than five dollars ($5.00) shall be made by the Disbursing Agent to any holder of a Claim unless a request therefor is made in writing to the Disbursing Agent. 8.13 Saturday, Sunday or Legal Holiday. If any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may. be completed on the next succeeding -44- ~ a .Business Day, but shall be deemed to have been completed as of the required date. 8.14 Other Documents and Actions. The Debtor and the Reorganized Company may execute such documents and take such other action~as is necessary to effectuate the transactions provided for in this Plan. 4 8.15 Corporate Actions. The issuance of the Common Stock, the adoption of the Certificate of Incorporation and Bylaw Amendments, the selection of•certain directors and officers of the Reorganized Company, the execution and delivery of any documents to be executed and delivered under the Plan, and other matters under the Plan involving the corporate structure of the Debtor or corporate action by the Debtor shall be deemed to have occurred and be effective on and after the Effective Date without any requirement of further action by stockholders or directors of• the Debtor. Without limiting the foregoing, upon• entry of the Confirmation Order by the Clerk of the Court, the filing by the Debtor or Reorganized Company of the Certificate of Incorporation .and Bylaw Amendments shall be authorized and approved in all respects. On the Effective Date, or as soon thereafter as is 'practicable, pursuant to applicable state law, the Reorganized Company shall file with the applicable state governmental agencies • or offices the Certificate of Incorporation and Bylaw Amendments shall be the Bylaws of the Reorganized Company. 8.16 Subsidiary Restructuring. As part of the GHI Restructuring Transactions, the Debtor and its Subsidiaries shall take such corporate action and execute such other documents as may -45- s a ~ ' be necessary to effect a restructuring of the ownership of the Debtor's Subsidiaries as more fully described on Exhibit M attached hereto such that the organizational structure of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV and the GHTV Subsidiaries shall be as depicted on Exhibit N attached hereto. 8.17 Resolution of GNG Related Claims and Acquisition of Assets. On the Effective Date, GNG shall transfer, or cause to be transferred, to the Reorganized Company the common stock of Vail Magazine, Inc..and,Vail Beaver Creek Jet Center, Inc., and the _ Reorganized Company and GHTV shall transfer or cause their subsidiaries to transfer to GNG the accounts receivable of the Reorganized Company, GHTV or any of their subsidiaries outstanding on the Effective Date from Gillett Cattle Company and GNG, and the common stock of Gillett Subsidiary Corp., a Delaware corporation held by the Debtor or its Subsidiaries (the only asset of Gillett Subsidiary Corp. being the SCI Stock). ARTICLB IZ ACCBPT1~iNC$ OR R~JSCTION OF i'a~ PLAPi . 9.01 Appropriately Marked Ballots by Holders of Claims in Classes 5, 5 and 7 Shall be Deemed as Releases of the Subsidiary Guarantees and Pledges. The ballots used. for soliciting acceptances or rejections of the Plan for Classes 5, 6 and 7 shall contain both a space for indicating a holder's acceptance or rejection of the Plan and a separate space for indicating the holder's agreement to release such holder's rights under the Subsidiary Guarantees and Pledges. Ballots so marked to release -46- ~ s the holder's rights .under the Subsidiary Guarantees and. Pledges shall be deemed to constitute contractual releases of such holder's rights under the Subsidiary Guarantees and the Pledges as of the .Effective Date. 9.02 Nonconsensual Confirmation. In the event that any impaired Class of Claims or Interests shall fail to accept the Plan in accordance with subsection 1129(a)(7) of the Bankruptcy Code, the Debtor reserves the right to ( i ) request that the Court confirm the Plan in accordance with subsection 1129 (b) of the Bankruptcy Code, or (ii) modify the Plan in accordance with Section 12.05 of the Plan. ARTICL$ X COIdDITI0AT5 PR~CSDEPtT 10.01 Conditions to Confirmation. It is a condition to confirmation of the Plan that: (i) the Court make the following findings and determinations at the confirmation hearing so that the Confirmation -Order will include provisions: (a) authorizing the Debtor to implement the GHI Restructuring Transactions; (b) finding that the Subsidiary Guarantees have been released and discharged pursuant to the Bank Credit Agreement and the Indentures; (c) finding that the Pledges under the Old Pledge and Security Agreement and Old Collateral Trust Agreement have been released and discharged; -47- (d) ordering that Wilmington Trust Company, the custodian under the Proceeds Investment Agreement, release the WMP,R Sale Proceeds to the Debtor free of the provisions of the Proceeds Investment Agreement; and (e) making the provisions of the Confirmation Order non-severable and mutually dependent, and (ii) the following events shall have occurred: (a) the Debtor shall have received firm commitment letters from a bank or banks or such other financial institutions committing such banks or financial institutions to refinance the Subsidiary indebtedness referred to in Exhibit E substantially on the terms set forth on a refinancing term sheet or sheets to be filed with the Court and served on all creditors and other parties in interest not later than ten days prior to the hearing on the Debtors Disclosure Statement filed with the Court pursuant to section 1125 of the Bankruptcy Code; (b) Vail shall possess Forest Service Permits on terms and conditions satisfactory to the Debtor and reasonably satisfactory to the Creditors' C~.~~«ittee; (c) the Debtor shall be satisfied and the Creditors' C~..u~.ittee shall be reasonably satisfied that neither the confirmation nor Consummation of the Plan, nor - any action to be taken to implement the Plan, nor any of the . GHI Restructuring Transactions, will result in the termination or modification of the Forest Service Permits (or any portion ' thereof); and -48- • (d) the New Investor shall have committed to purchase Junior Debentures in the face principal amount~of $27,250,000 plus the Excess Junior Debentures, on the terms and subject to the conditions contained in the New Investor Agreement by entering into the New Investor Agreement with the Debtor. 10.02 Conditions to the Effective Date. It is a condition to the Effective Date of the Plan that: (a) the Confirntation Order shall contain the provisions set forth in Section 10.01 of the Plan; (b) all conditions to the obligation of the New Investor to purchase Junior Debentures under the New Investor Agreement shall have been satisfied in accordance with the terms of the New Investor Agreement; (c) the GHI Restructuring Transactions shall have occurred provided., however, that this condition may be waived in writing by the Debtor and the Creditors' Committee, acting jointly, or by the Debtor acting solely without the consent l of the Creditors' Committee by seeking approval of the Court with notice to the Creditors' Committee and such parties in • interest-as the~Court may direct; (d) the Confirmation Order shall have become a • Final Order; provided, however, that this condition may be waived in writing by the Debtor and the Creditors' Committee acting jointly, or by the Debtor acting solely without the consent of the Creditors' Committee by seeking approval of -49- the Court with notice to the Creditors' Committee and such parties in interest as the Court may direct; (e all primary indebtedness of the Subsidiaries underlying the GHI Guarantee Claims shall have been repaid in full, credit enhanced or remain outstanding on terms such that GHI's obligations under such GHI Guarantee Claims shall have been satisfied, released and discharged; . (f) the Debtor shall have received a ruling from the Internal Revenue Service satisfactory to the Debtor; provided, however, that this condition may be waived in writing by the Debtor; and (g) the Debtor shall have obtained the approval by the Federal Communications Commission of the GHI Restructuring Transactions, insofar as they relate to television stations KSBW-TV, KSBY-TV and WTVT-TV, on terms and conditions satisfactory to the Debtor and reasonably satisfactory to the Creditors' Committee. 10.03 Effect of Non-occurrence of Conditions to Effective Date. If Confirmation and the conditions to the Effective Date have not occurred (or in the case of the conditions described in Section 10.02(c), (d) and (f), been duly waived) by September 30, 1992, or by such later date as is proposed by the Debtor and approved by the Creditors' Committee and~New Investor ,and approved by order of the Court on notice to such parties in interest as the Court may direct, then upon motion by any party in -interest made (i) after the deadline for satisfying (or obtaining waivers of) the Effective Date conditions (as such deadline may be -50- 4 ~ r extended hereunder), and (ii) before the time that the conditions have occurred or, if waivable, have been duly waived, the Confirmation Order may be vacated by the Court. Notwithstanding the foregoing, the Confirmation Order may not be vacated after the conditions to the Effective Date have either occurred or (in the case of the conditions described in 10.02 (c) and (d)) been duly waived. If the Confirmation Order is vacated pursuant to the foregoing, then this Plan shall be null and void. ARTICI,~ XI . EFFECTS OF P CONFIRMATION 11.01 Discharge. Except as otherwise expressly provided in the Plan or Confirmation Order, as of the Effective Date, the Debtor shall be discharged forthwith from, and the Confirmation Order shall operate as an injunction against, the commencement or continuation of an action, the employment of process, or an act to pcollect, recover or offset, any Claim and any "debt" (as that term is defined in section 101(12) of the Bankruptcy Code), and the Debtor's liability in respect thereof is extinguished .completely, 'whether reduced to judgment or not, liquidated or unliquidated, contingent or noncontingent, asserted or unasserted, fixed or not, matured or unmatured, disputed or undisputed, legal or equitable, known or.unknown, that arose from any agreement of the Debtor . entered into or obligation of the Debtor incurred before the Confirmation Date, or from any conduct of the Debtor prior to the Confirmation Date, or that otherwise arose before the Confirmation Date, including, without limitation, all interest., if any, on any -51- such debts, whether such interest accrued before or after the date of commencement of the Reorganization Case, and from any liability of a kind specified in sections 502 (g) , 502 (h) and 502 (i) of the Bankruptcy Code, whether or not a proof of claim is filed or deemed filed under section 501 of the Bankruptcy Code, such Claim is allowed under section 502 of the Bankruptcy Code, or the holder of such Claim .has accepted the Plan. 11.02 Termination of Certain Subordination Rights and Settlement of Related Claims and Controversies. (a) Resolutioa of Contractual Subordination Claims of Holders of Claims in Class 5 lsigainst Settling .Class 6 Claimants and Settling Class 7 Claimants and of Holders of Claims is Class 6 Against Settling Class 7 Claimants. In consideration for the treatment of Claims•in Class 5 and Class 6 under this Plan ~~~d the willingness of Settling Class 6 Claimants a.nd Settling Class 7 Claimants not to assert any challenges with respect to the contractual subordination provisions contained in the Old Subordinated Indentures, all contractual, legal or equitable subordination rights that the holder of a Claim in Class 5 may otherwise have with respect to any distribution to be made to a- Settling Class 6 Claimant or a Settling Class 7 .Claimant under this Plan, or that the holder of a Claim in Class . 6 may otherwise have with respect to any distribution to be made to a Settling Class 7 Claimant under thia_Plan, shall be deemed to have been waived, discharged and terminated, and all actions related to the enforcement of such subordination rights shall be permanently enjoined. Accordingly, distributions pursuant to the -52- 5 ~ Plan to holders of Allowed Claims in Classes 6 and 7 which are held by Settling Class 6 Claimants and Settling Class 7 Claimants shall not be subject to payment to a beneficiary of any subordination rights contained in the Old Subordinated Debentures, or to levy, garnishment, attachment or other legal process by a beneficiary of such subordination rights. (b) Resolution of Coatractual Subordination Claims of Class 5 Creditors Against Noa-Settling ClaBS 6 Claimants and Non-Settling Class 7 Claimants and of Class 6 Creditors Against Non-Settling Class 7 Claimants. Notwithstanding anything to the contrary contained in this Plan,, any distribution to be made to each Non-Settling Class 6 Claimant and each Non-Settling Class 7 Claimant under this Plan °••("Impounded Distribut-ion") shall remain subject to any contractual subordination rights provided in the Old Subordinated Indentures, • and shall be impounded in an escrow and not distributed until the entry of a Final Order of the Court determining: (i) in the case of impounded property that would otherwise be distributed to a Non- . Settling Class 6 Claimant, the respective rights of Class 5 creditors and the Non-Settling Class 6 Claimant thereto; and (ii) in the case of impounded property that would otherwise be distributed to a Non-Settling Class 7 Claimant, the respective rights of .Class 5 creditors, Class 6 creditors and the Non- Settling Class 7 Claimant thereto. The Impounded Distributions shall be distributed in accordance with such Final Orders. (c) Y,itigation Regarding.Coatractual Subordination Provisions. -53- Any Non-Settling Class 6 Claimant or Non-Settling Class 7 Claimant shall be free to challenge the scope, effect, a enforceability or effectiveness of any contractual. subordination provision contained in the Old Subordinated Indentures with respect to the Impounded Distribution,. as to which such contractual subordination provisions are not being affected by this Plan. Except as provided in the preceding sentence, all actions related to the enforcement of contractual subordination rights, including the Equitable Adversary Proceeding, shall be permanently enjoined.' The Equitable Life Insurance Society of the United States and EQJ Partnership, the plaintiffs in the Equitable Adversary Proceeding, shall dismiss the Equitable Adversary Proceeding (which dismissal shall be with prejudice, except to the extent provided in the prior sentence,), and the Confirmation Order shall provide for such dismissal. (d) Noa-Contractual Subordination Rights.. The classification and manner of satisfying all Claims and Interests under the Plan takes into consideration all non- . contractual rights of legal and equitable subordination, whether arising under general principles of equitable subordination, section 510 (c) of the Bankruptcy Code, or otherwise, that a holder of a Claim or Interest may have against other holders of Claims or Interests with respect to any distribution made pursuant to the Plan. On the Effective Date, all non-contractual legal or equitable subordination rights that a holder of a Claim or Interest . may have with respect to any distribution to be made pursuant to the Plan shall be deemed to have been waived, discharged and -54- 5 , e. ' terminated, and all actions related to the enforcement of such subordination rights shall be permanently enjoined. (e) Na 8ffect ®n Idew Securities. Any waiver,. discharge or termination of subordination rights provided for herein shall not affect or be deemed t.o affect any subordination or other provisions contained in any of the New Securities or New Indentures. 11.03 Revesting. Except as otherwise expressly provided in the Plan, the Ne,w Indentures~•~or the New Collateral Documents, on the Effective Date the Debtor will be vested with all of the property of the estate free and clear of all Claims, liens, encumbrances, charges and other interests of creditors and equity security holders, and may operate its businesses and exercise its interest in its subsidiaries free of any restrictions-imposed by ;the Bankruptcy Code or by the Court. The Debtor shall continue as ~a debtor in possession under the Bankruptcy Code until the ryEffective Date, and, thereafter, the Debtor may operate its business free of any restrictions imposed by. the Bankruptcy Code or the Court except as specifically authorized by the Plan. 11.04 Retention of Jurisdiction. Notwithstanding entry _ ~,of the Confirmation Order or the Effective Date having occurred, -the Court will retain jurisdiction (a) to determine any disputed Claims, (b) to' determine requests for payment of Claims entitled to priority under section 507(a)(1) of the Bankruptcy Code, including compensation of and reimbursement of expenses of parties entitled thereto, (c) to resolve controversies and disputes regarding interpretation and implementation of the Plan and the -55- 5 1 ` Restructuring Transactions, (d} to enter orders in aid of execution and implementation of the Plan, including, without limitation, orders which may include contempt or other sanctions, (e) to modify the Plan pursuant to Section 12.05 of the Plan, (f) to determine any and all applications, Claims, adversary proceedings and contested or litigated matters pending on the Effective Date, (g) to allow, disallow, estimate, liquidate or determine any Claim against the Debtor and to enter or enforce any order requiring the filing of any such Claim before a particular date, (h) to determine any and all pending applications for rejection or disaffirmance of executory contracts or unexpired leases, and to hear and determine, and if need be to liquidate, any and all Claims arising therefrom, (i) to adjudicate any claim to or controversy regarding the distribution of any Impounded Distribution under Section 11.02; and (j) to enter a final decree closing the Reorganization Case. Notwithstanding anything to the contrary contained herein, the Court shall not retain jurisdiction over any action or proceeding which relates to the New Investor Agreement, the GHI Management . Agreement, the GHTV Management Agreement, the Stockholders Agreement, the New Securities, the New Collateral Documents or the New Indentures including without limitation, any action to enforce, interpret, rescind or reform the New Investor Agreement, the GHI Management Agreement, the GHTV Management AgreemenC. the Stockholders Agreement, the New Securities., the New Collateral Documents or the New Indentures. 11.05 Post-Consummation Effect of Evidences of Claims or Interests. Notes, stock certificates and other evidences of Claims -56- 5 1 . ~ against or Interests in the Debtor shall, effective upon the Effective Date, represent only the right to participate in the distributions contemplated by the Plan. 11.06 Failure of Court to Exercise Jurisdiction. If the Court abstains from exercising jurisdiction or is otherwise without jurisdiction over any matter arising out of the Reorganization ,Case, including the matters set forth in this Article, this Article shall have no effect upon and shall not control, prohibit or limit . the exercise of jurisdiction by any other court having competent jurisdiction with respect to such matter. 11.07 Term of Injunctions or Stays. Unless otherwise provided, all injunctions or stays provided for in the i Reorganization Case pursuant to sections 105 or 362 of the Bankruptcy Code or otherwise and in effect on the Confirmation Date °shall remain.in full force and:effect until the Effective Date. R~TICL~ ZYI B~ISCELLA~®IIS P~OVISYONS 12.01 Surrender of Instruments. As a condition to ;participation under this Plan, (i) a holder of a security that- desires to reoeive the property on account of such holder's Allowed . Claim with respect to that security shall surrender such security, or evidence thereof satisfactory to the Exchange Agent or its designee, and (ii) the holder of a note, debenture or other evidence of indebtedness of the Debtor (other than a security) that desires to receive the property to be distributed on account of an Allowed Claim based on such note, debenture or other evidence of -57- 5 1 a v 4 ~ - ` indebtedness shall surrender such note, debenture or other evidence of indebtedness to the Exchange Agent, or its designee, and shall execute and deliver such other documents as are necessary to effectuate this Plan. If no surrender of a security, note, debenture or other evidence of indebtedness occurs and a claimant ' does not provide an affidavit that such security, note, debenture or other evidence of indebtedness was lost in form and substance reasonably satisfactory to the Exchange Agent,, then'no distribution may be made to any claimant whose Claim is based on such security, note, debenture or other evidence of indebtedness thereof. The ~ - Exchange Agent shall make subsequent distributions only to the Persons who surrender the. securities for exchange (or their assignees) and the .record holders of such securities shall be those holders of record as of the Distribution Record Date. Pursuant to section 1143. of the Bankruptcy Code, holders of securities, notes, debentures or other evidences of indebtedness who fail, within two years after the Confirmation Date, to surrender such securities, notes, debentures, or other evidences of indebtedness or fail to . provide an acceptable affidavit that such security, note, debenture or other evidence of indebtedness is lost, shall not participate in the distributions under the Plan. In such an event, the distributions otherwise distributable to such holders together with , accrued interest and dividends earned thereon will become the property of and shall be released to the Reorganized Company. 12.02 Executory Contracts. On the Confirmation Date, .,all executory contracts of the Debtor will be rejected in . accordance with the provisions of section 365 and section 1123 of -58- 5 y s r. i' the Bankruptcy Code, except~(a) any and all executory contracts which are the subject of separate motions filed pursuant to section 36.5 of the Bankruptcy Code by the Debtor prior to the commencement of the hearing on confirmation of the Plan, (b) such contracts as. are listed on any "Schedule of Assumed Executory Contracts" filed Eby the Debtor on or before entry of the Confirmation Order, all of which contracts shall be assumed pursuant to the provisions of section 365 and section 1123 of the Bankruptcy Code, and (c) any and all such contracts assumed prior to entry of the. order confirming the Plan. Contracts entered into after the date of commencement of the Reorganization Case will be performed by the Reorganized Company in the ordinary course of business. Any Claims arising out of the rejection of contracts or leases under this .Section 12.02 must be filed with the Court within 30 days after the Confirmation Date or entry of an order of rejection, whichever is -later, or be forever barred. 12.03 Unclaimed Distributions. If any person entitled to receive cash or securities directly from the Reorganized Company ~_under the Plan cannot be located, such cash or securities will be set aside and (in the case of cash) held in a segregated, interest- ~bearing fund to be maintained by the Reorganized Company. If such person is located within two years of the Effective Date, such cash or securities, together with any interest or dividends earned thereon, will be paid or distributed to such person. If such person cannot be located within two years of the Effective Date, any such cash or securities and accrued interest or dividends thereon will become the property of and shall be released to the -59- ~ r - • - V. ~ . t Reorganized Company; provided, however, that nothing contained in this Plan shall require the Reorganized Company to attempt to locate such person. 12.04 Fractional Dollars and Shares. Any other provision of the Plan notwithstanding, no~payments of fractions of dollars or issuance of fractions of shares of Common Stock will be made to any holder of an Allowed Claim. Whenever any payment of a fraction of a dollar or issuance of a fraction of a share to any holder of an Allowed Claim would otherwise be called for, the actual payment- or issuance made will reflect a rounding of such fraction up to the - nearest whole dollar or share in the case of fractions equal to 1/2 or more and down to the nearest whole dollar or share. in all other cases. 12.05 Modification of Plan. .The Debtor reserves the right, in accordance with the Bankruptcy Code, to amend or modify the Plan. in any manner prior to the entry of the Confirmation Order. After the entry of the Confirmation Order, the Debtor may, only with the written consent of the New Investor and the - Creditors' Committee, upon order of the Court, amend or modify the Plan only in accordance with, and to the extent permitted by, section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent of the Plan. - 12.06 Withdrawal of Plan. The Debtor reserves the right, sat any time prior to entry of the Confirmation Order, to revoke and withdraw this Plan. If the Debtor revokes or withdraws this Plan -60- 5 1 i ~t . ,d prior to entry of the Confirmation Order, or if entry of the Confirmation Order does not occur, then this Plan shall be deemed null and void. In such. event, nothing contained in this Plan shall be deemed to constitute a waiver or release of any Claims by or against the Debtar or any .other person or to .prejudice in any manner the rights of the Debtor or any person in any further proceedings involving the Debtor. 12.07 Payment Dates. 6dhenever any payment to be made under the Plan is due on a day other than a Business Day, such payment will instead be made, without interest, on the next Business Day. 12.08 Committees; Appointees. On the Effective Date, the duties of any committees, representatives or other persons appointed under chapter 11 of the Bankruptcy Code shall terminate, "except with respect to any appeal of an order in the Reorganization Case or fee applications. 12.09 hTeadings. The headings used in this Plan are inserted for convenience only and neither constitute a portion of the Plan nor in any manner affect the provisions of the Plan. 12.10 Successors and Assigns. The rights, benefits and obligations o~ any person named or referred to in the Plan will be ,binding upon, and will inure to the benefit of , the heir, executor, administrator, successor or assign of such person. 12.11 Limitation of Liability. Neither the Reorganized Company, the .Subsidiaries, any committees appointed pursuant to section 1102 of the Bankruptcy Code, nor the New Investor, nor any of its or their respective officers, directors, attorneys, -61- ~ ~ . y accountants, consultants, employees, or agents shall have or incur any liability to any Creditor for any act or omission in connection with or arising out of their formulation, preparation, dissemination, implementation, confirmation, consummation or administration of the Plan or the property to be distributed under the Plan except for willful misconduct or gross negligence, and in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. The Court shall have exclusive jurisdiction to resolve any questions concerning any such liability. 12.12 Indemnification Obligations. For purposes of the Plan and notwithstanding any other term or provision thereof, the obligations of the Debtor to indemnify its present directors, officers, representatives or agents (both in their current capacities and in any such former capacities occupied by them), respectively, as of the Petition Date against any obligations (other than tax obligations) pursuant to the certificate of incorporation, bylaws, applicable state law or specific agreement or any combination of the foregoing shall survive confirmation of the Plan, remain unaffected thereby, and not be discharged, irrespective of whether indemnification is owed in connection with an event occurring before, on, or after the Petition Date. 12.13 Payment of Statutory Fees. All fees payable pursuant to 28 U.S.C. §1930, as determined by the Court at the hearing. pursuant to section 1128 of the Bankruptcy Code, shall be paid on or before the Effective Date. -62- i i - s w ~ 12.14 Releases. In consideration of the distributions to be made under the Plan and the compromises and settlements under the Plan, the Reorganized Company, the Subsidiaries, GNG, the Agent, the Indenture Trustees, the Banks, the holders of the Zero Notes, the Senior Subordinated Debentures, the Subordinated Debentures and their respective present affiliates, directors, officers, partners, employees, representatives and agents (both in their current capacity and in any such former capacities occupied by them) and their successors or assigns shall be released from, and permanently enjoined from any prosecution or attempted prosecution of, any and all actions, causes of action, claims, liabilities, demands and obligations of any kind or nature whatsoever that any of them may have against the other and that arise out of, or are in any way connected with (i) any payment or transfer of property or any interest in property by GHI or the ,Debtor to or for the benefit of any holder of a Claim or Interest r or prior creditor of GHI or the Debtor, or (ii) any act or omission by any such Person related to GHI, the Debtor, the Reorganization Case, the Old Securities, the Bank Credit Agreement or any Claims or Interests in the Reorganization Case. 12.15 Governing Law, Unless a rule of law or procedure is supplied by (i) federal law (including the Bankruptcy Code and Bankruptcy Rules) (ii) an express choice of law provision in any agreement, document or instrument, or (iii) the Delaware General Corporation Law, the laws of the State of Colorado shall govern the construction of the Plan and any agreements, documents, and instruments executed in connection with the Plan. - -63- ~ s 12.16 No Original Issue Discount. No portion of the principal or face amount of the New Senior Secured Notes, the New Senior Subordinated Secured Notes or the Junior Debentures issued hereunder shall constitute original issue discount or unmatured . interest within the meaning ofsection 502(b)(2) of the Bankruptcy Code in this Reorganization Case or in any subsequent case under the Bankruptcy Code or any successor statute by or against the Debtor or the Reorganized Company. 12.17 Severability of Plan Provisions. If prior to confirmation, any term or provision of the Plan which does not govern the treatment of Claims or Interests is held by the Court to be invalid, void or unenforceable, the Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding; alteration or interpretation, the remainder of the terms and provisions of the Plan will remain in full force and effect and will in no way be affected, impaired or invalidated by such holding, alteration or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as .it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms. 12.18 Exhibits. Exhibits to the Plan that are not filed simultaneously with the Plan shall be filed with the Court not less -64- > ~ •d ? F. than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be.mailed to certain crediCors and other parties in interest in accordance with Bankruptcy Rule 3017(a). 12.19 No Admissions., Notwithstanding anything herein to the contrary, nothing contained in this Plan shall be deemed as an admission by GHI and/or its Subsidiaries with respect to any matter set forth herein including, without limitation, liability on any Claim or the propriety of any Claims Classification. -65- r a ~ r ti ~ r ~ ~ ARTICLE %III CONFIRMATION REQIIEST The Debtor requests Confirmation of this Plan under Section 1129(b) of the Bankruptcy Code if any impaired Class (other than Class 5) does not accept this Plan. . GILLETT OLDINGS, IDt~. _ By ~ Geor a Gillett, Jr.,' g. Presid t and Chief . Executive Officer ~ . Douglas M. Tisdale, Esq. L. Louise Romero Atwood, Esq. Brownstein, Hyatt, Farber ~ Strickland, P.C. 410 17th Street Denver, Colorado 80202-4468 (303) 534-6335 Attorneys for the Debtor and Debtor in Possession . Lewis S. Rosenbloom, Esq. Thomas F. Blakemore, Esq. Winston i Strawn 35 West Wacker Drive Chicago, Illinois 60601-9703 (312) 558-5600 Special Counsel to the Debtor and Debtor in Possession and Attorneys for the Subsidiaries. -66- f • ~ ~ ~ CIO ~ EXHIBITS TO THE PLAN • A. Restated Certificate of Incorporation and the Amended Bylaws of the Debtor B. Class 6 Purchase Agreement C. Class 7 Purchase Agreement D. GHI Management Agreement E. GHI Restructuring Transactions F. GHTV Management Agreement G.' Junior Debenture Indenture H. New Collateral Documents I. New Investor Agreement J. New Senior Secured Note Indenture K. New Senior Subordinated Secured Note Indenture L. Stockholders Agreement M. Summary of Restructuring of the Ownership of the Debtor s Subsidiaries N. Corporate Organizational Structure of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV, and the GHTV Subsidiaries The $xhibits to the Plan shall be filed vaith the Court not less than ten days prior to th® hearing on th® Debtor's Disclosure Statement to be eonducted pursuant to Bankruptcy Rul® 3017 and shall be mailed to certain creditors and oth®r parties in interest in accordance with Bankruptcy Rule 3017(a). -67- IN THE UNI~i~~ STATES BANKRUPTCY COURT DISTRICT OF COLORADO In re ) • • ~ ) Chapter 11 GILL~11 HOLDINGS, INC., ) Case No. 91-12465 SBB Debtor. ) DISCLOSURE STATSMStdT run.SUANT TO SECTION 1125 OF aca BANKRUPTCY CODS • Dated February 4, 1992 TBIS IS ia~a FORM OF DISCLOSURE STATEMBri'P FILED WITH •aa~s COURT ON FEBRUARY 4, 1992 REGARDING ia~ DEBTOR'S PLAN OF REORGANIZATION DA~~ FEBRUARY 4, 1992. THIS DISCLOSURE STATE~.~..~+ IS SUSJSCT TO MODIFICATION TO REFLECT la,s RESULTS OF ONGOING NEGOTIATIONS AND DISCUSSIONS AND TO COURT APPROVAL, WHICH HAS NOT Y'ST BSSN OBTAIN$D. Douglas M. Tisdale, Esq. L. Louise Romero-Atwood, Esq. erowasteia, Hyatt, Farber & Strickland, P.C. 410 Seventeenth Street Denver, Colorado 80202-4468 (303) 534-6335 • Attorneys for the Debtor and Debtor in Possession .Lewis S. Rosenbloom, Esq. • Thomas F. Blakemore, Esq. • N. Theodore Zink, Jr., Esq. Winston ~ Strawa 35 West Wacker Drive . Chicago, Illinois 60601-9703 (312) 558-5600 Special Counsel to the Debtor and Debtor in • Possession and Attorneys for the Subsidiaries TABLE cc~~ ~~~.~rs Pace I . INTRODUCTION . ~ 1 II . DEFINITIONS 3 III. DISCLAIMERS 16 IV. GENERAL DESCRIPTION OF THE PLAN 18 A. Overview of the Plan 18 1. New Capital Structure 18 2. Projected Sources and Uses 19 3. Conditions to Confirmation and Effective Date 19 4. Corporate Governance of~the Reorganized Company 19 5. Subsidiary and GHTV Refinancing 21 -6. Changes in the Corporate Structure of~the Debtor and GHTV and Certain Other Effective Date Transactions 21 . B. Summary of Distributions Under the Plan 22 1. Summary of Distributions to Holders of General Trade and Service Claims 22 2. Summary of Distributions to Holders of Claims under the Bank Credit Agreement and the Zero Notes : 22 3. Summary of Distributions to Holders of Claims under the Senior Subordinated Debentures 23 a. If Class 7 Accepts the Plan 24 b. If Class 7 Rejects the Plan 24 4. Summary of Distributions to Holders of Claims under the Subordinated Debentures 25 a. If Class 7 Accepts the Plan 25 b. If Class 7 Rejects the Plan 26~ - 5. Determination of Class 5, 6 and 7 Claim Amounts 27 6. Agent's and~Indenture Trustees' Fees, Costs and Expenses . ~ 2 7 7. Summary of Proposed.Distributions to Holders of Claims in Classes 5, 6 and 7 28 C. Principal Attributes of the New Securities 30 1. New Senior Secured Notes 30 2. New Senior Subordinated Secured~Notes 32 3. New Collateral Documents 33 4. Junior Debentures 34 D. Summary of the Stockholders Agreement 35 - E. Summary of the Management Agreements 38 F. Summary of the Restated Certificate of~- Incorporation 43 . i G. Summary of Restated By-Laws 44 H. Provisions for New Investor 46 I: Expected Debt Structure and Ownership of the Reorganized Company upon Consummation 48 V. DESCRIPTION OF GHI AND PAST OPERATIONS 50 A. Corporate Structure and Development 50 ~B. Communications 51 1. GHI Owned Stations 51 a. KSBW-TV, Salinas-Monterey, California 51 b. KSBY-TV, Santa Barbara-Santa Maria-San Luis Obispo, California 51 c. WMAR-TV, Baltimore, Maryland 52 d. 6a'I'~7T-TV, Tampa-St. Petersburg, Florida 52 2 . SCI Investment ~ . 53 3. ~ Network Affiliation 54 4. Television Industry and~C~.«retition 55 5. Regulation and Legislation 56 6. Television Industry Trends 57 C. Resorts . . 58 1. Vail Mountain 59 2. Beaver Creek Mountain 59 3. Beaver Creek Real .Estate 60 4. Competition 61 5. Regulation and Legislation 62 D. Beef Products . 63 1. Operations . 63 2. Competition . 64 E. Management and Management Cam,?,~,ensation 65 F. Employee Benefit Plane 65 1. Defined Benefit Plana 65 a. GCC, Inc. Plan 65 b . T~'I'VT, Inc . Plan 6 6 2. Defined Contribution Plans 66 3. Life, Health and Disability Insurance 66 G. Union Contracts 66 H. Real Properties 67 I. Affiliate Relationships and Related Transactions 68 J. Litigatio~t Matters 71 1. Potential Federal and State Income Tax Liabilities . 71 a. Federal Tax Liability 71 b. State Tax Liability 72 2. Priority Dispute 73 3. Other Litigation 74 K. Events Leading Up to Commencement of the Reorganization Case . 76 VI. DEBT p,ND EQUITY STRUCTURB OF GHI 78 A. Description of Debt Structure 78 ii . 1. Bank Credit Agreement 78 2. Public Debt 78 a. Initial.Zero Notes 78 b. .Second Zero Notes 79 c. Senior Subordinated Debentures 79 _ d. Subordinated Debentures 80 B. Guarantees of Indebtedness 80 C. Post-Petition Indemnification Obligations 82 D. Intercompany Payables and Receivables 83 E . Equity Structure of GHI 85 VII. DESCRIPTION OF THE PLAN 86 A. Classification of Claims and Interests 86 B. General Provisions Regarding Treatment of Claims and Interests 87 1. Agent and Indenture Trustee Fees 87 2. Administrative Claims, Agent Expenses and Indenture Trustee Expenses 87 a. General 87 b. Bar Date for Administrative Claims, Agent Expenses and Indenture Trustee Expenses : 8 8 3 . Tax Claims . ~ 8 8 C. Treatment of Priority Claims 89~ D. Treatment of Classes Impaired Under the Plan 89 1. General Trade and Service Claims 89 2. Secondary Liability Claims 89 3. Intercompany Claims 89 4. Bank•Credit Agreement Claims and Zero Note Claims 89 a. ,Type 1 Distribution 90 b. Type 2 Distribution 90 c. Type 3 Distribution 91 d. Excess Distribution 91 e. Effect of Oversubscription of Distributions in Class 5 92 4. Senior Subordinated Debentures 93 5. Subordinated Debentures 94 6. GNG Interests 97 7.. Determination of Class 5, 6~and 7 Claim Amounts 9 7 8. Reallocation of~Holders' Designated Distributions 98 9 . Impaired Classes 9 8 E. Provisions for New Investor 98 F. Provisions for Treatment of Disputed, Contingent and Unliquidated Claims and Administrative Expenses ~ 9 8 . 1. Characterization of Claims as Disputed 98 . 2. Resolution of Contested Claims 99 G. Implementation of the Plan 99 iii 1. New Securities, Collateral Trust Agreement anc ?urchase Agreements 99 - . 2. Car~~ellation of Old Securities, Old Collateral Trust Agreement and Indentures 99 3. Certificate of Incorporation and Bylaw ~ Amendments 9 9 . 4. Management of the Debtor 99 5. Management of GHTV 101 . ~~6. Method of Distribution Under the Plan 101 7. Release of the WMAR Sale Proceeds to the Debtor 101 8. Investment in Cash 10.1 9. Manner of Payment Under the Plan 101 10. Manner of Distribution of Other Property 101 11. Setoffs 102 12. -De Minimis Distributions 102 ' 13 Saturday, Sunday or Legal Holiday 102 14. Other Documents and Actions 102 -15. Corporate .Actions 102 16. Subsidiary Restructuring 103 17. Resolution of GNG Related~Claims and Acquisition of Asrets 103 H. Acceptance or Rejection of the Plan 103 1. Appropriately Marked Ballots by Holders of Claims in Classes 5, 6 and 7 Shall be Deemed as Releases of the Subsidiary Guarantees and Pledges . 103 I. Conditions Precedent 103 1. Conditions to Confirmation 103 2. Conditions to the Effective Date 105 3. Effect of Non-occurrence of Conditions to Effective Date 105 J. Effects of Plan Confirmation 106 1. Discharge 106 2. Termination of Certain Subordination Rights and Settlement of Related Claims and Controversies 106 3. Reverting 108 4. Retention of Jurisdiction 109 5. Post-Consummation Effect of Evidencer of Claims or Interests . 109 6. Term of Injunctions or Stays 110 ~K. Mircellaneour Provisions . 110 1. Surrender of Inrtruments 110 2. Executory Contractr . 110 3. Modification of the Plan 111 4. Withdrawal of Plan 111 5. Limitation of Liability . 111 6. .Indemnification Obligations 112 7. Releaser 112 8. No Original Issue Discount 112 iv . VIII. PRO FORMA FINANCIAL DATA AND FINANCIAL PROJECTIONS OF THE REORGANIZED COMPANY AND,GHTV 113 A. Unaudited Pro Forma Consolidated Financial Data of the Reorganized Company 113 B. Unaudited Pro Forma Consolidated Financial Data of GHTV, Inc . 118 C. Projected Statements of Operations and Cash Flows 122 _ - ~ ~ 1. Introduction ~ 122 2. General Assumptions 123 3. Assumptions Relating Only to GHI 125' IX. SUNIlKARY OF CERTAIN RISK FACTORS RELATING TO THE PLAN 130 A. Holding Company Structure and Claims Against • Subsidiaries 130 B. Subordination of~Certain Obligations 130 C. FCC Regulation 130 D. Forest Service Permits 131 E. Certain Subsidiary Obligations 132. F. Interest Payment in the Form of New Securities 132 G. Regulatory Approval 133 H. No Dividends 133 I. Lack of Public Market 133 J. Confirmation and Effective Date Conditions 134 R. Utilization of Net Operating Loss Carryforwards after the Restructuring 134 X. CERTAIN~FEDERAL INCOME TAX CONSIDERATIONS RELATING TO THE PLAN 13 5 A. Certain Federal Income Tax Consequences to Debtholders . 135 1. Gain or Loss upon Distribution 135 a. Bank Credit Agreement Claims 135 • b. Holders of Zero Notes 135 c. Holders of Senior Subordinated Debentures and Subordinated Debentures 137 2. Character of Gain or Lose Recognized 138 a. Bank Credit Agreement Claims 138 . • b. Holders of Zero Note Claims, Senior Subordinated Debentures and Subordinated Debentures 138 3. Initial Tax Basis 139 a. Bank Credit Agreement Claims and Holders of Zero Notes 139 b. Holders of Senior,~Subordinated~ Debentures and Subordinated Debentures 140 4. Holding Period 140 5. Original Issue Discount 140 6. Withholding, Information Reporting and Backup Withholding ..141 v a. Withholding and Information Reporting 141 b. Backup Withholding , 142 B. Certain Federal Income Tax Consequences to the Debtor and the Subsidiaries . 142 1. Discharge of Indebtedness Income 142 2. Section 382 14.3 C. Tax Sharing Agreement 145 '~.~XI.~ APPLICABILITY OF FEDERAL AND OTHER SECURITIES LAWS 146 A. Issuance of~New Securities Under the Plan 146 _ ~ B. Transfer of New Securities 147 1. New Securities Issued Pursuant to Section 1145 Exemption ~ 147 2. New Securities Issued Pursuant to Section 4 (2) Exemption 148 XhI. CONFIRMATION STANDARDS 150 A. Classification of Claims and Interests Under the Bankruptcy Code 150 B. Impairment of Claims and Interests; Impaired Classes . 151 C. Solicitation of Impaired Classes and Voting Requirements 152 D. Possible Post-Solicitation, Pre-Confirmation Events . 153 E. Confirmation Procedures and Requirements 154 1. Confirmation Where Sufficient Acceptances are Obtained 154 2. Chapter 7 Liquidation Analysis and "Best Interest of Creditors" Test 154 3. Feasibility Teat 155 4. "Cram Down" Power Fair and Equitable Test 155 F. Ballots and Voting Deadline 156' G. Beneficial Holders 156 H. Letters of Transmittal 156 XIII. RESOLUTION OF CONTRACTUAL AND NON-CONTRACTUAL SUBORDINATION RIGHTS 159 A. Resolution of Contractual Subordination Rights of Class 5 and 6 Creditors _ 159 B. Equitable Adversary Proceeding 160 C. Resolution of Non-Contractual Subordination Rights . 161 XIV. SEl1LEMENT AND COMPROMISE OF GNG-RELA1r~ CLAIMS AND ACQUISITION OF ASSETS . 163 XV . CONCLUSION 16 5 vi EXHIBITS 1. Plan of. Reorganization 2A. Corporate Structure of the Debtor and its Subsidiaries after the Consummation of the W'I'V'r Transactions 2B. Corporate Structure of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV and the GHTV Subsidiaries 3A. Selected Historical Consolidated Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Financial Statements For the Fiscal Year Ended December 30, 1990 3B. Condensed Consolidated Financial Statements (unaudited) and Management's Discussion and Analysis of Financial Condition and Results of Operations for the Nine Months Ended September 29, 1991 . 4. Management and.Management Compensation . 5. Directors of the Reorganized Company 6. Chapter 7 Liquidation Analysis of the Debtor 7. Letter of Transmittal 8. New Tax Sharing Agreement for the. Reorganized Company and the Reorganized Company Subsidiaries 9. New Tax Sharing Agreement for GHTV and the GHTV Subsidiaries 5 y V11 • I. INTRODIICTIOPd This Disclosure Statement is furnished in connection with the Debtor's Plan of Reorganization dated February 4, 1992. As used in this Disclosure Statement, capitalized terms shall have the meaning set forth in Article II hereof. The Plan discussed below is lengthy and complex. This Disclosure Statement likewise is detailed and lengthy to~provide -holders of Claims and Interests affected by the Plan with the information required by the Bankruptcy. Code and the Court to enable - them to make an informed judgment about the Plan. - The Plan is the result of many months of negotiations among the active, major parties in interest including, without limitation, the Debtor, the Creditors' Committee, the Banks, and certain holders of substantial portions of the Old Securities. The Creditors' Committee unanimously supports the general economic terms of the Plan, subject to satisfactory documentation. A summary of the Plan and treatment of Claims and Interests appears in Article 'IV hereof, and a more detailed description of certain Plan provisions appears in Article VII - hereof. A complete copy of the text of the Plan is attached as Exhibit 1 to this Disclosure Statement. In the event of any inconsistencies between the Plan and this Disclosure Statement, the .provisions of the Plan control. The Debtor submits this Disclosure Statement to all known holders of Claims against and Interests in the Debtor pursuant to section -1125 of the Bankruptcy Code. The purpose of this Disclosure Statement is to enable each holder of an Allowed Claim or Interest to make an informed judgment about the Plan in connection with the solicitation of such holder's acceptance or rejection of the Plan. Although holders of Claims in Class 1 will . not be voting on the Plan, the Disclosure Statement is being furnished to them to inform them about the Plan and the treatment -of their Claims under the Plan. Except as otherwise expressly indicated, the information contained is this Disclosure Statement, including descriptions of the Debtor, its Subsidiaries, their respective businesses, the `events leading up to c~.~~~,encement of the Debtor's Reorganization Case, valuation of the Debtor's assets and the economic analysis •=of the Plan, has been furnished by the Debtor's management. , After notice and a ~~earing conducted on , 1992, the Court approved this Disclosure Statement and the Exhibits annexed hereto as containing "adequate information" (as defined in section 1125 of the Bankruptcy Code) of a kind, and in sufficient detail, to enable a hypothetical reasonable investor typical of holders of Claims or Interests in Classes 2 through 8 to make an informed judgment in voting to accept or reject the Plan. The Court's approval of this Disclosure Statement, however, does not constitute a recv~~Y«endation by the Court either for or against the Plan. • The Court has scheduled a hearing on confirmation of the • Plan at the U.S. Custom house, 721 19th Street, Denver, Colorado for 1992.at a.m. Objections to confirmation should .be filed with the Court and served on the Debtor and its counsel, counsel for the Creditors' Committee, the Agent, the United States Trustee, the Indenture Trustees, the Debtor's sole equity security holder, and all parties who have entered an ,appearance or requested notice in this Reorganized Case. Objections shall clearly specify the grounds on which the objection is based, including citations to supporting legal .authority, if any. General objections shall not be considered. The United States Trustee, the Indenture Trustees, the Agent, all creditors and certain other parties in interest shall receive separate notice of the confirmation hearing. Exhibits referred to in this Disclosure Statement as .being attached to the Plan or this Disclosure Statement that are. not filed simultaneously with the Plan or this Disclosure Statement, as the case may be, shall be filed with the Court not . less than ten days prior to the hearing on the Debtor's Disclosure .Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed to certain creditors and other parties in interest ~in accordance with Bankruptcy Rule 3017(a). Any reference in the Disclosure Statement to an agreement or document being. in a particular form or on particular terms and conditions means that such document shall be in substantially such form~or on substantially such terms and conditions. Any reference in the Disclosure Satement to an existing document.or Exhibit filed or to be filed means such document or Exhibit as it may have been or may be amended, modified or supplemented. -2- aa.. ~~~arraTaoaas - Certain capitalized terms used throughout this Disclosure Statement are defined in this Article II. Other capitalized terms found in this Disclosure Statement are defined in the text at the place where they are used. Any capitalized term used in this Disclosure Statement that is .not defined herein shall have the meaning assigned to such term in .the Elan.or.the Bankniptcy_Code or the Bankruptcy Rules as the case may be (and shall be construed _ in accordance with the rules of construction thereunder). Unless the context otherwise requires, defined terms shall be equally applicable to both the singular and plural forms of such terms . The words "herein," "hereof" and'"hereunder" and other words of similar import refer to this Disclosure Statement as a whole and not to any particular Article, section, subsection or clause contained in this Disclosure Statement, unless the context requires otherwise.- Any reference in this Disclosure Statement to an agreement or document being in a particular form or on particular terms and conditions means that such -document shall be in substantially such form or on substantially such terms and conditions. Any reference in the Plan to an existing document or Exhibit, Schedule filed or to be filed means such document, Exhibit or Schedule as it may have been~or may be amended, modified or supplemented through the Effective Date. Adminiatrative,Claim means a Claim for payment of an. administrative expense of a kind specified in section 503 (b) of the Bankruptcy Code and referred to in section 507(a)(1) of the Bankruptcy Code, including, without limitation, the actual, necessary costs and expenses incurred after the commencement of the Reorganization Case of preserving the Debtor's estate and operating the business of the Debtor, including wages, salaries or commissions for services, cam,«~ensation for legal and other services and reimbursement of expenses awarded under sections 330(a) or 331 of the Bankruptcy Code, and all fees and charges assessed against the estate under Chapter 123 of title 28, United States Code. Affiliate means with respect to the Debtor, any corporation, partnership or other entity which, directly or .indirectly, controls, is controlled by or is under c~..~.~on control with the Debtor, excluding natural persona. With .respect to any -entity other than the Debtor, a governmental unit or a natural ...person, affiliate means any corporation, partnership, association or other entity which, directly or indirectly, controls, is controlled by or is under common control with such entity. For purposes of this definition, the term "controlp means the ownership of more than 50 percent of the outstanding stock entitled to vote generally in the election of directors in any corporation. ' -3- Agent means Manufacturers. Hanover Trust Company as successor agent under the Bank Credit Agreement, and any predecessor or successor agent thereto. Agent menses means any unpaid agent's fees, and reasonable unpaid out-of-pocket costs or expenses incurred by the Agent through the Effective Date, including, without limitation, . reasonable out-of-pocket costs .and expenses and reasonable fees of legal counsel to the Agent, for which the Agent has a right to -indemnification from the Banks under the Bank Credit Agreement and related loan documents. Allowed Ad®inistz~tive Claim means all or that portion . of any Administrative Claim which either (a) has been allowed by a; Final Order, or (b) was incurred by the Debtor in the ordinary course of business during the Reorganization Case and is due, owing, valid and enforceable., Alloweal Claim means that portion of any Claim, other than an Administrative Claim, (a) as to which (x)~ no proof has been filed with the Court and (y) the liquidated and noncontingent amount of which is scheduled by. the Debtor pursuant to the Bankruptcy Code as undisputed, or (b) as to which proof has been timely filed in a liquidated amount with the Court pursuant to the Bankruptcy Code or any. order of the Court, or late filed with leave of the Court after notice and a hearing, provided that (x) no objection to the allowance of such Claim or motion to expunge such Claim has been interposed before any final date for the filing of such objections or motions set forth in the order. of the Court confirming the Plan or other Court order or (y) if such objection or motion has been filed, such objection. or motion has been overruled by a Final Order (but only to the extent such objection ~•or motion has been overruled), or (c) as to which a Final Order has been entered allowing such Claim. ~.k Credit Agre~.::g.t means the Credit Agreement dated as of June 19, 1987, among GHI, Manufacturers Hanover Trust Company,. as successor agent, and the Banks that are parties thereto, as amended, modified or supplemented through the Effective Date of the Plan. B~snk Ge~ranty Agreement means that certain Guaranty Agreement, dated June 17, 1987, pursuant to which certain Subsidiarie® guaranteed GHI's obligations under the Bank Credit Agreement, as amended, modified or supplemented through the Effective Date of the Plan. Bankruptcy Code means title 11 of the United States Code, as amended. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as amended, promulgated under 28 U.S.C. § 2075 and the -4- - local rules of the Court, as applicable from time to time to the Reorganization Case. k Banks means the lenders from time to time who are .parties to the Bank Credit Agreement, and their successors and assigns. Business Day means any day except Saturday, Sunday or any ;,other day on which commercial banks are authorized by law to close . . ~ Certificate of Incorporation and Byla~? Amenc~meats means .the Restated Certificate of Incorporation and the Amended Bylaws of the Debtor, the forms of which are attached to the Plan as .Exhibit A. Claim means a claim against the Debtor, whether or not asserted or allowed, as defined in section 101(5) of the Bankruptcy Code. Class means a category of holders of Claims or Interests defined in Article II of the Plan. Class I and Class 2 C.~r..:..~. Stock means, respectively, the classes of common stock of the Reorganized C~~?~rany described in the Certificate of Incorporation and Bylaw Amendments. Class 6 Purchase Agreement means a Purchase Agreement, the form of which is attached to, the Plan as Exhibit B, duly executed and delivered by a holder of .Class 6 Claims making the Class 6 .Purchase Election pursuant to Section 5.05 (a) of. the Plan. Class 7 Purchase Agreement means a Purchase Agreement, the form of which is attached to 'the Plan as Exhibit C, duly executed and delivered by a holder of Class 7 Claims making the Class 7 Purchase 8lection pursuant to Section 5.06(a)(4) of the Plan. Code means the Internal Revenue Code of 1986, as amended. Cu~~,.r. Stock means the Class 1 and Class 2 Common Stock o~f the Reorganized C~..,~,any to be issued under the Plan, c,..«~,rising in the aggregate 10,000,000 shares on a fully diluted basis assuming full subscription to, and c~..~,lete conversion of, the Junior Debentures, and assuming issuance of 500,000 shares of Class 1 Common Stock to be issued to the Management Company in the future under the GHI M»~gement Agreement, but not assuming for this purpose issuance of any additional stock or warrants under the GHI Management Agreement. Confirmation Date means the date on which the Court enters the Confirmation~Order. -5- Confi~.~tion Order means the order confirming the Plan pursuant to section~1129 of the Bankruptcy Code. , Consummation means with respect to the Plan the "substantial consummation" of the Plan, as such term is defined in section 1101(2) of the Bankruptcy Code. Court means the United States Bankruptcy Court .for the District of Colorado and, to the extent it may exercise jurisdic- -~tion in the Reorganization Case, the United States District Court for the District of Colorado, or if either such court ceases to exercise jurisdiction over the Reorganization Case, such other court that exercises jurisdiction over the Reorganization Case.. Creditors ° C~.ruy..i ttee means the Official Creditors' C~.~~~attee appointed in the Reorganization Case. Debentures means the Senior Subordinated Debentures and the Subordinated Debentures. Debtor means GHI as a debtor and debtor in possession in the Reorganization Case under the Bankruptcy Code. Disbursing Agent means the Reorganized Company, or such other designee appointed by the Court on request of the Debtor following notice and a hearing. Disclosure Statement means this Disclosure Statement, as .it may be ,amended or modified by the Debtor from time to time in accordance with the Bankruptcy Code and the Bankruptcy Rules. Distribution Record Date means the date fixed by the Court as the record date for determining the holders of Old ;Securities who are entitled to receive distributions under the Plan. effective Date means a date seleeted by the Debtor that is no more than ten Business Days following the date on which all conditions to the Effective Date set forth in Section 10.02 of the Plan have been satisfied or, if waivable, duly waived. ~u.itable means, collectively, the Equitable Life ~~Assurance Society of the United States and EQJ Partnership. equitable Adversar,~r Proceeding means ~ that adversary 'proceeding, numbered 91-1622 PAC, filed with the Court on August 16, 1991 and pending in this Reorganization Case and captioned "The Equitable Life Assurance Society of the United States and .EQJ Partnership, Plaintiffs v. Gillett Holdings,. Inc., Gillett ~=Broadcasting of Maryland, Inc., Gillett Group, Inc., The First National Bank of Chicago, and Norwest Bank Minnesota, National Association, Defendants." -6- &archange Agent means an entity to be designated by the Debtor not less~~than ten days prior to the hearing on the Debtor s .Disclosure Statement to be conducted pursuant to Bankruptcy Rule "3017. ~iration Date means the date fixed by the Court after which. ballots with respect to the Plan may no longer be accepted by the Debtor without leave of the Court. Final Order means an order as entered on the docket by ;the Court or any other court exercising jurisdiction over the subject matter and the parties as to which the time to appeal, petition for certiorari or seek rehearing has expired and no~ appeal or petition for certiorari or rehearing has been timely filed or requested. or is still pending, or as to which any motion for rehearing, appeal or petition for certiorari that has been filed has been resolved by the highest court to which the order was timely appealed, or from which certiorari or rehearing was sought. Forest Service Permf to means the permits issued by the U.S. Forest Service for Vail~s use of federal land in connection with its ski operations. GBT means Gillett Broadcasting of Tennessee, Inc., a' Delaware corporation. GBT Note means that certain promissory note of GBT in favor of thesDebtor in the face principal amount of $120,000,989, dated December 27, 1991. General Trade and S~~race Claims means all Claims (other than. the GHI Guarantee Claims) against the Debtor arising prior to the Petition Date and that are not otherwise included in another Class, including Claims arising out of the rejection of executory contracts or unexpired leases. GHI means Gillett Holdings, Inc., a Delaware corporation. t~.s G•.aa~antee Claims means all contingent or unliquidated Claims against the Debtor arising out of~all guarantees of payment or performance of the obligations of (a) Vail and/or Packerland under (x) industrial development bonds, .(y) reimbursement agreements executed in connection with letters of credit, (z) interest rate swap agreements; (b) Beaver Creek Resort C~<«rany of Colorado under a loan agreement with NCNB Texas National Bank; (c) GHTV, Inc. under an interest rate exchange agreement with The First National Bank of Chicago; and (d) KSBY, Inc.., RSBW, Inc., Gillett Broadcasting of Tennessee, Inc., and WTVT, Inc. under certain -representative agreements with 'TeleRep, Inc. -7- . GHI ~ac~e~ent Agree~~t means the Management ,Agreement between the Management Company, the Reorganized Company and certain of the Reorganized Company Subsidiaries, dated as of the Effective Date, the form of which is attached to the Plan as Exhibit D. . t~ru Restructuring Z`ransactions means the series of transactions described in Exhibit E of the Plan. GHTV means GHTV, Inc.,~a Delaware corporation which was . formerly known as Gillett Group, inc. GHT'iY Alanagememmt Agreement means the Management Agreement between the Management C~,«rany, GHTV and the GHTV Subsidiaries, dated as of the Effective Date, the form of which is attached to the Plan as Exhibit F. GHTV Subsidiaries means any corporation of which more than 50~ of the outstanding capital stock entitled to vote for the election of directors (other than as a result of a dividend arrearage or other default) is owned or controlled, directly or indirectly, by GHTV, by-one or more GHTV subsidiaries or by GHTV and one or more GHTV Subsidiaries. GHZ'Fl Warrants means warrants to purchase 95~ of the fully •diluted common stock of GHTV to be issued by GHTV to the Reorganized Company as part of the GHI Restructuring Transactions. means George N. Gillett,~Jr. Affiliate means any member of the GNG Immediate Family and any Person or group acting in concert with GNG or that controls or is controlled by or is under common control of GNG -.•(other than GHI and i.ts Subsidiaries). "Control" (including, with correlative meanings, the terms "controlled by" and "under common control with") means the ownership of 10~ or more of another Person, or the possession, directly or indirectly, of the power to direct or cause the direction of management and policies of a Person, whether through the ownership of voting securities or by contract or otherwise. ate Famil~r means GNG' s children, step children, ~graridchildren, parents, grandparents, spouse, siblings, mother- in-law, father-in-lair, sons-in-law, daughters-in-law, brothers- in-law, and sisters-in-law (including adoptive children) as of the Effective Date. Immtereata means the 1, 000 shares of c~..w~on stock of GHI, which common stock as of the date hereof is owned by GNG. Indenture Z`rustees means, collectively: (a) Norwest Bank Minnesota, National Association, as successor trustee under the Zero Coupon Senior.Notes Series A-C and Series D-E Indentures. dated -8- as of August 1, 1986 and August 1, 1987 .respectively; (b) Bankers Trust Company,,. as trustee under the .Senior Subordinated Debenture Indenture dated as of August"~1, 1986; (c) the First National Bank of Minneapolis, as trustee under the Subordinated Debenture .Indenture dated as of August 1, 1987; and (d) First Wisconsin Trust "`Company, as trustee under the Old Collateral Trust Agreement, and zany predecessor or successor trustees to any of the aforementioned trustees. ' Indenture Trustee Hxpe~ses means any unpaid Indenture Trustee's fees, and reasonable unpaid out-of-pocket costs or ~~expenses incurred through the Effective Date by an Indenture Trustee, including, without limitation, reasonable out-of-pocket costs and expenses and reasonable fees of legal .counsel to an Indenture Trustee, which are secured under the respective Indentures or Old Collateral Trust Agreement by a lien or other priority in payment against distributions to be made to holders of Claims under the Indentures. .Indentures means, collectively, the Zero Coupon Senior Notes, Series A-C Indenture dated as of August 1, 1986 by and between GHI and~Norwest Bank. Minnesota, National Association, as successor trustee; the Zero Coupon Senior Notes, Series D-B Indenture dated as of August 1, 1987 by and between GHI and Norwest Bank Minnesota, National Association, as successor trustee; the Senior Subordinated Debenture Indenture. dated as of August 1, 1986 by and between GHI and Bankers Trust Company, as trustee; and the Subordinated Debenture Indenture dated as'of August 1, 1987 by and between GHI and First National .Bank of Minneapolis, as trustee. Interc....~.any Clam means. a, Claim held by a Subsidiary, •GNG or a GNG Affiliate. Interest means the interest of any equity security holder of the Debtor, whether or not asserted, as defined in section 101(17) of the Bankruptcy Code.. Junior Debentures means the Junior Debentures of the Reorganized C~.«rany, dated as of the Effective Date and issued pursuant to the Junior Debenture Indenture, the form of which is attached to the Plan as Exhibit G. • Manag,::.u.~,t Camay means the entity which shall, on the -..Effective Date, enter into the GHI Management Agreement and the ~GHTV Management Agreement. • rTe~ Collateratl Documents means the documents, instruments -and agreements, dated as of the Effective Date, pursuant to which the. Reorganized Company and certain Reorganized Company Subsidiaries will grant liens in property to secure the New Senior Secured Notes and New Senior Subordinated Secured Notes, the forms ~-=of which are attached to the Plan as Bxhibit H. -9- New GHT[~ ATote means that certain promissory note of GHTV, .in the face principal amount of $95,000,000, dated as of the Effective Date and issued pursuant to the GHI Restructuring Transactions in replacement of the Old GHTV Note. New %ndentures means the indentures under which the New ;.Securities will be issued. ' New %nvestor means an investment entity organized on `;behalf of Altus Finance, Apollo Investment Fund, L.P. and other .identified investors, if any, that shall enter into the New Investor Agreement. New Investor Agreement means the Investor Agreement, :dated as of the.Effective Date, between the New Investor and the Debtor, the form of which is attached to the Plan as Exhibit I. New Securities, means, collectively, the New Senior Secured Notes, the New Senior Subordinated Secured Notes and the Junior Debentures. ' Neer senior Secured Notes means the Senior Secured Notes of the Reorganized Company, dated as of the Effective Date and issued pursuant to the New. Senior Secured Note Indenture, the form ~:of which is attached to the Plan as Exhibit J, the total principal :amount of which shall not exceed $200,000;000. New Sector Subordinated secured Notes means the Senior Subordinated Secured Notes of the. Reorganized Company, dated as of the Effective Date and issued pursuant to the New Senior _Subordinated Secured Note Indenture, the form of which is attached to the Plan as Exhibit R, the total principal amount of which shall not exceed $207,500,000. Non-Settling Class S CIa~~*,t means any holder of a Claim in Class 6 who is not a Settling Class 6 Claimant. Non-Settling Class 9 Cla;~~t means any holder of a Claim ~in Class 7 who is not a Settling Class 7 Claimant.. Old Collate~a'al Trust Agreement means the Collateral Trust Agreement, dated as of June 19, 1987 by and between GHI and First Wisconsin Trust C~.??~,any, as trustee, as amended, modified or supplemented through the Effective Date of the Plan. Old t~r~a w Note means that certain promissory note of GHTV in favor of the Debtor in the face principal amount of :$407,000,000, dated December 27, 1991. Old Pledge and Security ~gre~t means the Pledge and Security Agreement, dated as of June 19, 1987, by and between GHI, -10- certain Subsidiaries and First Wisconsin Trust Company, as trustee, as amended, modified or supplemented through the Effective Date of the Plan. = OId Securities means, collectively, the Zero Notes and the Debentures. 01d Subordinated Indentures means the Senior Subordinated Debenture Indenture and the Subordinated Debenture Indenture. Packerland means Packerland Packing Company, Inc., a Delaware corporation, Packerland Exports, Ltd., a Virgin Islands corporation, Packerland Exports II, Ltd., a Barbados corporation, and Packerland Transport, Inc., a Delaware corporation. `Person means a "person" as defined in section 101(41) of the Bankruptcy Code or~an "entity" as defined in section 101(15) of the Bankruptcy Code. Petition Date means February 27, 1991, the date on which three creditors filed their petition .for involuntary relief commencing the Reorganization Case. Plan means the Debtor's Plan of Reorganization dated February 4, 1992, a copy of which is attached to this Disclosure Statement as Exhibit 1, as it may be amended or modified or supplemented by the Debtor from time to time in accordance with the Bankruptcy Code and the Bankruptcy Rules. Pledges means the pledges made, and security interests and liens granted, by GHI and certain Subsidiaries pursuant to the Old Pledge and Security Agreement and the Old Collateral Trust Agreement to secure GHI's obligations under the Bank Credit Agreement and-the Zero Notes. Priority Claim means a Claim for an amount entitled to priority under section 507(a) of the Bankruptcy Code, other than an Administrative Claim or a Tax Claim. Proceeds Invest...y~.at Agreement means that certain WMAR Proceeds Investment Agreement approved by the Court by order dated May 23, 1991, by and among the Debtor, Gillett Group, Inc., Gillett Broadcasting of Maryland, Inc., and Wilmington Trust Company, as custodian, pursuant to which the WMAR Sale Proceeds are held by Wilmington Trust Company. Reoiya.nizataton Case means the Debtor's case under chapter it of the Bankruptcy Code. . Reo~ rani sed C~...~.any means the Debtor on and after the Effective Date. -T1- Reo~y~nizeci Coa~oany Subsid.iaz~ means any corporation of which more than 50~ of the outstanding capital stock entitled to vote for the election of directors (other than as a result of a dividend arrearage or other default) is owned or controlled, directly or indirectly, by the Reorganized Company, by one or more of the Reorganized Company Subsidiaries or by the Reorganized Company and one or more Reorganized Company Subsidiaries. SC% Stock means the 40~ non-voting common equity interest held by Gillett Subsidiary Corg., a Delaware corporation and a Subsidiary of the Debtor, in SCI Television, Inc., a Delaware corporation.. Secondary LiaBilit~r Clam means all contingent, unliquidated or disputed Claims against the Debtor .arising prior to the Petition Date, including, without limitation, all guarantees of payment or performance, all suretyship obligations, all indemnification obligations, and all obligations not otherwise included in another Class for which any Subsidiary is or may be a co-obligor or is jointly and severally liable, except the GHI Guarantee Claims. Senior Subordinatedi Debea~res means the 12-5/8~ Senior Subordinated Debentures of GHI due August 1, 1998 issued pursuant to the Senior Subordinated Debenture Indenture between GHI and Bankers Trust Company, as trustee, dated August 1, 1986. Senior Swbordina ted Dew ire %nc3en ttare means t h e •Indenture between GHI and Bankers Trust C~.~Y.any, as trustee, dated `.August 1, 1986, pursuant to which the Senior Subordinated Debentures were issued, as amended, modified or supplemented ,through the Effective Date of the Plan. Service means the Internal Revenue Service. Settling Claea 6 Cla~me.at means each. holder of a Claim in Class 6 who: (a) has not c~.~~??enced or j owned in any adversary proceeding, motion, objection or other action or proceeding, and has not otherwise filed and does not at any time prior to the Effective Date othe~rise.file any pleading with any court, which in any way: (i) seeks to challenges contest, limit or modify the scope, effectiveness or applicability of the contractual .,subordination provisions contained in any of the Old Subordinated `•Indentures or (ii) asserts any claim, right. or cause of action against any holder of a Class 5 Claim which is based upon, arises out of, or relates to the issuance of any of the Zero Ptotes, the incurring of any indebtedness under the Bank Credit Agreement or the Bank Guaranty Agreement, or the scope, validity, effect or enforceability of any subo=dination provision contained in any of the Old Subordinated Indentures or any purported amended thereto; or (b) has commenced or joined in any .such adversary proceeding, motion; objection or other action or proceeding, or has otherwise -i2- filed any pleading with any court, which falls within the scope of subsection (a) above, who waives, withdraws and dismisses any such challenge, contest-, attempt. to limit or modify, claim, right or cause of action, all with prejudice, in a pleading filed with the :..-Court and any other applicable court, no later than the tenth day prior to the commencement of the hearing on the approval of the Disclosure Statement. For purposes of applying this definition, . '-a Class 6 C1-aim held by a record holder of any Senior Subordinated .'Debentures who is not also the beneficial holder of such Senior Subordinated Debentures shall be deemed to be .held by a-Settling -Class 6 Claimant only to the extent that the beneficial holder of such Claim would be deemed to be a Settling Class 6 Claimant if such beneficial holder were treated as the holder of the Claim for all purposes under the Plan. Settling Class 7 Cla~~nt means each holder of a Claim -in Class 7 who: (a) has not commenced or joined in any adversary proceeding, motion, objection or other action or proceeding, and has not otherwise filed and does not at any time prior to the Effective Date otherwise file any pleading with any court, which in any way: (i) seeks to challenge, contest, limit or modify the scope, effectiveness or applicability of the contractual subordination provisions contained in any of the Old Subordinated 2ndentures or (ii) asserts any claim, right or cause of action against any holder of either a Class 5 Claim or a Class 6 Claim which is based upon, arises out of, or relates to the issuance of any of the Zero Notes, 'the incurring of any indebtedness. under the Bank Credit Agreement or the Bank Guaranty Agreement, or the scope, validity, effect or enforceability of any subordination provision contained in any of the Old Subordinated Indentures or any purported amendment thereto; or (b) has commenced or joined in any -such adversary proceeding, motion, 'objection or other action or proceeding, or has otherwise filed any pleading with any court, which falls within the. scope of subsection (a) above, who waives, withdraws and dismisses any such challenge, contest, attempt to limit or modify, claim, right or cause of action, all with prejudice, in a pleading filed with the Court and any other applicable .court, no later than the tenth day prior to the - commencement of the hearing on the approval of the Disclosure - Statement. For purposes of applying this definition, a Class 7 ,Claim held by a`record holder of any Subordinated Debentures who is not also the beneficial holder of such Subordinated Debentures shall be deemed to be held by a Settling Class 7 Claimant only to - 'the extent that the beneficial holder of such Claim would be deemed to be a Settling Class 7 Claimant if such beneficial holder were treated as the holder of the Claim for all purposes under this Plan. . Stockholders Agrees means the Stockholders Agreement between. the Management C~:~~ran~r and the New Investor, dated as of the Effective Date, the form of which is attached to the Plan as Exhibit L. ~ - -13- Subordinated Debentures means the 13-7/S~ Subordinated Debentures of GHI due August 15, 1999 issued pursuant to the Subordinated Debenture Indenture between GHI and the First National Bank of Minneapolis, as trustee, dated August 1, 1987. Subordinated Debenture Indenture means the Indenture between GHI and First National Bank of -Minneapolis, as trustee, . dated August 1,~ 1987, pursuant to which the Subordinated Debentures °were issued, ~as amended, modified or supplemented through the Effective Date of the Plan. Subsidiary means any corporation of which more than 50~ of the outstanding capital stock entitled to vote for the election of directors (other than, as a result of a dividend arrearage or other default) is owned or controlled, directly or indirectly, by the Debtor, by one or more Subsidiaries of the Debtor or by the Debtor and one or more of .its Subsidiaries. Subsidiary Guarantees means, collectively, the Bank Guaranty Agreement and the guarantees executed by certain Subsidiaries of the obligations of the Debtor outstanding under the Bank Credit Agreement and the Old Securities. Tax Clam means a Claim for an amount entitled to priority under section~507(a)(7) of the Bankruptcy Code. Vail means Vail Associates, Inc., a Colorado corporation, and its subsidiaries.. R Sale proceeds means the cash proceeds, and accrued . interest thereon, received upon the sale of the assets of Gillett Broadcasting of Maryland, Inc. to Scripps Howard Broadcasting Company, which were deposited with, and are held by, Wilmington Trust Company pursuant to the Proceeds Investment Agreement. ~1`VT II®ld~ga means WTVT Holdings, Ine., an Illinois corporation now known as WTVT, Inc. InC. means WTVT, Inc.., an Illinois corporation formerly known as WTi~'T Holdings , Inc . ~!'VT° Dote means that certain promissory note of 6~'1'V'T in :favor of the Debtor in the face principal amount of $50,000,000 .dated December 27, 1991. , T~'!'~1T° Z°ransactions means the aeries of transactions consummated prior to December 31, 1991 which are more fully described in Article V, Section B.l.d. of this Disclosure Statement. -14- .Zero Notes means the Series A - E Serial Zero Coupon Senior Notes of.,GHI issued pursuant to the Zero Coupon Senior Note Indentures between GHI and Norwest Bank Minnesota, National S.Association, as successor trustee, dated, in the case of Series A- ;_C, August 1, 1986 and, in-the case of Series D•E, August 1, 1987. t -15- III. DISCLAI~RS ERCSPT AS PLAY HE SET FORTH IN THIS DISCLOSIIRE STA AND t'ti~ EXHIBITS AND S~~,IIT.ES ATTA1>I~~J HER]3T0~ OR INCORPORA'i'~1 BY R$~ER~TC~ oR RsFERRED To a~t~EIN, No RsPRSS~NTATIONS CANCERNING DEBTOR AND Y~ VALIIE OF ITS .ASSETS ARE Au~nORIZED HY ate COIIRT. ANY REPRESffiQTATIONS OR INDIIC S PEE TO SE~u~ ACCEPTANCE OR `REJSCTION OF PLAN HY HOLDERS OF CLADS OR INTERESTS NHICH ARE . o,'~~R THAN As coNTAIP~D IN THIS DISCLOSIIR~ STA SHOULD NAT es RELIED IIPON VOTING oN PLAN. THIS DISCLOSIIRE STA ~ HAS NAT BEEPT APPROVED oR DISAPPROVED HY S$~v~ITIES AND EX GE COP~ISSION NOR HAS T~ COD~ISSION PASSED IIPON 'sus AC~.u~~cACY OR ADE~IIACY OF INFORMATION CONTAINED IN THIS DISCLOSDRE STA l'~ CON'FIRNATION AND EFFECTIVENESS OF PRAPOSED PLAYd SIIHJECT TO bsATERIAL CONDITIONS PRECEDEPTT, SOPS OF NHICH bIAY NOT sATISFIED. r~RE CAN BE No ASSIIRANCE THAT THASE CONDITIONS ~eILL BE SATISFIED. THIS DISCLOSIIRH STA DAY NOT HE RELIC IIPAN FOR APTY • PURPOSES 01`~R TO DETERNIPTE HON TO VATE ON 'a~~ PLAN. NOTHING coNTAIN~D aN THIS DISCLOS STA s~ALL eANSTax~~,,~ A~ ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR es ADPdISSIBLE ;IN ANY PROCEEDING INVOLVING DEBTOR, ITS AFFILIATES OR ANY Ol'~R PARTY, OR BE DE CANCLUSIV'E ADVICE OPT LEGAL, TAZ OR OTHER EFFECTS OF DEBTOR' S REORGANYZATIAPT OPT HOLDERS OF CLAIN.S OR INTERESTS. RA~'~I~, °l INFO TION CONTAINED SIN SHOULD 88 CONSTRu~ AS STA S ~SADE IN SEa axe NEGOTIATIANS . ~~RE HAS BEEN NO INDEPENDENT ADDIT OF FINANCIAL INFOATION CONTAINED IN THIS DISCLASURE STA YAU SHOULD CONSULT YOUR PERSONAL COUNSEL AND TAY ADVISAR ON ANY QUESTIONS OR CONCERNS RESPECTING LEGAL OR TAX CONSEQUENCES OF ~ PLAN. • No PsRSAN IS AARIZ~ 8Y . D~BTAR IPT co CTIAN e~IT~ teu~ PLAN OR ~i'~ SALICITATION OF VOTES FOR PLAN TO GYVE ANY INFORMATION OR TO ]~PBY REPRESEATIAPT lii'~at THAN ~ CONTAINED •IN THIS DISCLOSIIRB STA AND IBIT9 AND SOLES ATTAL OR INCARPORA'~'~ HY RE~x~~PTCE OR REa~~ TA SIN, AND IF G~ve~ OR HIE, SUCH INFARNATION OR REPRES~d~ATION NAY NOT HE RELIED U1~O~T AS HAVING B A~'~~gaORIZSD HY 1'" DEBTOR. BILE ^a'~3 2~DEHTOR MILL ru,~PTISII TA CREDITORS ENTITL$D TA VOTE OPT ACCEPTANCE AF PLAN ~ ADDITIONAL IPTFORNATION AS }SAY BE REQUIRED BY APPLICAHLE~LAM PRIOR TO a~ EZI~IRATION DATE, °17~ DELb~~RY AF THIS DISCLOSURE STA /SILL NOT UNDER ANY CIRCUMSTANCES SLY THAT THE INFO~R@b3ATION xa~t~I'N IS CORRECT AS OF AN~° T~ SUHSEQ TO ~ DATE HEREAFs tLl~ STA S `rANTAI~~? IN THIS DISCLASU STA ARC DRADE AS OF `b~ DATE HE$EOF UNLESS ANA't'~R TIC IS SPECIFIED, AND NEI'~~R DELIVERY OF THIS DISCLO~v STATEP'a' NOR ANY EZCHANGE OF -16- INFORMATION MADE IN CONNECTION i~ITH THIS DISCLOSURE STATEMENT SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN Ib~LICATION THAT aasRE HAS BEEN NO CHANGE IN a'~ FACTS SET FORTH HERBIN SINCE ia~ DATE ::THIS DISCLAau~S STATEMENT 1/AS COMPILED. ALTHOUGH a~~ MANAGEMENT OF also DEBTOR BELIEVES THAT THIS DISCLOSURE STATEMENT IS COMPLETB AND AC~uaATE TO t~ BEST OF ITS 1QV06PLEDGE, INFORMATION AND BELIEF, aag DEBTOR AND ITS MANAGEMEN'P ARE UNABLE TO AtdD DO NOT !1 OR REPR,ES~ i THAT t~~ INFORMATION CONTAINED HEREIN MAY NOT BE 1~ITHOUT ANY INAC~,tJ~cACY. MANAGEMErJT HAS TAlO~ a,~ FINANCIAL ASSUMPTIONS V~'i LINED IN ads PLAN AND CANSIDERED 'aka ANTICIPA'a~ar ENVIROI~dT IN 6fHICH tla~ PLAN SPILL OPERATE, AND ~STIMAi~ `its OUTCOMH OF PLAN, i,~OUGH a'~ USE OF FINANCIAL PROJECTION. i~ FINANCIAL PROJECTIONS IPHICH ABPEAR IN ARTICLE ~1III ARE BASED ON CERTAIAT CRITICAL ASSUMPTIONS MHICH ARE lrU'a'a~INED IN ARTICLE VIII AND MUST BE FOR AN UNDERSTANDING a~~EOF. E~IBIT 3 HERETO PROVIDES HYSTARICAL INFORMATION ON GHI AND IT3 SUBSIDIARIES AT DECEMBER 30, 1990 AND AT SEPTEMBER 29, 1991 NHICH FORMS a'~ BASIS FOR t~a~ FINANCIAL PROJECTIONS . RISC AND UN~,~~?TA~1~ i ARE iY+~~RENT IN sUCH PROJECTIOBds AND a~SE PROJECTIONS SHOULD BB CONSTRuai? ONLH AS AN ESTIMATE OF a~ POSSIBLE OUTCOME GIVEPT SPECIFIC OPERATING CONDITIONS AND lrt°~it CRITICAL ASSUMPTIONS. t,~ ASSUMPTIONS USA IN ia~ FINANCIAL PROJECTIONS HERE DETERMINED BY MANAG AS IT3 HEST ESTDSATB REGARDING r' u a uacls EVENTS AND TRANSACTIONS. ASSUMPTIONS ~sED IN PROJECTIOxs MA~t ..DIFFER FRaM~~~ACTQAL oUTCaMES AND MA~r RESULT IN SIGNIFICANT DIFFERENCES. saw TIMING AND ESTIMATE SBt~a,~~dT AMOUNTS OF 1Qd0~i, DISP~astr, AND UNE~10~1 CLAIMS ~AF ~a~ DEBTOR ARE CRITICAL ASSUMP- TIONS IN t~SE PROJECTIONS. OF EQUAL IMPORTANCE IN `t11~S ACwAACY OF i~sSE PROJECTIONS ARE °a~ ASSUMPTIONS FOR t~ TIMING AND AMOUNT OF PROCEEDS FROM[ id~ldti SALE OF ASSETS. ALL CREDITORS AR8 ENCOIIRA~~?~r TO READ AND CAREruLLY CONSIDER THIS ENTIRE DISCLO~~,AE STA , INCLUDING aai~ PLAN ATTAR AS E~IBIT 1 AND THE MAC+',~~5 DESCRIBED IN THIS DISCLO:~v~ STATEMENT UNDER "SUMbtAR? OF 1.~,6TAIN RISBC FACTORS RELATING TO iaCSSS PLAN" AND "v~,RTAIN sa~ERAL INCOME TAZ CONSIDERATIONS RELATING TO `t'ri13 PLAN" PRIOR TO aus?~tITTING BALLOTS ruaSUANT TO THIS ;~SOLIC%TATION. +iiJor IES OF i~YY PLAN AND Oi,~R DOCUMENTS CONTAINED IN THIS DISCLO.~~nE STATE i ARE QUALIFIED B7[ REFERENCE TO a~ PLAN ITSELF, '11'a~i13 E~IBITS THERETO, AND D 3 DESCRIBED '~°~REIN AS BEING FILED PRIOR TO APPROVAL OF ~,~s DISCLO3VEE STATEM~IT. -17- ~.IY., .Gffi~~L DHSCRIPTI01~ 08 a~ PLAIJ This Article summarizes the principal features of the Debtor's Plan. Section A of this Article IV provides a broad overview of the Plan. Section H summarizes the distributions to be made to holders of Claims in Classes 2, 5, 6 and 7 and includes illustrative examples of distributions available under the Plan to ..holders of Claims under the. Bank Credit .Agreement and the Old Securities. Section C describes the principal attributes of the New Securities to be issued under the Plan. Sections D, E, F and ~-~G summarize certain corporate governance aspects of the Plan. Section H briefly summarizes terms relating to the New Investor purchase of Junior Debentures. The tables in Section I show the historical debt structure of GHI on September 29, 1991,~the pro forma debt structure of the Reorganized C~~«~,any assuming consummation of the Plan occurred as of September 29, 1991, and the expected equity ownership of the Reorganized Company upon Consummation. HHC~IISH 11T0 S Y CRiAT SIIHSTI'~ui~d 80~ ~ R~I~ 08 a~ TER~3S 08 `ice ACTQAL PLAtd, HOI~~B.S 08 CL~?I]~3 A~ INTH~STS A~ IIRG~ TO RHVI~/ PLAN TEtOROIIGffiaY I8~ ITS HNTI~T7f. A CO~tPLBT~ COPY 08 `a'te TAT 08 i'~ PLA$T IS ~TT~~,~~u TO THIS DISCLOSIIR~ ST~I IBIT 1. .1~ BZOR~ DHTAIL~D 08 C~ATAIN PROVISIOrTS 08 ~a,~ PLAZt IS AZiSO PROVIDE IN A~TICL~ ~iII 08 TOYS DISCLOSIIR~ STA A. Overvi®ver of th® Plaa • The Plan provides for a complete restructuring of the . •Debtor's organizational structure through the elimination by merger of various Subsidiaries, a change of ownership of GHTV and its subsidiaries and a change of ownership of. certain other Subsidiaries sous to accomplish a realignment of the Reorganized Company's Subsidiaries and the GHTV Subsidiaries around three business segments - - c~.?~.~,uiications, beef products and ski resorts (the "Business Segments"). The Debtor's financial restructuring is designed to provide sufficient funds for the working capital needs of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV and the GH'I'il Subsidiaries and to eliminate the financial burdens imposed by the Subsidiary Guarantees and Pledges. 1. B1ea Capital Structur® • The reorganization of the Debtor's capital structure will be achieved through distributions of the New Senior Secured Notes, the New Subordinated Secured Notes, the Junior Debentures, cash and Common Stock of the Reorganized Company in exchange for the _existing indebtedness under the Bank Credit Agreement, the Zero Notes and the Debentures. All Claims in Class 3 (Secondary . Liability Claims), Class 4 (Intercompany Claims) and Class 8 (GNG Interests) will be discharged under the Plan and receive no -18- distribution thereunder. Although the GHI Guarantee Claims are not separately classified under the Plan and shall receive no distribution under the Plan on account of such Claims, it is a ,condition to the Effective Date of .the Plan that the primary „indebtedness underlying such GHI Guarantee Claims shall have been treated such that the holders of such Claims shall release their interests. in the GHI Guarantee Claims. _ 2 . Project®d Source8 and Dry®s The projected sources and uses of funds necessary to . effectuate the reorganization are sun:narized below ($in thousands) . saute lMea WlIAR Sale Proceeds (net) 5117,000 Distributions on Bank Credit Agr_~~~~,,..t and Zero ' Note Indebtedness 373,600 Sale of Junior Debentures 40,000 Distributions on Senior Subordinated Indebtedness 82,347 Cash on Hand Distributions on Subordi- ~ 12.037 Hated indebt ..l a 13.090 5169 037 (169..037 . 3. Coaditiona to Confirmation and 8ff®etive Date Thee Plan provides for a number of conditions to Confirmation. Included among these are (i) a requirement that the Confirmation Order include provisions on release and discharge of the Subsidiary Guarantees and the Pledgea,.(ii) receipt by Debtor of firm. commitment letters on acceptable teens from financial institutions to refinance certain Subsidiary indebtedness, (iii) possession by Vail of the Forest Service Permits on satisfactory terms and conditions, and (iv) execution of the New Investor Agreement by the New Investor. In addition, conditions to the Effective Date require (i) the occurrence of the GHI Restructuring Transactions, (ii) the _ Confirmation'~Order becoming a Final Order (iii) the release and discharge of Debtor's obligations under the GHI Guarantee Claims,(iv) approval on satisfactory terms and conditions by the Federal C~..wrsnicationa Commission of the GHI Restructuring Transactions as they relate to the television stations, and (v) .:receipt of a satisfactory Internal Revenue Service ruling by the Debtor. 4. Corporate Gov®rnanc® of the R®organiz®d C~~.~any The Reorganized C~.«rany and certain Reorganized Company Subsidiaries will enter into the GHI Management Agreement with the -19- .Management Company. The Management Company, will be owned by certain members of the Reorganized Company's management, and the principal owner will be GNG. Under the terms of the GHI Management Agreement, the Reorganized Company and such Reorganized Company Subsidiaries delegate to the Management Company the authority for the day-to-day management and operation of the companies as well :as decision-making regarding the incurrence of capital expenditures -within limits set by the Reorganized Company. The Management `Company will also be responsible for the development and approval of all operating budgets and business plans for the companies. The GHI Management Agreement provides for a termination of all or a . portion of the Management C~~+,rany's management authority upon its .failure to meet certain financial tests with respect to the Reorganized Company and its Business Segments. The GHI Management Agreement also restricts transactions between the Management Company and GNG or any GNG Affiliate. GHTV and the GHTV Subsidiaries will enter into the GHTV Management Agreement with the Management Company that will contain terms and conditions substantially identical to those of the GHI Management Agreement. The compensation payable to the Management Company for its services under the Management Agreements. is described in Section F of this Article IV. In addition to the Management Agreements, the by-laws of ~~the Reorganized Company and GHTV will provide the Management Company with additional management authority. This management authority will include, subject to limitations set by the Reorganized C~.«~any, acquisition of assets, disposition of the communications Business Segment and the. beef products Business Segment, refinancing of the New Securities and indebtedness of the "Reorganized Company Subsidiaries, and redemption of the Common Stock. The Management C~~,~~,any will also enter into the Stockholders Agreement with the New Investor. Pursuant~to the terms thereof, the parties agree to cooperate fully with each other in connection with the voting of any Comanon Stock or Junior Debentures owned by them at any time including the election of Class 1 directors for the board of directors and operating !committee of the Reorganized Company and the boards of directors of the Reorganized Company Subsidiaries, the~sale of Vail and the redemption of Common Stock. GNG will be the Chairman of the board of directors of the Reorganized Company., . -20- 5. Subsidiary and GHTV Refinaacinq All~~existing Subsidiary letters of credit, industrial -revenue bonds, other Subsidiary indebtedness, and indebtedness ~-Yassociated with the GBT Note and the WTVT Note shall remain `~~~outstanding, be credit enhanced or be refinanced. The release and discharge of the GHI Guarantee Claims, the .Subsidiary Guarantees and the Pledges are a condition to the Effective Date. The Debtor will cause Vail to have. financing facilities of up to $75 million which will provide for the issuance of new letters of credit securing, or alternative credit enhancement to, - certain Vail bonds and the Heaver Creek Resort C~,.~rany of Colorado loan and for a seasonal working capital revolver not to exceed $25 million. These financings in the aggregate will be secured on a first priority basis by substantially all of the assets of Vail, including the,Forest Service Permits. The Debtor will cause Packerland to obtain a $25 million working capital facility which will be used, in part, to refinance outstanding letters of credit. The Packerland financing will be secured on a first priority basis by substantially all available assets of Packerland. GHTV shall also obtain a $5 million working capital facility, which will be secured on a first priority basis by the accounts receivable of GHTV and the GHTV Subsidiaries. 6. Changes is the Corporate Structure of the Debtor and ~niv and Certain Other Bffectiv® Date Transactions All Subsidiaries in the c~..~.,anications Business Segment -will be GHTV Subsidiaries. The Debtor will sell the c„+.,...on stock of GHTV for nominal consideration to an independent third party that is a U.S. citizen approved by the FCC or to an entity controlled by such party. The independent third party will control the board of directors of GHTV and the FCC licenses. ~ GHTV shall issue the New GHTV Note to the Debtor and the Old GHTV Note shall be cancelled. In addition, GHTV will issue the GHTV Warrants to the Debtor for 95~ of its stock on a fully-diluted basis. The GHTV ;.warrants may be exercised only if the FCC has approved their exercise and only if certain other events have occurred including, without limitation, termination of the GHTV Management Agreement or failure to pay principal or interest when due on the GBT Note, the WTVT Note, or the New GHTV 1~Tote. - The Debtor will restructure its remaining Subsidiaries around its three business segments (c~.?w.snications, beef products and .ski resorts) and eliminate (by merger, dissolution or -21- 'otherwise) those Subsidiaries with insignificant assets (See Exhibit 2B which depicts the organizational structure of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV and the GHTV Subsidiaries from and after the Effective Date). B. Su~arlr of Distributions IInd®r th® Plan The following is a brief summary of the distributions to Abe made under .the Plan to holders of Claims in Classes 2, 5, 6 and ~•7. 1. St~ary of Distributions to Fold®rs of G®n®ral Trad® and S®rwice Clam Under the Plan, Class 2 consists of. the General Trade and Service Claims. Each holder of a Claim in Class 2 shall receive under the Plan cash in an amount equal to the lesser of (i) 100 of its Class 2 Claims; or (ii) its pro rata share of $ if the total amount of all Allowed Claims in Class 2 exceeds $ The Debtor estimates that General Trade and Service Claims will total approximately $ Z. Su~xy of Distributions to Dolders of Clam and®r th® Dank Cr®dit Aqr®e~®nt and th® Z®ro Notes Under the Plan, Class 5 consists of the Claims against the Debtor. under the Bank Credit Agreement, the Zero Notes and the "Pledges. The Debtor. estimates that Class 5 Claims will total _approximately $548,198,775. Each of the holders of Claims in Class 5 will be entitled to elect as a distribution under the Plan: a. A Type 1 Distribution consisting of New Senior '=Secured Notes in a face principal amount equal to 91.0 of the amount of such holder's Class 5 Claims designated by such holder to receive a Type 1 Distribution, subject to an aggregate limit under the Plan of $200,000,000 in New Senior Secured Notes; or b. A Type 2 Distribution consisting of cash in an amount equal to 75~ of the amount of such holder's Class 5 Claims designated by~such holder to receive a Type 2 Distribution, subject •to an aggregate limit under the Plan of $73,600,000, unless a higher limit is designated by the Debtor after the Expiration Date .:(the "Type 2 Cash Distribution Cap"); or c. A Type 3 Distribution consisting of New Senior Subordinated Secured Notes in a face principal amount equal to 89.67$' of the amount of such holder's C1ass.5 Claims designated by such holder to receive a Type 3 Distribution, subject to an aggregate limit under the Plan of $207,500,000, together with the ~~number of shares of Class 2 Common Stock equal to the product of (i) a fraction, the numerator of which is the amount of such holder's Class 5 Claims designated by such holder to receive a Type -22- 3 Distribution and the denominator of which is the aggregate amount of all Class :~5. Claims making a Type 3 Election, times (ii) 2,500,000 shares of Class 2 Common Stock (such 2,500,000 shares being equal on the Effective Date to 25~ of the fully diluted Common Stock). Each holder of Class 5 Claims shall be entitled to split the aggregate amount of its Class 5 Claims between two or more types of distributions,.provided the amount of such holder's Class 5 Claims allocated to different types of distributions shall not exceed in the aggregate 100$ of such holder's Class 5 Claims. If holders of Class 5 Claims elect Type 2 or Type 3 Distributions in amounts which, but for the aggregate limits described above, would cause the Debtor to make distributions of New Senior Subordinated Secured Notes or cash or Common Stock in excess of such limits, the Plan contains provisions for allocating such elected distributions ratably among such electing Class 5 Claims and distributing to holders of such electing Class 5 Claims pursuant to Section 5.04 (d) of the Plan, .any undistributed New Senior Secured Notes and cash. If the amount of Class 5 Claims electing a Type 1 Distribution exceeds $219,780,220 or if the sum of the amount of Class 5 Claims electing a Type 1 Distribution or a Type 2 Distribution exceeds the sum of $219,780,220 plus an amount equal to the Type 2 Cash Distribution Cap divided by 0.75, the Effective Date shall not occur. Under the Plan, a hypothetical~=holder of a $10 million Class 5 Claim`=emost likely would receive if it were to elect to allocate 100 of its Class 5 Claims to any one of the three distributions, the following distribution: (a) $9,100,000 principal amount of New Senior Secured Notes, (b) $7,500,000 in cash, or (c) $8,967,000 principal amount~of New Senior Subordinated Secured Notes, together with the number of shares of CTass.2 Common Stock equal to the product of the amount of such holder's Class.5 <Claim designated to receive a Type 3 Distribution divided by the aggregate amount of all Class 5 Claims making a Type 3 Election, times 2,500,000 shares. 3. 3u~ry of Distribution® to Holders of Claims under the Smaior Subordinated Debentures Under the Plan, Class 6 consists of the Claims against the Debtor under the Senior Subordinated Debentures. The Debtor estimates that the Class 6 Claims will total approximately $254,000,000.. Each of the holders of Claims in Class 6 shall receive as a distribution under the Plan.: -23- a. If Clans 7 ~?ccepts the Play If Class 7 accepts the Plan within the meaning of section 1126(c) of the Bankruptcy Code, then each holder of Claims in Class 6 will receive under the Plan cash equal to 32.42 of such holder's Class 6 Claims. In addition, if Class ,7 accepts the Plan within the meaning of section 1126 (c) of- the Bankruptcy Code, holders of -.Claims in Class 6 who qualify as Accredited Investors within the meaning of Regulation D of the Securities Act of 1933 may elect to purchase (the "Class 6 Purchase Election") an amount of Junior Debentures, as designated by the holder on its ballot, not to exceed the product of (i) the amount of the $12,750,000 principal - amount of Junior Debentures not purchased by holders of Claims in Class 7 pursuant to Class 7 Purchase Elections (as defined in subsection 4 a. below in this Section B) times (ii) a fraction equal to the amount of such holder's Class 6 Claims divided by the aggregate amount of. all Class 6 Claims.- - - b. I$ Class 7 R®j®cts th® Plan If Clans 7 rejects the Plan within the meaning of section 1126(c) of the Bankruptcy Code, then each of the holders of Claims in Class 6 will receive under the Plan: (i) cash in an amount equal to 32.42 of such holder's Class - ~ 6 Claims; and (ii) the number of shares of Class 2 Common Stock equal to .0116437 times the amount of such holder's Class 6 Claims, not to exceed in the aggregate for all such holders, 2,957,500 shares of Class 2 Common Stock (equal on the Effective Date to approximately - 29.6 of the fully diluted Common Stock), and shall not have the right to purchase any Junior Debentures. A hypothetical holder of a $10 million Class 6 Claim would receive - the following distributions pursuant to the Plan: {a) If.Clasa 7 accepts the Plan: (i) $3,242,000 in cash, and (ii) - the right to purchase up to a ratable portion of Junior Debentures that are available due to the undersubscription of holders of Subordinated Debentures pursuant to the Clans 7 Purchase Election (If all $12,750,000 principal amount of Junior Debentures is issued to holders of Class 7 Claims pursuant to Class 7 Purchase Elections, no Junior Debentures will be available to holders of the Senior Subordinated Debentures). (b) If Class 7 dose not accept the Plan: (i) $3,242,000 in cash, and (ii) 116,437 shares of Class 2 C~..~.~on St®ck (equal on the -24= Effective Date to approximately 1.16 of the fully diluted Common Stock). • Distributions to be made on account of Clara 6 Ciaima held by any Non-Settling Clara 6 Claimant shall be impounded and shall remain subject to any contractual subordination rights provided is the Old Subordinated Debentures that benefit holders of Clare 5 Claims. Such amount shall not be distributed to such .Non-Settling Clara 6 Claimaata until the entry of a Final Order of the Court determining _the respective rights and obligations of Class 5 creditors and such Non-Settling Clara 6 Claimant regarding such contractual subordination provisions, all as~more fully described in Section 11.02 of the Plan (See also Artiele VII, Section J.2 and Article %III of this Disclosure Statement). 4. Summary of Distributions to Holders of Claims under • the Subordinated Debentures Under the Plan, Clara 7 consists of the Claims against • the Debtor under the Subordinated Debentures. The Debtor estimates that Class 7 Claims will total approximately $170,000,000. Each of the holders of Claims in Class 7 shall receive as a distribution under the Plan: a. If Clans 7 Accepts the Pia,a If Class 7 accepts the Plan, within the meaning of section 1126(c) of the Bankruptcy Code, .then each holder of Claims in Class 7 shall receive the following: (i) A Type A Distribution consisting of cash in an amount equal to 15.84 of the amount of such holder's Class 7 Claims designated by such holder to receive a Type A Distribution, subject to an aggregate limit under the Plan of $13,090,000; or (ii) A Type B Distribution consisting of shares of Class 2 Common Stock equal to .02060413 times the amount of such holder's Class 7 Claims designated by such holder to receive a Type B Distribution, subject to an aggregate limit under the Plan of 1,800,000 shares of Class 2 C~..W.OII Stock. Bach holder of Class 7 Claims shall be entitled to split the aggregate amount of its Class 7 Claims between the Type A and Type B Distributions, provided the amount of such holder's Class 7 Claims allocated to the two types of distributions shall not exceed in the aggregate 100~C of such holder's Class 7 Claims. If holders of Class 7 Claims elect Type A or Type B Distributions in amounts which, but for the aggregate limits described above, would cause the Debtor to make distributions of cash and Class 2 Common Stock in excess of .such limits, the Plan contains provisions for allocating such elected distributions -25- ratably among such electing Class 7 Claims and distributing to holders of such electing Class 7 Claims any undistributed cash and Class 2 Common Stock allocated for the Type A and 'ape B Distributions. In addition, holders of Class 7 Claims who qualify as an "Accredited Investor" within the meaning of Regulation D under the ,:.Securities Act of 1933 may elect to purchase an amount of Junior Debentures, as designated by the holder on its ballot, equal to the product of (i) a fraction, the numerator of which is the amount of such holder' s Class 7 Claim and the denominator of which is the aggregate amount of Class 7 Claims, times (ii) $12,750,000 (the '"Class 7 Purchase Election"). b. If Class 7 Rejects the Plan • If Class 7 does not accept the Plaa within the meaning of section 1126(c) of the Baalcruptcy Code,~then each holder of Class 7 Claims shall receive only the number of shares of Class 2 Common Stock equal to .00294118 times the amount of such holder's Class 7 Claims, not to exceed in the aggregate for all such holders, 500,000 shares of Class 2 Common. Stock (equal on the Effective Date to 5~ of the fully diluted C~.~~«on Stock), and shall not have the right to purchase any Junior Debentures or receive any cash distribution. A hypothetical holder of a $10 million Class 7 Claim that elects to allocate 100 of its Class 7 Claim to either the Type A Distribution or the Type B Distribution most likely would receive the following distributions pursuant to the Plan: (a) If Class 7 accepts the Plan: (i) (x) $1,584,000 cash, (Type A Distribution) or (y) 206,041 shares of Class 2 Common Stock (Type B Distribution) (approximately 2.06 of the fully diluted Common Stock on the Effective Date) , and (ii) the right to purchase a ratable portion of $12,750,000 principal amount of Junior Debentures. (b) If Class 7 rejects the Plan: 29,412 shares of Class 2 C~..~~oa Stock (approximately 0.294 of the fully diluted Common Stock on the Effective Date). with no right to purchase any Junior Debentures. Distributions to be mad® on account of Class 7 Claims held by nay Noa-Settling Class 7 Claimant shall be impounded and shall remain subject to any contractual subordination rights provided in the Old Subordinated D®beatures that benefits holders of Class 5 Claims and Class 6 Claims. Such amounts shall sot be distributed to such ion-Settling Class 7 Claimants until the entry of a Final Order of the Court d®termiaiag the respective rights aad obligations of Class 5 and Class 6 creditors sad such Noa-3ettliag Class 7 Claimant regarding such contractual subordination -26- provisions, all ms mor® fully described in Section 11.02 of the Pima (See alao;~Article VII,~S®ctioa J.2 and Article VIII of this Disclosure Statem®at). 5. D®termiamtion of Clans 5, 6 mad 7 Clmim Amounts All Claims in Classes 5, 6 and 7 shall be determined as of the Petition Date. For purposes of calculating. the distributions to . ;holders of Claims in Classes, 5, 6 and 7, and solely 'for such purpose, the amount of Claims in Classes 5, 6 and 7 shall be determined as follows: (i) Class 5, 6.and 7 Claims to be determined without including any unpaid default interest, unpaid interest on interest, or unpaid fees, costs and expenses; (ii) Class 5 Claims under the Bank Credit Agreement shall include accrued interest to the. Petition Date; (iii) Class 5 Claims under the Zero Notes to be determined based on the accreted amounts of such Claims; and (iv) Class 6 and 7 Claims to be determined based on outstanding principal amounts without giving effect to any original issue discount and without including any accrued and unpaid interest. `'6. ~ Agent°s sad Iad®atur® Ts~ist®®s° Fe®a, Costs mad Bacp®nses ° In full satisfaction of Agent Expenses and Indenture Trustee Expenses the Debtor shall pay the Agent and the Indenture Trustees an amount equal to the amount of such Agent Expenses and Indenture Trustee Expenses; provided the aggregate amount so paid to the Agent and the Indenture Trustees on account of Agent Expenses and Indenture Trustee Expenses shall not exceed $ ~ Payment of such expenses shall constitute distributions on account of Claims in the Class to which such expenses relate, provided that distributions otherwise provided under the Plan to holders of Allowed Claims under the Bank.Credit Agreement and the Indentures shall not be reduced on account of such payment of Agent Expenses and Indenture Trustee Expenses. -27- 7o Summary of Proposed Distributions to l3olders of Claims in Classes 5, 6 and 7 The following table summarizes the distributions available to holders of Claims in Classes 5, 6 and 7. Actual distributions may~vary depending on the various elections to be made by such holders. Principal Outstanding Allowed Distribution Maximum Claim Amount If Claimant Class as of 2/27/91 Claim Per 1.000 Claim Maximum Distribution Pully Subscribed Tvng 1 Bank Credit Agreement $910.00 principal amount of Claims S $130,0,000 $139,660,959 New Senior Secured Notes $200,000,000 principal $219,780,220 • amount of New Sensor 'Tv~ 2 Notes $750.00 cash Zero Note Claims 5 8.53.816 - ~408.537.81~ $73,600,tT~fH1 eash~ $98,133,333 'I'otsl Class 5 ~53~ ~537.81~ ~~548.198 775 '9'Yioe 3 $896.70 principal amount of New Senior Subordinatod Secured Notes 10.8 shares of Class 2 $207,500,000 principal $231,404,037 Common Stack assuming amount of New Senior full subscription - Subordinated Secured Notes . . ~ 2,500,000 shares of Class 2 Common Stock (equal on the Effective ®ate to 25% of fWly diluted Common Stock) Debtor may increase the maximum cash distribution available under the Plan. but the distribution per $1,000 of Claim would remain the same. - (continued on next page) -28- Principal Outstanding Allowed Distribution Maximum Claim Amount Claimant Class as of 2/27/91. Claim Per X1.000 Claim Maximum Distribution If Fully Subscribed • . b ~ r, Senior Subordinated Debenture Claims 6 5254,000,000 x254,000,000 x324.20 cash 1;82,346,800 cash x254,000,000 (see Note 3) UQ to $1.2,750,000 principal amount of Junior Debentures (see Note 1) Subordinated Debenture 'i~+oe A Claims 7 1:170,000,000 $170,000,000 1:158.40 Cash Up to 1:13,0'90,000 cash Type A $82,638,889 (see Note 3) ~ - 'IWpe B 20.60413 shares of Class 2 Up to 1,800,000 shares of Type B x87,361,111 Common Stock Class 2 Common Stock (equal ' on the Effective Date to 18 of fully - diluted Common Stock) - Up to x 12,750,000 face principal amount of Junior Debentures (see Note 2) Note 1: duaior Debentures will only be available to holders of Senior Subordinated Debentures who qualify as an "Accredited Investor" within the meaning of Regulation D under the Securities Act of 1933. Such holders may purchase at par up to a ratable portion of the Junior Debentures at the purchase price of 100%i of principal amount to the. extent the entire x 12,750,000 principal amount of Junior Debentures is not purchased by holders of Subordinated Debentures pursuant to Class 7 Purchase Elections. Note 2: Holders of Claims in Class 7 who qualify as an "Accredited Investor° may elect .to purchase pursuant to Class 7 Purchase Elections up to a ratable portion of x12,750,000 of Junioe Deln;ntures at the purchase price of 100% of principal amount. Note 3: 'Ibe foregoing table assumes Class 7 accepts the Plan. If Class 7 rejects the Plan, holders of Claims in Class 6 shall receive, in addition to the cash set forth above, Class 2 Common Stock equal on the Effective Date to approximately 29.6'% of the fully diluted Common Stock. If Class 7 rejects the Plan, the only distribution that will be made to a holder of Claims in Class 7 is the number of shares of Class 2 Common Stock equal to .00294118 timrs the amount of each such holder's Class 7 Claflms, not to exceed in the aggregate for all such holders, 500,000 shares of Class 2 Common Stock (equal on the Effective Date to 5~6 of tho fully diluted Common Stock), and no distribution of cash will be made to holders of Claims in Class 7 and holders of Claims in Class 7 shall not be entitled to purchase Junior Debentures. -29- C. Principal Attributes of th® New S®curitiee As previously described, the Plan provides for a capital structure of the Reorganized Company comprised of New Senior Secured Notes, New Senior Subordinated Secured Notes,- Junior Debentures., and Common Stock. The principal features of the New •Securities and the Common Stock are summarized below. 1. N®w Senior S®cur®d Not®s - New Senior Secured Notes up to a maximum principal amount of $200 million shall be issued to holders of Class 5 Claims =who elect a Type 1 Distribution under the Plan. New Senior S®cur®d Not® Inclentur® General. The New Senior Secured Notes will be issued under. the Senior Secured Note Indenture between the Reorganized Company and a trustee to be selected by the Reorganized C~.,~rany. The Senior Secured Note Indenture shall meet the requirements of the Trust Indenture Act of 1940, as amended, but the New Senior Secured Notes need not be registered securities. The New Senior Secured Notes will be secured senior obligations of the Reorganized Company limited to.$200.million in aggregate principal amount. The New •Senior Secured Notes will bear interest, payable quarterly in cash, at the rate of (a) Libor (as defined in the Senior Secured Note :,Indenture) plus 1-1/2$ per annum during the first two years following the Effective°Date, but not to exceed a maximum interest rate of 9~ per annum, and (b) the Prime Rate (as defined in the Senior Secured Note Indenture) plus 1-1/2~ per annum during the third year following the Effective Date. Interest on the New P:. Senior Secured Notes will be payable on September 30, 1992, in the amount of $ per $1,000 principal amount of New Senior Secured Notes {assuming a LIBOR rate of and. thereafter quarterly at the interest rates set forth above. The New Senior Secured Notes will mature on the earlier of (A) June 30, 1995 or {B) the third anniversary of the Effective Date. Priority. The New Senior Secured Notes (including post- . .petition interest thereon, whether an allowed claim or not) shall be senior to the New Senior Subord~.nated Secured Notes, the Junior Debentures and other junior indebtedness of the Reorganized Company. Security for the 1lTe~? Seni®r Secured ~totea. The New Senior Secured Notes shall be secured on a first priority basis pursuant to the New Collateral. Documents by (a) pledges of the stock of Gillett Productions, Inc., Vail and Packerland;• (b) pledges of the -GHTV warrants; (c) a pledge of the WTVT Note; (d) a pledge of the GBT Note, together with the $120 million of preferred stock and the common stock of Snl'1'~1T, Inc. which secures the GBT Note; and (e) a pledge of the GH'I'V Note. Additionally, the stock of the GHTV -30- 't. Subsidiaries and all other assets of GHTV and the GHTV Subsidiaries (except for accounts receivable used. to secure a working capital facility for GHTV not to exceed $5 ~ nil'1-=ion) which stock and assets will secure the WT'VT Note, GBT Note and GHTV Note !collectively, the "GHTV. Subsidiary Notes") will also be pledged to secure the New Senior Secured Notes. Realization on the GHTV Subsidiary Notes and the collateral securing the GHTV Subsidiary Notes will be effected, if permitted by the FCC, through a trust or., if necessary, other similar arrangement permitted by the FCC which will provide for a commercially reasonable sale procedure by the trustee or similar entity following a default in the payment of any principal or interest on the New .Senior Secured Notes. Optional Red~.tion. The New Senior Secured Notes will be redeemable at any time at the option of the Reorganized Company, in whole or in part, upon prior notice at 100 of principal amount together with accrued and unpaid interest to the date of redemption. The Reorganized Company may also use excess cash (other than from Asset Sales as defined in the Senior Secured Note Indenture) to purchase and retire New Senior Secured Notes in~the open market at amounts not in excess of 95~r of principal amount together with accrued and unpaid interest to the date of purchase. Mandatorgr Red.:~.~.tion. The Reorganized Company shall, within 45 days after an Asset Sale apply 100 of ,the Net Cash Proceeds (as defined in the Senior Secured Note Indenture) of such Asset Sale ~~to redeem New Senior Secured Notes, on a_pro rata basis, at 100 - of principal, amount plus accrued and unpaid interest to the date -of redemption. , Other Covenants. TYie ~Seni~or~~ Secured Note Indenture will contain covenants customary for transactions of this nature, including limitations on issuances of capital stock, sales of assets, restricted payments, material acquisitions, liens, investments, affiliate transactions and indebtedness (which will not restrict indebtedness at SCE Television, Inc. and will permit additional indebtedness including the New Senior Subordinated Secured Notes., the Junior Debentures, the GHTV Subsidiary Notes, $50 million of industrial revenue bonds and letters of credit, $25 million of working capital .financing at Vail, $25 million of working capital financing at Packerland and $5 million of working capital financing at GHTV) and reporting requirements (including . the delivery of consolidating financial statements of the Reorganized Company to holders who execute confidentiality agreements; such agreements will restrict trading and prohibit Y•disclosure of such statements to third parties). -31- 2. AID S®nior Subordinat®d S®cur®d Notes New Senior Subordinated Secured~Notes in the maximum principal amount of $207.5 million shall be issued to holders of Class 5 Claims making a Type 3 Distribution election under the Plan. Senior Subordinat®d S®cur®d I~ot® Indenture ' General. The New Senior Subordinated Secured Notes will be. . ~ issued under the Senior Subordinated Secured Note Indenture between tre Reorganized C~,«rany and a trustee to be selected by the Reorganized Company. The Senior Subordinated Secured Note Indenture shall not be qualifiable under the Trust Indenture Act of 1940, as amended. The New Senior Subordinated Secured Notes will be subordinated to the New Senior Secured Notes and will be limited to $207.5 million in aggregate principal amount. The New Senior Subordinated Secured Notes will bear interest at the rate of 11-1/2~ per annum payable semi-annually in cash,; provided, however, that, to the extent that a specified cash interest. coverage test as specified in the Senior Subordinated Secured Note , Indenture is not met, up to 400 basis points of the stated interest rate may be paid through the issuance of additional New Senior Subordinated Secured Notes, valued at face amount. Interest on the New Senior Subordinated Secured Notes will be payable on September 30, 1992, in the amount of $57.50 per $1,000 principal amount of Senior Subordinated Secured Note and thereafter semi-annually at the rate of 11-1/2~ per annum. The New Senior Subordinated Secured Notes will mature on the fifth anniversary of the Effective Date. Priorsty. The New Senior Subordinated Secured Notes shall be fully subordinated to the New Senior Secured Notes (including post- petition interest thereon, whether an allowed claim or not). Security for the 1~e~ Senior Siabordi~ted SeCa3r~ 118otes. The New Senior Subordinated Secured Notes will be seeured by second- priority liens on the same items of collateral which secure the New Senior Secured Notes. These second priority liens shall become first liens upon payment in full of ,the New Senior Secured Notes. Option Red~:~,~on. The New ~ Seni.or Subordinated Secured Notes will be redeemable subsequent to the payment in full of the New Senior Secured Notes, at the Reorganized Company~a option, in whole or in part, upon prior notice at 100 of principal amount together with accrued and unpaid interest to the date of redemption. The Reorganized Company may also use excess cash (other than from Asset Sales as defined in the Senior Subordinated Secured Note Indenture) to purchase and retire New Senior Subordinated Secured Notes in the open market at amounts not in_ excess of 95~ of principal amount together with accrued and unpaid interest, to the date of purchase. -.32- w ;`ti . :y M.'. Mandatory Red~,tion. . The Reorganized Company may, within 60 days after an Asset Sale and subsequent to the repayment in full of the New Senior Secured Notes, apple '9'7~ of the Net Cash Proceeds (as defined in the Senior Subordinated Secured Note Indenture) of such Asset Sale (the "Redemption Portion") to purchase, in the manner selected by the Reorganized Company, New Senior Subordinated Secured Notes, which upon purchase by the Reorganized Company may (i) be held in treasury or (ii) be cancelled and shall then be deemed to be paid in full. After.~such initial 60 day period and - if all New Senior Secured Notes have been paid in full, the Reorganized Company shall be required to apply any remaining amount of the Redemption Portion to redeem New Senior Subordinated Secured Notes, on a pro rata basis, at a price equal to 100 of the principal amount thereof plus accrued and unpaid interest to the date of the redemption. Other Covenants.., The Senior Subordinated Secured Note Indenture will contain covenants substantially the same as those obtained in the Senior Secured Note Indenture. . 3. New Collat®ral Documents The New Senior Secured Ptotes shall have a first lien on the collateral under their New Collateral Documents and the New Senior Subordinated Secured Notes shall have a second lien on the collateral under their New Collateral Documents. Such second liens .,.on the collateral will automatically become first liens on the collateral upon payment in full of the New Senior Secured Notes. F~1 Release. The collateral under the respective New Collateral Documents shalh~be released on the date of payment, as applicable, of the New Senior Secured Notes and the New Senior Subordinated Secured Notes in full or, if not then due and payable, secured to the satisfaction of holders thereof and payment in full of the collateral trustee's fees; or (ii) the date on which the Reorganized Company receives instructions from the required holders under the applicable New Collateral Documents to direct the appropriate collateral trustee to release the collateral and all such collateral trustee's fees have been paid in full. . when the release of collateral is effective, all right, title . and interest of such collateral trustee in the collateral shall " revert to the Reorganized Company or the applicable Reorganized ` Company Subsidiary or their respective successors or assigns and the interest and estate of such collateral trustee shall termi- ~.nate. In such event, .the Reorganized Company or the applicable Reorganized Company Subsidiary shall deliver one or more instruments of discharge to such collateral trustee and such collateral trustee shall execute a satisfaction of the security ` documents and such other documents as are necessary to terminate and remove of record any documents constituting public notice of the security documents and the liens and assignments granted -33- thereunder. The collateral trustee shall deliver or cause to be delivered to the~Reorganized Company or the applicable Reorganized Company Subsidiary all property then held by such collateral trustee. Partial Release. A collateral trustee may release a specified portion of the collateral if (i) instructions are received from the required holders of the applicable New Collateral Documents 'directing such release or the applicable trustee under the~Senior `~~Indentures directs such 'release or tii) the security interest in `zany collateral is terminated or released in accordance with the applicable New Collateral Doeuments. Upon the sale, transfer or other disposition of the collateral so released, the interests of the collateral trustees and the actions required to be taken by. the collateral trustees shall be the same with regard to such collateral as upon the effective release of all the collateral as set forth above. Junior D®bentur®s Junior .Debentures up to the maximum. aggregate principal amount of $40 million may be issued under the Plan. Junior Debentures in the face principal amount of $27,250,000 shall be sold to and purchased by the New Investor pursuant to the New Investor Agreement. ~n the event that Class 7 rejects the Plan, no additional Junior Debentures will be issued under the Plan. If Class 7 accepts the Plan within the meaning of section 1126(c) of `the Bankruptcy Code, Junior Debentures up to but not exceeding the ,face principal ,amount of $12,750,000 shall be issued to holders of Claims in Class 7 wha make Class 7 Purchase 8lections, and, if the full amount of such Junior Debentures are not so purchased pursuant to Crass 7 Purchase 8lections, to holders of Claims in Class 6 who r make a Class 6 Purchase 8lection. Junior Debentures not purchased ~~under the Class 6 or Class 7 Purchase 8lections shall be purchased by the New .Investor pursuant to the New Investor Agreement. Junior D®b®atur® Ind®aturs General. The Junior Debentures will be general unsecured obligations of the Reorganized Company in an amount not to exceed ~$40 million~in aggregate face principal amount and will be issued only in registered form, without coupons. The Junior Debentures will be issued under the Junior Debenture Indenture between the Reorganized C~.«~.any and a trustee to be selected by the Reorganized Company. The Junior Debentures will be subordinated to the New Senior Secured Notes and the New Senior Subordinated Secured Notes. The Junior Debentures will bear interest at the rate of 6~ per annum payable semi-annually in cash; provided that to the extent that a specified cash interest coverage ratio as specified in the Junior Debenture Indenture is not met, such interest may be paid through the issuance of additional Junior Debentures. In addition, interest may not be paid in cash on the Junior Debentures if -3~- interest in full is not being paid in cash concurrently on the New Senior .Subordinated Secured Notes.,,..: The Junior Debentures will mature on the `tenth anniversary of -£Yie- Effective Date. Priority. The Junior Debentures shall be fully subordinated ,to the New Senior Secured Notes and the New Senior Subordinated =Secured Notes (including, in each case., post-petition interest - thereon., whether an allowed claim or not). Restrictions on Transfer. Prior to any transfer of Junior -"Debentures, the other holders of Junior Debentures will have the 'right to purchase ttie Junior Debentures to be transferred. Conversion of Junior Debentures. The Junior Debentures will be convertible on the Effective Date into Class 1 Common Stock at -the rate of 13 shares of Class 1 Common Stock for each $100 principal amount of Junior Debentures.. Upon conversion, the Junior Debentures (including Junior Debentures issued in lieu of interest) must be surrendered to the Reorganized C.,..,Yany in payment of the- - Class 1 Common Stock and the Reorganized Company will cancel the Junior Debentures which shall be treated as paid in full. Purchase Rig~ats. The Reorganized Company will have the right to convert the unconverted Junior Debentures to Class 1 Common Stock upon notice of redemption and to purchase, in whole only,- - the Class 1 Common Stock issued upon conversion of the Junior Debentures during a 60 day period cam,?Y«encing on the third and fourth anniversaries of the' Effective Date for the respective 'amounts set forth in the Junior Debenture Indenture. If at any time prior to the third anniversary of the Effective Date the Reorganized Company has paid in full the New Senior Secured Notes and the New Senior Subordinated Secured Notes, the Reorganized . Company, at any time thereafter but prior to such third anniversary, will have the right to convert the unconverted Junior Debentures to Class 1 Common Stock upon notice of redemption and t to purchase, in whole only, the Common Stock issued upon conversion of the Junior Debentures for the aggregate amount set forth in the Junior Debenture Indenture. Other-Covenants. The Junior Debenture Indenture will contain 'covenants substantially the same as in the Senior .Secured Note Indenture and the Senior Subordinated Secured Note Indenture. - D. Suer of the Stockholders Agr®emeat On the Bffe~~s~ive Date, the New Investor and the - - Management Company will s:.y.~;~:~ez' into a Stockholders Agreement that will be specifically enforceable against each of them and pursuant to which they will agree ; ca vote their shares of Class 1 Common Stock and their Junior Deba":~,.u.res owned on the Effective Date or "thereafter acquired (collectively, the "Shares") in the manner and for the purposes which are briefly summarized below. The - -35- Stockholders Agreement also will provide for restrictions on the transferability of the Shares and the relative rights and obligations of the New Investor and the Management Company over .certain other corporate matters. . Prior to the redemption by the Reorganized Company of all .Class 1 Common Stock issued upon conversion of the Junior Debentures, the New Investor and the Management~Company will vote their respective Shares owned on~the Effective Date or thereafter ._~acquired to elect and maintain four directors nominated by the New -~~Investor (the "New Investor Director®") and two directors nominated by the. Management Company (the "Management C~e«rany Directors") to- the Board of Directors of the Reorganized Company. Following such - redemption, directors elected by holders of Class 1 Common Stock will be elected in accordance with the voting provisions contained in the Restated Certificate of Incorporation of the Reorganized Company. In addition, prior to the termination of the Management Agreements, the New Investor and the Management Company will vote - their respective Shares owned on the Effective Date or thereafter acquired to cause the operating committee of the Reorganized Company to be composed of two Management Company Directors and one New Investor Director and will take all actions necessary or appropriate to carry out the decisions of the operating committee. In order to effectuate the restrictions on transferability of .Shares and certain buy-sell provisions, no Shares owned by the New Investor may be sold or transferred to any Person unless, as a condition of~such~sale or transfer, each such Person shall become bound by all o'f the terms, covenants, provisions and conditions of -the Stockholders Agreement by executing an assumption agreement. .;~However,.the right of first refusal discussed below will not apply wsto any transferees oL` the New Investor other than its affiliates. Subject to the rights of first refusal granted to holders of Junior Debentures in the Junior Debenture Indenture, each of the New Investor and the Management Company will have the right of first .refusal with respect to any sales of Common.Stocle or Junior - Debentures to any Person other than an affiliate of the New .Investor or the Management Company. The right of first refusal will terminate (i) with respect to the Management C~u~~.any, upon the termination of the Management Agreements by the Reorganized Company `and (ii) with respect to the New Investor, upon the termination of the Management Agreements by the Management Company. Other than with .regard to a sale, or series of sales, of less than 10~ in the aggregate of outstanding C~.~~.~on Stock owned by the New Investor or its affiliates tcollectively, "Investor Holders") on the Effective Date, if the Management Company elects not to exercise its right of first refusal as provided above, it may t. alternatively elect, on its behalf and on behalf of its Affiliates (collectively, "Management Holders"), to participate in the sale of Common .Stock or Junior Debentures by the Investor Holders upon -36- the same terms and conditions by notifying the selling holder and prospective holder during the Option Period. The Common Stock and Junior Debentures to be sold by the Management Holders shall not exceed the product of ( i ) the Cv.,LL«On Stock and Junior Debentures , offered to be sold times (ii) the ratio of (A) the aggregate number of shares of Common Stock owned by Management Holders immediately prior to the proposed sale (the "Management Shares") to (B) the sum of (x) the number of Management Shares plus (y) the aggregate number of shares of Common Stock owned by. Investor Holders - immediately prior to the proposed sale. Notwithstanding the foregoing, the Management Company will have no participation rights with respect to Class 2 Common Stock if the Management Agreements have been terminated. - Provided that the Management Agreements have been terminated, in the event that (a all Investor Holders desire to sell all of their Common, Stock-and Junior Debentures at fair market value (determined in accordance with the Stockholders Agreement) to any Person other than another Investor Holder and (b) such Common Stock and Junior Debentures in the aggregate represent more than a defined percentage of the outstanding C~..~.~on Stock, then the New Investor may elect, on its behalf and on behalf of its Affiliates, to require all Management Holders to sell all of their Common .Stock and Junior Debentures to such Person upon the same terms and conditions. In the event that the New Investor or the Management Company, as~applicable, shall not exercise any of the foregoing options, then such selling holder shall be free.to sell its Common Stock and Junior Debentures under the offered terms; provided that such sale is consummated within the time limits set forth in the Stockholders Agreement. If either-party elects to exercise its right of first refusal, then such electing party will be obligated to sell such securities within the time limits set forth in the Stockholders Agreement. In the event that the Reorganized Company effects a public registration of all or any portion of the Common Stock or - the Junior Debentures under the Securities Act of 1933, as amended, each Management Holder and Investor Holder shall have a right to participate.~on a pro rata basis in such registration with respect to its C~.~w.on Stock and Junior Debentures. Notwithstanding any of - the, foregoing, no Common Stock or Junior Debentures sold in a - public offering will be subject to any of the foregoing transfer restrictions or buy-sell provisions. - Provided that the Management Agreements have not been terminated, the Stockholders Agreement also provides for the following additional actions and rights: (i) the New Investor shall not vote its Common Stock or Junior Debentures for a sale of all or substantially all of -37- the stock or assets of Vail if the Management Company shall have rejected such sale; (ii•) the New Investor shall cooperate with the Management Company and shall take all necessary and appropriate actions to effect. a redemption of all~or any portion of the Common Stock or Junior Debentures pursuant to the terms of the . Restated Certificate of Incorporation of ..the Reorganized - Company and Junior Debenture Indenture; (iii) neither the New Investor nor the Management Company may take, without prior written consent of the other party, any action to alter or repeal the Restated Certificate of Incorporation or Restated Bylaws of •the Reorganized Company, or the articles or certificate of incorporation or bylaws of any Reorganized Company Subsidiary; after the Management Agreements have, been terminated, so long as all Class 1 Common Stock issued upon conversion of any Junior Debentures and all . unconverted Junior Debentures have not been redeemed, neither the New Investor nor' the Management Company will take any • action, without prior written consent of the other party, to amend the Restated Certificate of Incorporation or Restated Bylaws of the Reorganized C~~.~rany to adversely affect the rights of the Management Company to elect Management Directors and appoint operating c~.~~«ittee members as provided above; (iv) the New Investor shall vote its Common Stock and Junior Debentures to elect GNG as Chairman of the Board of Directors of the Reorganized Company; and (v) during all times that either owns Common Stock or . Junior Debentures, the New Investor and the Management Company . will vote their respective C~„u«on Stock and Junior Debentures to elect three directors to the board of directors of each . Reorganized Company Subsidiary, with such three directors initially being rec~..w.ended by the Management C~.~.rany, and thereafter the New Investor may remove and replace up to two directors of each Reorganized Company Subsidiary so long as at all times at least one Management Company Director remains on the board of each Reorganized Company Subsidiary. S. sumeetry of the ~agemeat Agreements On the 8ffective Date, the Reorganized Company and certain of its Reorganized Company Subsidiaries will enter into the GHI Management Agreement with the Managemement Company. Concurrently, GHTV and the GHTV Subsidiaries will enter into the GHTV Management Agreement with the Management Company. The following is..a brief summary of the principal features of the Management Agreements. J • -38- Upon confirmation of the Plan, the Board of Directors of the Reorganized 'Company will approve 'a=five year business plan (the "Original Business Plan") for the Reorganized Company and each of the Business~Segments. The Original Business Plan will set forth net operating cash flows for the Reorganized- Company on a consolidated basis and for each of the Business Segments. The Boards of Directors of the Reorganized Company and the Reorganized Company Subsidiaries will have responsibility and authority over all of the business and affairs of the Reorganized Company and the Reorganized C~.«rany Subsidiaries except to the extent specifically delegated to the Management Company. The following matters (collectively, the "Management Authority") will be delegated to the Management Company under each of the Management Agreements: (i) the management and operation in the ordinary course of the day-to-day business and affairs of the Reorganized Company and the Business Segments; (ii) the incurrence of capital expenditures by the Reorganized Company and the Business Segments within the limits of the Original Business Plan; and (iii) the development and approval of all operating budgets, capital expenditures, business plans of the Reorganized Company and the Business Segments. Also,' the Management Company shall have additional Management Authority with respect to GHTV and the GH'I'V Subsidiaries for the following matters: . (x) the acquisition of all or substantially all of the assets of any division or line of any other business by the communications Business Segment for consideration which does not exceed $1,000,000 provided that such eapital expenditure and all other capital expenditures with respect to the c~.~~.,~snications Business Segment for that fiscal year shall not exceed the amount of capital expenditures set forth in the Original Business Plan with respect to the c~.~~.~snications Business Segment in the fiscal year in which such acquisition is to occur; . (y) the disposition of (i) GFi'I'V, Inc.'s and Gillett Broadcasting of Tennessee, Inc.'s interest in WTVT, Inc. for cash consideration in excess of the amount set forth in the GHT'V - Management Agreement. provided, however, if RSBY, Inc. and KSBW, Inc. are sold prior to the sale of such interests in WTVT, Inc. for consideration in excess of a set amount established in the GHTV Management Agreement, the minimum cash consideration required for the sale of WTVT, Inc. shall be reduced by the amount of such excess, (ii) the disposition of R.SBY, Inc. and KSBW, Inc., and (iii) the disposition of any other assets of any GHTV Subsidiary -39- not exceeding $10 million in any one sale or related series of sales; provided, however, that to the extent liabilities are to be retained by such GHTV Subsidiary in connection with any such 'disposition (other than customary indemnification provisions for `similar transactions) such liabilities must be approved by its board of directors; and (z) the renewal, substitution or replacement of any •}`indebtedness of any GHTV Subsidiary upon terms and conditions not -'materially less favorable to such GHTV Subsidiary than existing terms and conditions of such indebtedness; provided, however, that -'any terms with respect to the obligations of such GHTV Subsidiary . to guaranty any of the New Securities may not be altered or amended without the consent of its board of directors. At the end of each fiscal year, the Management Company will deliver to~the Reorganized Company preliminary cash flow results for the Reorganized Company on a consolidated basis and for each of the Business Segments (the "Preliminary Cash Flows"). ~If the Preliminary Cash Flows or audited financial statements show that the consolidated net operating cash flow for the Reorganized Company on a consolidated basis is less than 90~a of the amount projected under the Original Business Plan, all Management Authority (except with respect to the ski resort Business Segment) under the Management Agreements will revert to the board of directors of the Reorganized Company and the Reorganized Company Subsidiaries and GHTV and the.GHZ'V Subsidiaries, as applicable. 'within 45 days of delivery of the Preliminary Cash Flows or audited 'financial statements, the Board of Directors of the Reorganized Company may revise the capital expenditure provisions of the Original Business Plan; provided, however, if in any future fiscal 'year the ski resort Business Segment produces consolidated net ~•operating cash flow at least equal to the amount projected under -"the Original Business Plan for such year then the capital expenditure budget for the ski resort Business Segment will revert to the budget projected under the Original Business Plan prior to . any revisions. The Reorganized Company and GHTV may delegate all or a portion of such Management Authority with respect to the beef products and communications Business Segments, respectively, back to the Management Company. If the Preliminary Cash Flows or audited financial -statements show that consolidated net operating cash flow for the beef products Business Segment or the communications Business . ~~Segment is less than 85~ of the amount projected under the Original Business Plan for such Business Segment, all Management Authority with respect to such Business Segment shall revert to the board of directors of the Reorganized Company or GHTV, as applicable. The Reorganized Company and GHTV may delegate all or a portion of such .Management Authority with respect to the beef products and communications Business Segments, respectively, back to the ~Mana~gement Company. -40- If .the Preliminary Cash Flows or audited financial statements show. that consolidated net..operating cash flow for the ski resort Business Segment is less than 85~ of the amount projected under the Original Business Plan, within 45 days after -delivery of the Preliminary Cash Flow or the audited financial :-statements, the Board of Directors of the Reorganized Company may . revise the capital expenditure provisions of the Original Business Plan relating to the ski resort Business Segment; provided, _ however, if in any future fiscal year the ski resort Business Segment produces consolidated net operating cash flow at least equal to the amount projected under the Original Business Plan for -such year then the capital expenditure budget for the ski resort Business Segment will revert to the budget projected under the Original Business Plan prior .to any.revisiona. In consideration for the services provided by the . Management Company under the Management Agreements, the Management Company will be reimbursed for~its coats and expenses, provided that in no event will the aggregate reimbursement to the Management Company under the Management Agreements in any fiscal year exceed the projected aggregate corporate expense under the Original Business Plan for such year. In addition, the Reorganized Company shall issue to the . Management Company as additional c~,~?rensation for its services under the GHI Management Agreement Class 1 Common Stock in an amount equal to 5~ of the C~.?~?~on Stock and warrants convertible into Class 1:~Common Stock equal to 3~ of the C~,~~.«on .Stock on a fully diluted basis. The exercise price on the Effective Date for the warrants shall be $7.69 .per share of C~,.~.~on Stock, subject to adjustment. The scheduled vesting and distribution of the additional Common Stock to the Management C~~.~any is 2~ on the first anniversary of the Effective Date and 3/4 of 1$ at the end of each quarterly period during the next year. Similarly, the warrants shall vest and be distributed on the basis of 1~ on the first anniversary of the Effect"ive Date and 1/2 of 1~ at the end of each quarterly period during the next year. In the event that (a) the New Senior Secured Notes are repaid or retired is full within 18 months of the Effective Date, the Management C~u~~any will receive as additional compensation for its services under the GHI Management Agreement, Class 1 C~,~LL~~on Stock equal to 1$ of the Common Stock of the Reorganized Company on a fully diluted basis or (b) less than $129.4 million of the New Senior Subordinated Secured Notes remains outstanding two years after the Effective Date, the Management Company will receive as additional compensation for its services under the GHI Management Agreement Class 1 Common Stock equal to 1~ of the Common Stock of the Reorganized Company on a fully diluted basis; provided, however, that in each case the funds used for repayment or retirement are generated from the sale of assets or the operations -41- of the Reorganized Company or the Reorganized Company Subsidiaries or GHTV or the GHTV Subsidiaries. As further incentive for performance by the Management Company under the GHI Management Agreement, the Management Company shall be granted an exclusive option to purchase the stock or assets of Packerland for the sum of $22 million, subject to certain working capital adjustments, in cash; provided, however, that such option shall terminate unless such purchase is consummated on or prior to December 31, 1992. Any consideration, obligation or commitment of any nature or description whatsoever which is to be paid or undertaken by the Reorganized C~,«rany or the Reorganized Company Subsidiaries or GHTV or the GHTV Subsidiaries, to or for the direct or indirect benefit of GNG or any of his affiliates must be approved by the Board of Directors of the Reorganized C~a~,rany or GHTV, as applicable. The term of each of the Management Agreements will commence on the Effective Date and will continue until the earlier of the occurrence of an event of termination under the Management .Agreements or the fifth anniversary of the Effective Date. The events of termination are set forth in the Management Agreements, the forms of which are attached to the Plan as Exhibits D and F. Under the terms of the Management Agreements, the _ Management Company and its officers, directors and t,~~,loyees will be provided indemnification which is customary in transactions of that nature. The Management Company will cause GNG to enter into a noncompetition agreement (the "GNG Noncompete Agreement"). The " GNG Noncompete Agreement will provide that, during the term of the r.. Management Agreements .and for certain time periods after termination of the Management Agreements, GNG and his affiliates shall not engage, directly or indirectly, in or have any interest in (a) the ski resort business (other than the ski resort Business Segment) anywhere in the world, (b) the meat packing business (other than the beef products Business Segment) anywhere in the .world so long as Packerland is a Reorganized Company Subsidiary; provided, however, that the GNG Noncompete Agreement shall not apply to any transaction of any nature involving or related to Peck Foods Corporation, and (c) the television business in the .'respective market areas of WTi1T, Inc . , : KSBY, Inc . and RSBW, Inc . The GNG Noncompete Agreement will also provide that so long as the Management Agreements are in effect, GNG and his affiliates shall . not take any action which might divest from Vail, Packerland or GHTV any opportunity which would be within the scope of the business of such entity. -42- F. Summary of the Restated Certificate of Incorporation Pursuant to Section 8.03 of~~the Plan, the Debtor shall effect its Restated Certificate of Incorporation. A complete copy of the Restated Certificate of Incorporation is attached to the 'Plan as Exhibit A. The following is a brief summary of the principal provisions of the Certificate. The Reorganized C~...~,any will be. authorized to issue shares of Common Stock ,consisting of Class 1 Common Stock, par value_$.01 per share, and Class 2 Common Stock, par value $.O1 per share. The Class 1 Common Stock will bP designated Series A, 'Series B and Series C. The Series A Class 1 Common Stock will be ~~issued to the holders of the Junior Debentures upon conversion of the Junior Debentures. The Series B and the Series C Class 1 Common Stock will be issued to the Management Company on the terms and conditions set forth in the GHI Management Agreement. The Reorganized Company shall reserve up to 5.2 million shares of Series A Class 1 Common Stock for issuance to the holders of Junior Debentures upon conversion of the Junior Debentures. In addition, 499,990 shares of Series B Class 1 Common Stock and 10 shares of Series C Class 1 Common Stock shall be reserved for subsequent issuance to the Management Company pursuant to .the GHI Management Agreement. Each share of Class 1 Common Stock held of record as of the record date of any meeting, whether Series A, Series B or Series C, shall be entitled to vote on each matter submitted to a vote of the stockholders. In the event of the voluntary or involuntary liquidation, dissolution or winding up of the~Reorganized Company, the holders of the Class 1 Common Stock shall be entitled to share ratably with the holders of the Class 2 C~.?u«oa Stock as a single class in all of the remaining assets of.the Reorganized C~...rany of whatever kind available for distribution to stockholders. In the event that the New Senior Secured Notes and the New Senior Subordinated Secured Notes have been retired in full, the Class 1 C~~~~.«on Stock may be redeemed, in whole, at the option of the Reorganized Company at any time on or prior to the third anniversary of the Bffective~Date for $23.077 per share of Common Stock and during the 60 day period commencing on. fourth anniversary of , the Effective Date for $33.077 per share of C~..~.~on Stock, in each case subject to dilution upon the issuance of additional Class 1 Common Stock; provided, however, that the Reorganized Company shall have given notice of redemption and converted all Junior Debentures pursuant to the terms of the Junior Debentures and the Junior Debenture Indenture; and provided further that if the 'Management Agreements have not been terminated, the holders of the Series B Class 1 Cc..~~,.on Stock may elect to exclude all or any .portion of such shares from such redemption, in which case the aggregate amount to be paid to holders of Class 1 Common Stock -43- shall be reduced by an amount determined by the formula set forth in the Restated Certificate of Incorporation of the Reorganized Company. In the event that the New Senior Secured Notes and the New Senior Subordinated Secured Notes have been retired in full, " ~ the Class 2 Common Stock may be redeemed, in whole or in part, at the option of the. Reorganized C~«~~,any at any time on or prior to ~~-~the third anniversary of the Effective Date for $18.857 per share of Common Stock and during the 60 day period commencing on each of the fourth, fifth, sixth, seventh and eighth anniversary of the Effective Date for the' price per share of` C~.~u«on Stock (or a pro rata portion of such amount if only a portion of the Class 2 C~.~u~.on Stock is redeemed) of $24.286, $31.714, $41.429, $54.000 and $70.571, respectively, in each case subject to dilution upon the issuance of additional Class 2 Common Stock. The Board of Directors of the Reorganized Company will. be comprised of nine directors, consisting of six Class 1 Directors and three Class 2 Directors. Prior to redemption of the Class 1 Common Stock, the holders of the Class 1 Common Stock and the holders of the Junior Debentures will elect the Class 1 Directors by majority vote and the holders of the Class 2 Common Stock will elect the Class 2 Directors by cumulative vote. After the redemption of the Class 1 C~,~,~.on Stock and~the Junior Debentures, the directors will no longer be designated Class 1 Directors and Class 2 Directors and all of the directors will be elected by cumulative voting. _ The Reorganized C~.~.~,any will indemnify its directors and officers to the full extent permitted by law. G. Summary of Restated Dy-Laves Pursuant to Section 8.03 of the Plan, the Debtor will effect the Restated By-Laws of the Reorganized Company. A complete copy of the Restated By-Laws of the Reorganized Company is attached to the P1'an as Exhibit loi. The directors of the Reorganized C~s~?rany will serve one- - year terms. Nominations for directors of the Reorganized Company may be made by the Board of Directors or the stockholders entitled to elect such director. The Board of Directors of the Reorganized Company will establish an operating committee (the "Operating ,C~.~w.ittee^) consisting of three Class 1 Directors. Upon termination of the Management Agreements, the Operating Committee will automatically dissolve and the authority granted to it under the Restated By- Laws will automatically revert to the Board of Directors_of the Reorganized Company. Subject to certain limitations described -44- below, the Operating Committee will be empowered by majority action to take all action with respect to .the following matters: x,; ; (i) the acquisition of all or substantially all of the assets of any division or line of any other business by the Reorganized Company or any Business Segment for consideration which does not exceed $1,000,000 provided that such capital expenditure and all other capital expenditures with respect to that Business Segment for that fiscal year shall not exceed the amount of capital expenditures set forth in the Original Business Plan with respect to that Business Segment in the fiscal year in which such acquisition is to occur; (ii) (a) the disposition of the Reorganized Company~s or any Reorganized C~.«rany Subsidiary's interest in WTVT, Inc. for cash consideration in excess of an amount stated in the Restated By-Laws; provided, however, if KSBY, Inc. and RSBW, Inc. are sold prior to the sale of such interest in W'PVT, Inc. for consideration in excess of an amount stated in .the Restated By-Laws the minimum cash consideration required for~the sale of W'I'VT, Inc. shall • be reduced by the amount of such excess, (b) the disposition of KSBY, Inc. and KSBW, Inc., (c) the disposition of Packerland and (d) the disposition of. any other assets of the Reorganized Company or any Reorganized Company Subsidiary not exceeding $10,000,000 in any one sale or related series of sales; provided, however, that to the extent liabilities are to be retained by the Reorganized Company or any of the Reorganized Company Subsidiaries in .connection with any such disposition (other than customary indemnification provisions for similar transactions), such liabilities. must be approved by the Board of Directors of the Reorganized Company; {iii) the refinancing (including extension of the maturity date) or redemption of (a) any portion of the New Senior Secured Notes; provided, however, that the Junior Debentures (or, if converted, the Class 1•Series A C~.~~~?on Stock) and the New Senior Subordinated Secured Notes have been refinanced or redeemed in full and the • refinancing or redemption of the New Senior Subordinated Secured Notes and the Junior Debentures is on terms comparable to those which are generally available from lenders for similar types of indebtedness at such time, • {b) any of the New Senior Subordinated Secured Notes; provided, however, that the New Senior Secured Notes have • been redeemed in full; and provided further, that the terms of the refinancing are not materially less favorable than the terms of the indebtedness being refinanced, or (c) any of the Junior Debentures; -45- provided, however, that the New Senior Secured Notes and . the;:=NewSenior Subordinated Secured Notes have been redeemed in full and the refinancing is on terms ' comparable to those which are generally available ,from lenders for similar types of indebtedness at such time; (iv) the redemption of the Class 1 Common Stock and . Class 2 Common Stock pursuant to the terms of the ; ' Restated Certificate of Incorporation of the Reorganized Company; and (v) the renewal, substitution or replacement of any t " ~ indebtedness of any of the Reorganized C~.«rany Subsidiaries, upon terms and conditions not materially less favorable to such than existing-terms and conditions of such indebtedness; provided, however, that any terms with respect to the obligations of any such Reorganized Company Subsidiaries to guarantee any of the New Securities may not be altered or amended without the consent of the Board of Directors of the Reorganized Company. All of the .Operating C~.~u«ittee' s authority in respect of clauses (i), (ii) and (v) above will be automatically terminated and revert to the Board .of Directors of the Reorganized C~~.~~any with respect to the Reorganized Company and the Reorganized C~?«~any Subsidiaries under the same set o€ circumstances as described above with respect to the Management Authority under the Management Agreements. ' The Operating Committee may not authorize the Reorganized .Company or any Reorganized Company Subsidiary to, directly or indirectly, enter into agreement with GNG or any of his affiliates without the approval of the Board of Directors of the Reorganized Company. The Operating Committee will elect the officers of the Reorganized Company. .All matters not otherwise delegated to the Operating Committee are reserved to the Hoard of Directors of the Reorganized Company. The Operating C~.~~~.ittee will give the full Hoard of Directors of the Reorganized C~.~.~any prompt notice of any action to be takes by it at .least five Business Days prior to the commencement of taking any such action. Pro®i~tions for Nov .Inw®®tor . On or before the Confirmation Date, the Debtor and the .New Investor shall enter into the New Investor Agreement. Pursuant to the New Investor Agreement, the New Investor shall, subject to the conditions and on the terms described therein, -46- purchase on or prior to the Effective Date $27,250,000 face principal amount of Junior Debentures and, if Class 7 accepts the Plan, additional Junior Debentures in an, amount equal to the difference between $12,750,000 and the aggregate face principal amount of Junior Debentures that are issued to Class 6 and Class 7 pursuant to the Class 6 and Class 7 Purchase Elections. The $27,250,000 face principal, amount of Junior • Debentures are convertible into 3,542,500 shares of Series A Class 1 Common Stock. Depending on the Class 6 and Class 7 Purchase Elections made by holders of Claims in Classes 6 and~7; the New "Investor may be required under the New Investor Agreemer_t to purchase up to~a maximum of $40,000,000 face principal amount of Junior Debentures which are convertible into 5,200,000 shares of Series A Class 1 Common Stock. -47- I. Exp®ct®d Debt Structure and Ownership of the Reorganized C.....~..any upon Consummation Although the Debtor cannot predict with certainty what elections will be made by holders of Claims in Classes 5, 6 and 7, the following tables show historical. and pro forma debt capitalizations, and expected equity ownership of the Reorganized Company upon Consummation. Historical and Pro Forma DeLt Ca~ittslization (al (000'a o®itted) At 9/29/91 Pro Foima at Consummation % total total debt debt Accroted capitol- Book capital- Princioel ,Value izoiion Principal Value (cl iuation Long Term Debt: • O_ jl ~ (or Reorganized Company, ad approprieto): Bank Toren L.oou $62,000 :62,000 5.7% - Revolvigg Cttzdit 68,000 68,000 6.351 - Accrued Beak Dobt hdereet - 11,114(4) 1.0 % " New Senior Secured Notas - - - $198,930(e) $172,105 39.7% Now Senior Suborn dinsted Secured No9a - - 207,500 170,059 39.2Ar+ Z.«o Coupon Notes: Series A 1,000 85,101 7.8 % - - " Sorioa B 100,000 75,574 7.0% - - Serieo C 100,000 66,797 6.1 % - Serino D 100,000 83,592 7.7% Seriea B 150,000 97,474 9.0% - - New Junior Debenturoa - - - 40,000 40,000 9.295 l2 5!8% Sr Sub Debenturos'98 _ 254,000 254,000 23.4% - - Accrued 12 S/8 % lateros4 - 36,077(4) 3.3 % - - " 13 7!8% Sub Debe'99 170,000 170,000 15.695 - Accreted 13 7/853 lrttero~ - 25,440(4) 2.3% - - V~: IDB'a 42,SQ0 42,500 3.9% 42,500 42,500 9.8% Other Senior Debt 4,036 4,036 0.4% 4,036 4,036 0.9% Now Vail Revolver - - - - - - Packerlard: Pollution Control Bond and Other 1,404 1,404 0.1% 1,404 1,404 0.3% Now Rckorlsnd Revolver - - - - - WTYI': WQ'VT Bank Debt (f) 3,600 3,600 0.4% New Brosdca~ Rovotvor - - - - Vail/Beaver Croxk Dee Cantor Bank Loan and Revolvirt8 Ct+edit 4.000 4.OBtD 0.9% Total Long-Term Debt $1 5.1~ $1.086.709 100.0 % $498.370 $434, l04 1 ~.0 % (a) OHTV to be ropoAed tbpsrntoly for accounting purposes. OHTV std cotvain t3HTV Suboiduriee aro oepantoly obliyatod to the Debtor under throe promiaoory oote® in the aggrogate principal amount of $265 million. (b) Assuming Conwmautioo occurred on Septotnber 9, 1991 (c) Aaeutrtoe That the Now Senior Secured Nate: and t6o Now Senior Subordimtod Securod Notes aro didcottnted for fint,ncial etatorrtaN purpodee et 13 % end 17%, respectively, dtd that the throe month Libor tote during rho potiod id 6%. (d) Aceruod itttorndt oo Iho Back Debt, 12-5/8% Senior Subordimted Dabennered and 13-7/8% Subordinated Debettturoo pro calculated for OAAP purposed on s default imereat rsto basis. For Plan purposes, the claim srnourN for rho Bank Debt is calculated udittg a tton-de6ult nto of int®t~oet, and the claim amoutuo for the 12-5/S% Setaor Subotdimted Debentured and 13-7/8% Subordinated Debentured are calculated on face pennant of debt outatatding only, std do DDe iacludo any accrued interest or original irwte diecouat. (e) Assumes $218,604,39bof Claea S claitna elect We Type 1 Distribution. (f) 1A/t'V'I' bank debt wad paid in fuU ao part of rho WI'VT Transactiono. (continued on next pogo) -4R- Summary of Equity Owuershio (Shares in thousands) Shares Issued Shares Underlying Primary ~ Fully Diluted (1) In Reoreanization Junior Debentures Share Ownershia Share Ownership Number Class (2) Number Class (21 Shares % Shares % Bank Credit Agreement Claims , and Zero Note Claims -Type 1 2 - Ty~ 3 2,500.0 2 2,500.0 52% 2,500.0 25% Subordinated Debentures 1,800.0(3) 2 1,657.5(4) 1 1,800.0 38 % 3,457.5 35 % The New Investor 3,542.5 ~l 3,542.5 35 % Management Company (5) 500.0 1 500.0 10 % 500.0 5 % 4800.0 5200.0 43800.0 100 % 10 000.0 1 (1) Upon conversion of the Junior Debentures. (2) Pursuant to the Reorganized Company's Restated Certificate of Incorporation, holders of Class 1 Common Stock and Junior Debentures will be entitled to elect six directors and holders of Class 2 Common Stock will be entitled to elect three directors. Prior to an event of termination under the Management Agreements, the Class I Common Stack issued upon conversion of the ]union Debentures will be redeemable, at the option of the Reorganized Company, for the following amounts during asixty-day period commeaacing on the following anniversaries of the Effective Date: (i) 523.077 per share of Common Stock beginning on the third anniversary and (ii) $33.077 per share of Common Stock beginning on the fourth anniversary. (3) If Class 7 rejects the Plan, holders of Claims in Class 6 shall receive 2,957,500 shares of Class 2 Common Stock equal to approximately 30% of the fully diluted Common Stock on We Effective Date. In that event, the only destribution that will be made to holders of Claims m Class 7 shall be 500,000 shares of Class 2 Common Stock in the aggregate, being equal to S % of the fully diluted Common Stock on the Effective Date. (4) Assumes the Junior Debentures are fully subscribed by holders of Class 7 Claims pursuant to Class 7 Purchase Elections. (5) During a two year period after the Effective Date, subject to the terms and conditions of the Management Agreement, the Reorganized Company will issue to the Management Company Class I Common Stock equal to S % of the Common Stock together with warrants for additional Class I Common Stock equal to 396 of the fully diluted Common Stock. -49- V . D$SC~IPTIOI~ OF GHI AATD PAST OPHA~lTI01~S A. Corporat® Structur® anti D®v®lopffi~t GHI is a privately held company the stock of which is one - hundred percent owned by GNG. GHI is organized as a holding company and operates through various Subsidiaries. GHI, through -..its Subsidiaries, is engaged in three businesses - communications, resorts and lean beef products: In the communications -business, ' GHI (i) owns and operates two network affiliated television stations (RSBY-TV, Santa Maria-San Luis Obispo - Santa Barbara, California and RSBW•TV, Salinas-Monterey, .California), (ii) currently has a 99~ equity ownership interest in ~rITV'T, Inc. which owns and operates a network affiliated television station (WTVT- TV, Tampa-St. Petersburg, Florida), and, (iii) has an approximate 40~ equity interest in SCI Television, Inc. ("SCI") which owns and operates five network affiliated television stations and one independent television station and certain other related businesses. In the resorts business, Vail operates the Vail Mountain and Beaver Creek Mountain resorts and has related real estate operations. In the lean beef business, Packerland operates one of the largest "lean beef" slaughtering and packing operations in the United States. Acquisitions and divestitures have played an important role in GHI's growth. GHI's acquisition strategy has been to improve the operations of the companies it acquires through increased promotion of products and services and through cost controls. Two companies that later became Subsidiaries, Packerland and WSMV-TV, a Nashville, Tennessee television broadcast station, were acquired in 1978 and 1981 respectively. GHI was formed in 1985 as a holding company for Packerland and WSMV-TV and.,. in that year, GHI acquired Vail. During the period 1978 to 1985, other less material acquisitions and divestitures were made. The material acquisitions and dispositions made by GHI since 1986 are as follows: Racal Year a[ Acquisitioa/C„ ' AC y+. .w Q COR Q Dior . ~ priC6 Acquisition from 'Ibe '1"moaa 19x6 5207.3 Mirror C.,~~..., (WAL4it-2'V red WLRH-Th C ~ .r of ICh1F.l3-1'V 1986 53.0 sad 8 31.1 oa®~ ..-Y..y~..s...r....,. Dispaitioe of Post . 1986 31.0 Acquisition from lahn Blau t 1987 386.0 Comps and Blair Brvadeast~ of Oklahoma, Inc. (K.4BWTV, - KSBY-N snd ICOKH-'M -50- Diapoaitiw of WOKR•N (Acquisitive 1987 f30.0 and WLUC-N of M.UC-N) Diapositive of WEAU-N ~ - ~ 1987 523.0 Advance to a?VT Hoidmp, Lu. 1987 5383.0 Diapotitiw of WL.UC-N 1987 ~ 520.0 Dispotitive of RrWMT-N, KOLN/KGIN-'f V, 1987 f108.3 and a 513.0 KOKH-N, QvRLH-N and Winnebago Cola tubordiaated nee - Prcsa, Inc. (a commercial prinut) assumed by purchaser - invatmeat m SCI 1987 5101.9 cvetributive ' Diapositive of WSMV-TN 1989 E123.0 ' Diapositive of WMAR-N 1991 5123.0 - B. C~..r..unicatioas The following discussion briefly summarizes the television stations.currently owned and operated by GHI and GHI's equity investments in WTVT, Inc. and SCI. Data presented regarding television ratings and market share data are based on management's review of published industry data for November 1991, 1. GHT Owe®d Statioas GHI currently owns and operates, through Subsidiaries, two televisions stations and recently sold a third television station. GHI has a 99~ equity ownership interest in another television station. a. ~k RSB~i-Z'V, Salinas-Moaterey, Califoraia GHI owns KSBW-TV, channel 8, a VHF station affiliated with.NBC, which commenced broadcasting in 1953. KSBW-TV ranks first in a market served by five commercial television stations. KSBW-TV has a 21 share (percentage of households viewing television) and a 6 rating sign-on to sign-off (percentage of all television households). Salinas-Monterey is the 111th largest U.S. television market, serving approximately 602,000 people. KSBW-TV currently employs approximately 90 full-time and 5 part-time employees. b. KSBY-T®, Santa Barbara-Seats bSaria-Sea Luis Obispo, ' California GHI owns KSBY-TV, channel 6, a VHF station affiliated with NBC, which commenced broadcasting in 1953. KSBY-TV ranks first among the four-commercial stations in the market with a 19 - . share and a 5 rating sign-on to sign-off. Santa Barba-ra-Santa Maria-San Luis Obispo is the. 109th largest U.S. television market, sewing approximately 567,000 people. KSBY-TV currently employs - approximately 75 full-time and 3 part-time ~.~~rloyees. -51- c. -T`7, Baltiffior®, Daryland Until recently, GHI owned WMAR-TV, channel 2, a VHF .station affiliated with NBC. On May 30, 1991, GHI, Gillett Group, Inc., and Gillett Broadcasting of Maryland, Inc. (collectively, the "WMAR Sellers") sold the business and substantially all of the assets of Gillett Broadcasting of Maryland, Inc. (WMAR-TV, Baltimore, Maryland) to Scripps Howard Broadcasting Company ("Scripps") for $125 million in cash, including approximately $20,200,000 in non-compete payments. The terms of the sale were previously approved by the Court on April 26, 1991. Pursuant to the Proceeds Investment Agreement by and among the WMAR Sellers and Wilmington Trust Company, as custodian, approved by the Court on May 22, 1991, the net cash proceeds received from Scripps (approximately $117,000,000 after transaction expenses) (the "WMAFt Sale Proceeds") were placed into a special investment account in .accordance with the Proceeds Investment Agreement. with certain exceptions related to post-closing adjustments which may be payable to Scripps, the WMAR Sellers may not withdraw or otherwise dispose of the WMAR Proceeds without further order of the Court approving such withdrawal or other disposition after notice and a hearing. Pursuant to Section 8.07 of the Plan, the WM1~,R Sale Proceeds shall be released to the Reorganized Company to be used to make cash contributions under the Plan and for general corporate purposes after the Effective Date. d.~~~ far;-T~, Taffipa-St. P®t®rsburg, Florida On June 19, 1987, WTVT Holdings, Inc. acquired substantially all of the assets of WTVT-TV in Tampa, Florida from Gaylord Broadcasting Company ("Gaylord")-for $365 million. WTVT- TV, channel 13, is~a VHF station affiliated with CBS. WTVT-TV ranks first in a market served by 8 commercial television stations and has a 24 share and a 7 rating sign-on to sign-off. Tampa-St. Petersburg is ranked as the 16th largest U.S. television market by Arbitron, serving approximately 2.9 million people. WI'VT Holdings employs approximately 170 full-time and 7 part-time ~,.?~?loyees. Prior to December.29, 1991 the Debtor and certain Subsidiaries consummated certain transactions relating to WTVT Holdings. Pursuant to these transactions, Gillett Group, Inc. ( "GGI" ) acquired 199 shares of Class A C~..~.~on Stock of WTVT . Holdings from Mr. Clarence V. McBee through the exercise of an option under a certain Shareholder Agreement by and among Mr. McBee, GNG-3, Inc., WTVT Holdings, and GGI, and contributed the 199 shares to the capital of GNG-3, Inc. WTVT, Inc. is presently owned 99$~ by a wholly-owned Subsidiary of the Debtor, anti 1~ by Clarence V. McBee. Mr. McBee served with the Office of General Counsel of the Federal Communications Commission (the "FCC") from 1973 to 1975 -52- prior to serving as legal assistant to Benjamin C. Hooks, then a Commissioner of the FCC, from 1975 to 1977. Between 1977 and 1980, Mr . McKee was ~ a partner in the law f irm of Law, Murphy & McKee . In 1980, Mr. McKee became of counsel to Pepper & Corazzini, a Washington, D.C. based law firm specializing in~communications law 4 which GHI has retained for legal matters related to communications law. Mr. McKee is Chairman of the Board of Directors and Chief Executive Officer of WTVT, Inc. Mr. McKee was not formerly affiliated with either Gaylord or WTVT-TV. 2. SCI Inv®atment In October and December 1987, GHI consummated a series of transactions with Storer C~.~u«unications, Inc. ("Storer") providing for the formation of a joint venture (the "Joint Venture"). The Joint Venture was formed to own and operate six broadcast television stations (WSBK-TV in Boston, WJBK-TV in Detroit, WJW-TV in Cleveland, WAGA-TV in Atlanta, KNSD-TV (formerly KCST-TV) in San Diego and WITI-TV in Milwaukee) and certain other related businesses (collectively, the "Joint Venture Stations"). On November 2, 1988 Storer distributed its interest in the Joint Venture to its parent company; which in .turn distributed such interest to its shareholders (the "Storer Distributees") on that date. Prior to the restructuring transactions discussed below, the Joint Venture was comprised of (i)' SCI Television, Inc., a Delaware corporation ("SCI">, the principal stockholders of which were the Storer Distributees (45~ equity interest and 50~ effective voting control) and Gillett Corporation (55~ equity interest and 50~ effective voting control), a Delaware corporation and wholly . owned Subsidiary of GHI ("GC") and (ii) GCI Partners, a New York general partnership ("GCI"), which had as its equal partners a . wholly owned subsidiary of GC and a corporation held by the Storer Distributees. . Pursuant to an Asset Purchase Agreement, as amended (the "Asset .Purchase Agreement"), GCI purchased substantially all of the property, plant and equipment and certain other assets utilized in . the operation of the Joint Venture Stations {collectively, the "Purchased Assets") for approximately $125 million, and pursuant to an Amended and Restated Agreement for the Purchase and Sale of Stock (the "Stock Purchase Agreement"), SCI purchased all of the outstanding capital stock of certain subsidiarieg owning the Joint Venture Stations (the "Broadcast Subsidiaries") from Storer for - approximately $1.175 billion. Upon the purchase of the Purchased Assets, GCI leased all"of the Purchased Assets to the Broadcast Subsidiaries pursuant to leases between GCI and the Broadcast Subsidiaries. -53- On February 5, 1990, SCI entered into a series of transactions (<the "Restructuring Transactions") which significantly changed its capital structure and future debt service requirements. . One of these Restructuring Transactions included the contribution to SCI of GHI's 50~ interest in GCI. Accordingly, under the equity method of accounting, since the cumulative net losses of SCI and -•GCI on a combined basis related to GHI's ownership interest :exceeded the aggregate initial investment in these entities, the . net investment in GCI was written down to zero as of that date. As a result of the Restructuring Transactions on February 5, 1990, GHI's preferred stock in SCI was cancelled and GHI's common equity interest in SCI was reduced to a 40~ nonvoting' interest. In addition, a wholly-owned Subsidiary of GHI, whose only asset is the 40~ interest in SCI, issued warrants to the Storer Distributees.These warrants allow the holders to purchase, for a nominal price, preferred stock of this Subsidiary which collectively had a $12.575 million liquidation preference as of February 5, 1990 and which liquidation preference increases 15~ per • year for eight years up to $40 million in 1998. These warrants or the preferred stock if .then issued, are required to be redeemed in 1998. This redemption obligation is nonrecourse to GHI, and its other Subsidiaries. Based on the deficits of SCI, no value has been assigned to these warrants. 3. N®Lb~~rk 14.ffiliati®n • RSBY, Inc. and.RSBW, Inc. are affiliated with NBC under standard two-year contracts: 6dT'VT, Inc. is affiliated with CBS. Network affiliation agreements generally require an affiliate to carry a significant amount of network provided programming, and the networks undertake to supply a certain amount of programming to the affiliate and to r_ompensate the affiliate for broadcasting network provided programming. Although network compensation•payments to '`the three network affiliated stations accounts for only 3~ to 4~ of the stations' gross revenues, network affiliation is generally advantageous because it provides a station with competitive `programming at lower cost than may otherwise be available. In addition, certain advertising time in these programs is made • available to the local affiliate for its sale to local advertisers. An affiliated station's competitive position in its market is somewhat affected by the c~,~~etitive strength of its network, but network strength does not necessarily determine an ~~individual station's audience or its financial performance. Local ~ programming, particularly local news coverage, community involvement and promotion, are important competitive factors. GHI anticipates that the stations' network affiliations with the CBS - and NBC networks will continue to be advantageous, and that the national television networks, will remain highly competitive with 'each other. -54- The following table sets forth certain information concerning the television stations GHI presently owns, including WZ'VT, Inc. (99~ equity ownership). < Ca~erc i a l G s1 Natiarml TV Holes Local Sign-an TY page of Market in ADI Market Sign-off Stations in Acq. ar Stations Station (1) Netrork Site [2~ (2.5~ Rank (2.3) Share (2.3,4 Market (2) Uvstr+t. Salinas, California KSB11 NBC 111 207,900 1 21X 5 1/87 San Luis Obispo, , California KSBY NBC 109 209,000 1 19X 4 1/87 Tampa, Florida NTYT CBS 16 1,243,000 1 24X 8 6/87 Notes to Table: 1. All of the stations operate on VNF channels (channels 2 through 13). 2. Source: Arbitron Ratings Company, November 1991. 3. Based on management's review of published rating service information. The indicated data, as well as rating and share information, are important to GHI in that advertisers use such information in determining the cost effectiveness of advertising on a particular station. 4. Percentage of viewing audience in market tuned to station, sign-on to sign off, Surxiay through Saturday. < 5. ADI-Area of Dominant Ihfluence. 4. Tel®visioa Industry and C.„~,®tition Television station revenues are derived primarily from (i) national spot advertising, which consists of advertising time sold to national and regional advertisers, (ii) local advertising, which consists of advertising time sold to local advertisers, and (iii) network compensation payments, which are made by a network to a station in consideration for its broadcasting of network commercial programs. The stations owned by GHI are represented by national television sales representation firms •in the sale of national spot advertising. Local advertising is sold by each station's own sales staff. Advertising rates are related primarily to the population and number. of television receivers located in the area served by a station and to the audience's acceptance of a station's programming, as. reflected in surveys by independent rating services. Many national, spot and local advertising contracts are short-term, and revenues from such contracts are sensitive to changes in prevailing economic conditions'. According to Television Bureau of Advertising surveys, _ television station advertising revenues from 1976 through 1986 for • the industry grew at a compound annual growth rate of approximately 13~~. These surveys indicate, that television station advertising growth rates for the industry began to slow considerably beginning -in 1987 and from 1987 through 1990 television industry advertising revenues have grown at a compound annual growth rate of -55- approximately 5~. Further, the surreys show the compounded annual growth rate in television advertising revenues for network -affiliated stations from 1987 through 1990 was approximately 3~. The compounded annual growth rate in television advertising .revenues for NBC network affiliated stations from 1987 through 1990 ;was approximately 2 to 3~. The two stations wholly owned by GHI are affiliated with NBC, Official advertising revenue figures for :the television industry .have not been released for 1991 yet, :`however, it is expected the industry will experience its first :decline. in advertising revenue since 1961, when television `advertising revenue declined .3~. . The slowdown in the growth of television industry advertising revenues from 1987 through 1990, and affiliated station advertising revenues, in particular, is due to several factors. These include a general decline in viewing shares garnered by over the air television'stations, the existence of surplus advertising time in many television markets, and the slowdown in general economic growth, particularly in the retail sector of the economy. The decline in general economic conditions in 1990 and 1991 had a larger negative impact on network affiliated stations versus independent stations since the automotive, financial and retail sectors were particularly hard hit. Automotive, financial and retail stores are three of the largest advertising categories for network affiliated stations while independent stations generally garner a smaller percentage of their total advertising revenues from these sectors. During the past several years, in addition to the growth ,in the number of over-the-air television stations, there has been .a steady growth of cable communications systems and a significant _`.liberalization of FCC rules which allow cable systems, satellite 'master antenna systems, and multipoint distribution services located in areas served by the stations owned by GHI to provide `.additional program choices. To date, the existence of these additional program services has contributed to slower advertising revenue growth for such stations as the consumer is offered more -viewing alternatives. 5. ~®gulati®n and L®gialation The Federal Communications Commission (the "FCC") '.regulates television stations under the Communications Act of 1934, .;as amended (the "Communications Act"), which, together with FCC _ ;`rules and policies thereunder, governs the issuance, renewal and assignment of licenses, technical operations and, to a limited ' extent, program, employment and commercial practices. Over the .,past several years, the extent of governmental regulation has been rsignificantly reduced. -56- Television broadcast station licenses are issued for a maximum term of five years and are renewable upon application for .additional five. year terms: Renewal applications are granted .without hearing if the licensee's qualifications are not materially 'challenged either by a third party or the FCC and if no competing applications for the same license are filed. In instances where ,one or more competing applications are filed at the same time as a renewal application, the standards for renewal are more stringent _since the FCC must compare an .incumbent .licensee's renewal -..application with the competing applications and choose among them. 'In making this comparison the FCC evaluates, among other things, the incumbent licensee's past record of public service programming. Despite the relatively short-term license period, the broadcast industry has been characterized by stability. GHI's stations' renewal applications to date have been granted without hearing. Renewals for the two GHI owned stations, KSBY-TV and KSBW-TV, were'~granted in November, 1988 and expire on December i, 1993. The license for WTV'r-TV was renewed effective February 1, 1992 for a five year period ending February 1, 1997.. The likelihood of challenges to the ,licenses of existing television stations has been severely diminished by new FCC rules that prohibit challengers from receiving any monetary consideration over and above their reasonable and prudent expenses in return for dismissal. (See Article IX Summary of Certain Risk Factors Relating to the Plan) In May 1988, the FCC voted ~to reinstate syndicated exclusivity provisions for television broadcasters which became effective January 1990. These provisions enable television broadcasters to negotiate for exclusive rights to syndicated programming for their markets and to require the cable systems in their markets to delete that same programming on cable channels carrying distant signals (either the "superstations" such as WTBS and WGN or stations in adjacent television markets). GHI has obtained the exclusive rights for a significant amount of syndicated programming for its respective stations. 6. Television Industry Trends The .inventory of available advertising time, in many television markets, has increased principally from an increase in .number of independent television stations, the emergence of 15- second commercial spots which were offered as an alternative to the traditional 30-second commercial spots by both the networks and .local television stations thereby increasing the commercial ':advertising capacity of television stations, and the commercial advertising inventory on local "cable systems becoming a viable advertising mechanism as cable increased it.s level of penetration in markets and established interconnects among smaller cable systems in metropolitan areas to establish viewing audiences of a -57- size sufficient to make cable a more efficient local advertising medium. In addition to the general slowdown in the growth•of television advertising revenue since 1987, the slowdown in general reconomic growth, particularly in the retail sector of the economy, N also had a negative impact on advertising revenues in most -television markets. Moreover, the decline in general economic .conditions and its corresponding impact on television advertising revenues worsened during the latter half of 1990 as the threat of war rose in the Persian Gulf. and continued in 1991 as consumer ~aconfidence in the economy dropped sharply. While revenue growth in the television industry has slowed significantly, programming costa as a whole have continued to increase. Syndicated programming costs within the television industry as a~whole have grown during the past four years at rates exceeding revenue growth, due in large part to aggressive program buying by independent stations. This has resulted in lower _ operating profit growth rates for the industry overall. Within this environment, GHI has focused on research to determine the viewer and advertiser preferences in its markets and the opportunities to develop programming and the promotional image of the stations to match those preferences. Based upon this research, GHI has developed and expanded news programming, and has purchased syndicated programming that is compatible with specific ..targeted audiences. Additionally, GHI has placed emphasis on ~eacpense . management, resulting in reduced expenses in many areas of station -operations. GHI has reallocated certain of these savings to the .expansion of sales forces and sales development. activities, ~~_expansion of news and local programming and more strategic promotional campaigns. C. Res®rts Vail was acquired by GHI in 1985. Vail is engaged in (i) operating one of the world's largest skiing facilities on Vail Mountain and Beaver Creek Mountain in Colorado, including conducting activities related to its ski areas such as operating restaurants and ski schools, and (ii) selling real estate, .,.primarily in the Beaver Creek area: These two resorts are recognized worldwide and were host to the 1989 World Alpine Ski _ Championships (January 29 through February 12, 1989), the first time the United States has been chosen. to host them since 1950. ..Vail and its subsidiaries currently employ approximately 700 year- . round and 2800 seasonal ~«ployees. -58- 1. Vail Bsouataia Vail Mountain consists of 3,834 acres of skiable terrain located on approximately 12,590 permitted acres and is the largest single ski :mountain complex in the United States. With one gondola, 17 chairlifts and two surface lifts, Vail Mountain has an ' approximate theoretical planning number for capacity analysis of 18,373 skiers per day. Vail Mountain's 28th season ran from November 21, 1990 through April 14, 1991, with limited skiing available from November 7, 1990 through November 20, 1990. Vail Mountain had an average of -10,486 skiers per day during the November 21 through April 14 season.. Total skiers increased less than 1~ from the prior ski season. This season Vail Mountain opened November 1, 1991, and is scheduled to close April 19, 1992. ~In connection. with its skiing operations, Vail operates the world's largest ski schools and eight restaurant facilities ' located on Vail Mountain. Vail also operates a central reservation phone center which handles up to 1, 500 calls per day from potential guests of the Vail and Beaver Creek resorts. Vail books lodging, airlines, car rentals, airport transportation, lift tickets, and ski school lessons for its own account and for third parties.. These advance reservation activities have had a significant impact on Vail's ability to attract direct air service to the Vail Beaver Creek Jet Center, Inc. American Airlines and America West provided direct flights from Dallas, Chicago, Phoenix . and Los Angeles during the 1990-19.91 ski season and now also provide direct flights from New York City and San Francisco during the current,-1991-1992~ski season. Since 1985, Vail Mountain has gone through substantial expansion and upgrade of facilities, which included the installation of seven high-speed detachable quad chairlifts, two _ fixed grip quad chairlifts, an expansion of its snowmaking capacity, a new recreational. bobsled course and major restaurant upgrades. Vail recently announced the opening of a new restaurant facility which has seating for 500 guests at the top of China Bowl; . the facility has taken two years to complete and is now open. Vail Mountain has expanded its skiable terrain from 1, 850 acres to 3, 834 skiable acres during the last few years. Z . Beaver Creelc ~txatain In 1972, Vail acquired 2,126 acres of land located . approximately ten miles west of the town of Vail on which it has _ ' developed a year-round recreational complex known as "Beaver Creek Resort." The ski area associated with the development is located on approximately 3,140 acres, of which approximately 940 acres is ' used as skiable terrain. -59- Beaver Creek Ski Mountain is among the nation's 20 largest ski areas (based upon the annual number of skiers). The theoretical planning number for capacity analysis is approximately . 7,504 skiers per day. During its tenth season, from November 21, 1990 through April 14, 1991, Beaver Creek operated ten chairlifts and had an average of. 2, 982 skiers per day. Total skiers increased 7.8~ from the prior ski season. The Company continues to expand --its facilities at Beaver Creek. During 1987 and 1988, Beaver Creek . expanded its mountain restaurant facilities and added a private mourtair. cabin available for overnight stays. Over the last five years, a high-speed detachable chairlift and one fixed grip chair .have been added, as well as an expansion and modernization of its ~~snowmaking system. Anew detachable lift and 110 acres of expanded terrain were opened for use in the 1991-1992 ski season. The ski area, as presently planned, calls for an ultimate operating capacity of approximately 12,500 skiers per day, 15 chairlifts and three mountain restaurants. The operation of a ski resort business is seasonal: Under normal weather conditions, each ski area opens in late November and closes in mid-April each year. The average annual snowfall in the Vail/Beaver Creek .area ranges from 300 to 350 inches. Vail Mountain has snowmaking equipment covering 332 acres and Beaver Creek has equipment covering 243 acres. The Vail and Beaver Creek areas are also active summer resort areas. Vail owns and operates an 18-hole golf course and tennis facilities and provides mountain bike rentals, hiking, °::fishing, horseback riding, summer camps, gondola and ski-lift .operations and restaurant facilities. Additionally, unaffiliated parties provide golf, tennis, rafting, fishing, horseback riding and a variety of other summer recreational activities. 3. B®av®r Cz'®elc deal E~atate Vail's real estate activities are focused on selling land in Beaver Creek to third parties for development rather than engaging in real estate development activities on its own. Vail also manages approximately 200 condominium units and hotel rooms, ..primarily within Heaver Creek. r The Beaver Creek Planned Unit Development ("PUD"), a real estate development plan, establishes the guidelines for the development of approximately 2,126 acres of land in Beaver Creek . which is owned by Vail. The PUD allows for up to 3,223 dwelling - units and 380,000 square feet of co~anercial~space to be developed within Beaver Creek. Since 1985, Vail has sold 65 acres of land for approximately $38 million to various third parties for future development. Such development should result in 646 additional -60- condominium or townhouse units, 485 hotel rooms and 20 single family homes.. Beaver Creek Resort Company of Colorado ("Resort Company"), a non-profit Colorado corporation which was formed for the benefit of the property owners in Beaver Creek, provides various services, such as public transportation, security, architectural review and property maintenance, for the benefit of the property owners in Beaver Creek. Vail has a management agreement with Resort Company pursuant to which it provides certain of such services, and a cash flow agreement with Resort Company whereby it has agreed to fund the operating losses, including the interest portion of debt service, of the Resort Company. Vail paid Resort Company $778,000 and $590,000 for Vail's fiscal 1988 and 1989, respectively, During fiscal 1990 and 1991, Resort Company was able to meet its operating requirements through its own operations and Vail incurred no liability therefor. Vail and GHI have also guaranteed a bank loan with $6,356,045 outstanding balance as of October 25, 1991 to Resort Company which is currently in default. On March 29, 1991 the bank made demand for payment on the Resort Company and Vail. The bank, the Resort Company and Vail subsequently entered into a forbearance agreement which expired by its terms on September 30, 1991. The parties are currently negotiating an extension of the forbearance agreement. 4. C~.~.b.etitioa , • The ski industry is highly competitive. Vail competes directly with numerous:•ski areas in Colorado for day skiers, and with the major resort areas in the United States and Europe for the destination vacation skier. Vail's major U.S. competitors include the Utah ski areas; Lake Tahoe area in California and Nevada; Mammoth Mountain, California; the New England ski areas; and the major Colorado areas including the Summit County resorts, Crested Butte, Telluride, Steamboat Springs, Winter Park and Aspen. The competitive position of Vail's ski areas is dependent upon many diverse factors such as proximity to population centers; • availability and cost of transportation to the areas including direct flight availability by major airlines; pricing; snowmaking facilities; type and quality of skiing offered; duration of the ski season; prevailing weather conditions; the number, quality and price of related services and lodging facilities; and the reputation of the areas. Based upon a review of these factors, management believes that Vail is in a strong competitive position. The market for undeveloped real estate near ski resorts ~ - is subject to fluctuations due to many factors including changes in the general economy, costs and availability of borrowed money and conditions in the construction and real estate industry generally. In addition, changes in legislation and governmental regulations, such as local and federal tax laws, land-use and zoning restrictions and environmental protection, could adversely -61- ° affect real estate sales. With respect to the sale of undeveloped real estate in Vail and Beaver Creek, Vail has many competitors, not only in the Vail and Beaver Creek resort areas but also throughout the Colorado mountain country and in the other major ski ~'.~areas in the United States. Management believes that the size, :historically consistent snow conditions, and existing amenities of the Vail and Beaver Creek resorts give Vail a competitive advantage over many of its competitors. In order to be competitive, Vail has focused on. improving 'the amenities available to skiers at the Vail and Beaver Creek -Resorts and substantially upgraded the facilities at each of those resorts. Maintaining the ski resorts and improving the facilities is extremely capital intensive. Since 1985 Vail has spent over $65,000,000 in capital expenditures on the facilities at Vail and Beaver Creek and anticipates that it will spend approximately $ 8,500,000 in capital expenditures in each of the next 5 years. Additionally, in order to remain competitive with other destination ski resorts, presently unanticipated improvements may be required at the Vail and Beaver Creek Resorts. 5. Regulation and L®gislatioa Vail has been granted the right to use 12,500 acres of federal land adjacent to the Town of Vail and 5,600 acres of federal land .adjacent to its Heaver Creek property as the site for "most of its ski lifts and trails and related activities under the terms of permits with the United States Forest Service (the "Forest Service") . - The permits originally granted to Vail for the Vail and Beaver Creek ski areas consisted of (i) Term Special Use Permits which were granted for 30-year terms, but are terminable upon 30 _ days' written notice by the Forest Service if it determines that the public interest requires such termination and (ii) Special Use Permits which are terminable at will by the Forest Service. In November 1986, a new law was enacted that provides that Term Special Use Permits and Special Use Permits will be combined into a single permit which can be issued for up to forty years. On December 23, 1991, Vail exercised its statutory right to convert its dual permits for the Vail ski area into a unified forty year u permit covering 12,590 acres. These permits expire on December 1, 2031, but similarly can be terminated if required to promote the public interest. No assurance can be given that the insolvency of _ GHI, the default by GHI under its indebtedness or the entry of the order for relief in the Reorganization Case would not be considered an event contrary to the public interest which might result in the attempted termination of the Term Special Use Permit and Special Use Permit for Beaver Creek or the Unified Permit for Vail. The Term Special Use Permit for Beaver Creek covers eighty acres and generally re'ates to land upon which Vail has made improvements. -62- It will expire in 2010, unless converted to a unified permit. (See Article IX Summary of Certain Risk Factors Relating to the Plan The Forest Service has the right to review and comment on the location, design and construction of improvements in the . permit area and on many operational matters (including lift ticket -pricing structures. Under the permits, Vail is required to pay a graduated fee to the Forest Service, which ranges from one to approximately six percent of gross receipts, with the .rate rising with increased gross receipts and varying according to the dollar amount of gross fixed assets and the type of sales items. Included in the gross receipts calculation are sales or proceeds from, among other things, food, beverages, rental equipment and lift tickets, ski school lessons and merchandise. Vail is currently considering an appeal against the Forest Service resulting from a dispute over fees paid to the Forest Service since 1985. In 1991, the Town Council of the Town of Vail, Colorado adopted a resolution empowering the Council to evaluate its options to protect the public interest and to ensure the continuation of the Vail ski area . and its effective management. Items to be evaluated by the Council pursuant to the Resolution included passage of protective legislation, possible institution of fees and taxes, and. negotiations of "voluntary controls".between Vail and the Town of Vail. Representatives of Vail and the Debtor attended the meeting at which the Resolution was adopted and assured the members of the Council that Vail and the Debtor would cooperate fully with the Council to ensure that the proficient management and continued operation of the Vail ski area would not~be adversely affected by the Reorganization Case. D. Beef Products 1. Operations Packerland was acquired in March 1978. Originally a processor of all cattle breeds, since January 1979 Packerland has concentrated exclusively on the purchase and slaughter of lean holstein steers and lean cows and the processing and sale of natural lean beef products and related by-products. Packerland is one of the largest slaughterers and processors of natural lean beef in the United States. It operates slaughtering and fabricating plants in Green Bay, Wisconsin and Gering, Nebraska and a slaughtering plant in Hospers, Iowa. Kill capacity and fabricating capacity of all of Packerland's facilities is approximately 835,000 head of cattle per year. The total aggregate utilization rate of the Packerland facilities is approximately 71~. Since its -.acquisition, Packerland has substantially increased its processing capacity and reduced its unit costs to a competitive level. _Packerland currently employs approximately 1350 full-time and 30 part-time employees. -63- Packerland's cattle buyers purchase live holstein dairy cattle from farmers, ranchers, feed lot operators, dairies, terminal markets and auction barns in Wisconsin, Iowa, Minnesota, Illinois, Michigan, Ohio, Indiana, Nebraska, Colorado, Kansas, Wyoming, Montana and the Dakotas. While the total number of cattle available for industry slaughter in a given year does exhibit a slight. seasonal pattern,. Paekerland's plants are geographically located within the largest concentration of holstein dairy cattle in the U.S. This population seldom fluctuates more than 1$ per. year and is typically ample to supply all of Packerland's `production needs. Packerland also owns and feeds holstein steers 'from time to time using commercial feedlots and contracts for the purchase of holstein dairy cattle from feedlots to be delivered up to one year after the contract date. Packerland hedges market risk associated .with these commitments through the use of cattle futures and options on the Chicago Mercantile Exchange. Packerland concentrates its marketing of choice natural . lean beef products on small and medium size customers and currently has approximately 700 active customers which include grocery chains, wholesalers, purveyors, and meat processors, primarily in the United States. Products sold domestically are transported primarily by truck. Approximately 95~ of the Packerland outgoing production is distributed by Packerland Transport, Inc. ("Packerland Trans- port"), a common carrier subsidiary of Packerland, enabling Packerland to maintain scheduling and quality control over the product until delivery to its customers. Packerland Transport also carries a variety of commodities for other customers and currently has approximately 250 tractor-trailer units in operation. 2. Competition The United States meat industry as a whole experienced steady growth over the past 10 years. Total meat consumption in the United States was 64 billion pounds in 1991, up 3~C from the prior year. This total is c~..~.rised of beef, pork and poultry products. The volume of beef consumed annually in the United States has been approximately 23 billion pounds for each of the last 10 years. Since 1976, three mayor factors have impacted the beef °~industry: 1) Per capita beef consumption has fallen while per capita consumption of poultry has increased. 2) The beef industry underwent a significant period of consolidation. Currently, the top three beef slaughter companies comprise over 50~ of the industry's total capacity. -64- 3) The supply of cattle in the United States fell by 15- 20~ from a high of over 125 million head to approximately 102 million head. These factors created an extremely intense operating environment where significantly larger beef firms are fighting for market share in a mature industry by striving to be the low cost .producer. . In order to avoid direct competition with significantly larger participants in the beef industry, Packerland, in 1979, made the strategic decision to focus on the marketing of lean beef products targeted towards the growing number of health-conscious consumers. While Packerland has been relatively successful in defending its. niche as a producer of lean beef products, this strategy has not completely insulated Packerland from the increased competitive pressures placed. on the beef industry as a whole. As the industry was faced with decreased demand for its products, increased cattle prices and an increasingly competitive marketplace, Packerland's profits were negatively impacted in 1990, but recovery began in 1991 and profitability rebounded. Management believes that the niche strategy developed will allow the company .to perform at levels consistent with, or better than, the beef industry as a whole. D3mnmge~eat mad Bsmamg~eat C~a~?eaamtion k GNG is currently the sole. member and Chairman of the Board of Directors of the Debtor. The current executive officers of GHI and its principal Subsidiaries, and their respective compensation, are set forth in Exhibit 4 attached to this Disclosure Statement. F. Employ®e ~eaefit Plmas 1. Defined Benefit Plane m.. GCC, Zac. Plaa GCC, Inc., a Subsidiary, sponsors a defined benefit _ pension plan covering certain television broadcasting employees of stations that have been sold, as well as employees of an Affiliate and employees of former Affiliates. Benefits are earned based on years of service and the employee's average earnings. Information relating to GCC's pension plan as of December 30, 1990 is set forth in Exhibit 4 attached to this Disclosure Statement at page 23 thereof. The Debtor intends to cause GCC, Inc. to terminate this defined benefit plan. After payment of taxes and other liabilities associated with the termination, the Debtor expects to realize 'approximately $6 million upon termination of the Plan. -65- b. ~yl'd r', IaC. Plan WTVT, Inc. has a defined benefit pension plan covering substantially all employees. Benefits are based on average =compensation levels and years of service.. Information relating to the WTVT, Inc. defined benefit pension plan as of~December 30, 1990 is set forth on Exhibit 4 attaehed to this Disclosure Statement at spage 39 thereof. . 2. D®fin®d Coatsibutioa Plans - Vail, Packerland, KSBY, Inc. and KSBW, Inc. sponsor defined contribution plans for their respective employees. Total 1.990 plan year employer contributions were as follows: Vail $195,925 Packerland $251,671 KSBY, Inc. $ 54,766 KSBW, Inc. $ 68,726 WTVT, Inc. also sponsors a defined contribution plan covering substantially all employees. Total ~,?~rloyer contributions for the 1990 plan year was $129,026. 3. Lif®, ~®alth aid Disability Inea~a~c® GHI provides life insurance, group accidental death and dismemberment insurance, travel accident insurance, group long term disability insurance, and group medical and dental insurance to employees of Gillett Group Management, Inc., WTVT, Inc., Packerland, KSBW, Inc., and KSBY, Inc. All coverages are fully ~~insured by Principal Mutual Life with the exception of medical and dental coverages which are self-insured. Vail provides group life insurance, short and long term disability insurance, and group medical and dental insurance to its employees. Vail self-insures the medical, dental and short term disability coverages. G. Uaioa Coatract~t Packerland is a party to the following labor agreements: - (i) Colla_ctive Bargaining Agreement between Packerland Packing C~,«~any, Inc. and United Food and _ Commercial Workers 'Union AFL-CIO-CLC, and its Local 73A. The Agreement covers all production and maintenance employees (930 in number) at Packerland's Green Bay, Wisconsin facilities,, excluding office clerical ~~.~loyees, truck drivers, quality control employees, professional employees, -66- guards, and supervisors. The Agreement is effective from March 1, 1990 to March 1, 1993. (ii)Agreement between Packerland Packing Company, Inc. and the Independent Employees Union of Packerland Packing Company, Inc., covering city truck drivers and Lime Kiln spotters (11 in number),~effective from June 10, 1991 to June 9, 1.994. (iii)Agreement between Packerland Transport, 'Inc. and the Independent Employees Union of Packerland. . Packing, dated September 9, 1989, covering all over-the-road truck drivers (13 in number), and effective from September 2,~ 1989 to September 2, 1992. (iv)Agreement between Packerland Packing Company, Inc. and the Independent Employees Union of Packerland Packing Company, Inc., dated March 2, 1989, covering all hourly rated employees of the University Meats and Cold Storage Division of Packerland (33 in number), including Lead Men, except salaried office employees and working foremen. The Agreement is effective from March 5, 1.989 to March 1, 1992. ' Except as described above, no employees of the Debtor or its Subsidiaries are represented by a union. The Debtor and its Subsidiaries=`°.believe that their relations with employees are satisfactory. - H. Real Properti®s The following table sets forth the principal properties owned or leased by GHI or its Subsidiaries: . owner Location Ownershia Usa KS84l, Inc. KSBN-TV Owned Offiee end studio Salinas, CA KSBY, Inc. KSBY-TV Owned Office and studio Sen Louis Obispo, CA Vail Vail, CO Owned. Gondola base terminal, Vail's corporate offices and commercial office - specs Vail Veil, CO Owned En~loyee housing ' Vail Vail, CO (12,590 acres) Term Special Ski lifts, buildings and other Use Permit improvements Vail Beaver Creek, C0 Term Special Ski lifts, buildings and other - (80 acres) Use Permit improvements -67- Vail Beaver Creels, CO Special Use Ski runs (2770 acres) Permit Packeriand Green ®ay, HI Owned Slaughtering and fabricating plant, cold storage facilities and offices Packeriand Nospers, IA Owned Slaughtering plant and offices Packerland Gering, NE Owned ~ Slaughtering and fabricating plant and offices " Packerland Chippewa falls, IdI Owned Cattle procurement facility ~Packerland Fridley, MW leased (Leese expires Production facility (currently idle) in May 1993) b1TVT, Inc. Tampa, FL Owned Office and studio Additionally, Vail owns various real estate in the Vail and Beaver Creek areas which is held for ski operations or sale. The Beaver Creek Use Permits and certain other limited real and personal property of Vail and Beaver Creek, are encumbered. In addition, Vail owns an 18-hole golf course in the Beaver Creek area with clubhouse, and various vacant lots in the Beaver Creek area. I. Affiliat® ~el8tioaahips aad Relat®d Traasactioas Each Subsidiary of GHI is wholly owned, either directly or indirectly., by GHI, ..except for minor amounts of stock issued to "employees of various subsidiaries of Vail required for certain liquor and real• estate licenses in Colorado. The ownership structure of SCI has been previously discussed at Article V, Section B of this Disclosure Statement. u: Due to the closely-held nature of GHI, GHI and its ::~•Subsidiaries engaged in the transactions described below with various affiliated parties in the year ending December 30, 1990. In the opinion of GHI's management.,, these transactions were executed on terms that were generally comparable to those available from unaffiliated third parties. Packerland leases tractors and trailers from General ~~Equipment Leasing Partnership, which is partially.owned by GNG and bDavid F. Backer, Executive Vice-President of Packerland. Payments 'to General Equipment Leasing Partnership were $200,000 in fiscal • 1990. GHI chartered a jet .from National Aircraft Sales, Inc. during 1990, which is partially owned by GNG. Total charter payments were $698,000 for fiscal 19.90. Bay Truck and Trailer, Inc. which is wholly owned by GNG's children, provides repair services to trucks used by -68- Packerland Transport. Payments for such services were $890,000 for fiscal 1990. Eackerland purchases and sells certain inventory products and transportation services to Peck Foods Corporation, a corporation which is owned by GNG. Total sales to and purchases from this affiliate totalled $24,198,000 and $10,803,000, respectively, during the year ended December 30, 1990. Packerland sold cattle inventory to certain officers and affiliated individuals during the year ended December 30, 1990. Total sales to and repurchases from these individuals were $5,444,000 and $3,674,000, respectively. The remaining $1,770,000 was repurchased during 1991. During 1990, GHI assumed ownership and beneficiary rights of certain permanent life insurance from GNG by paying GNG . $1,061,000 for 1989 premiums paid by GNG and paying $2,033,000 of premiums to the appropriate insurance companies. During 1990, Packerland purchased cattle from Gillett Cattle Company, an entity wholly owned by GNG, for $4,561,000. Additionally, during 1990, GHI made advances totaling $4,616,439 to this entity. SCI and GHI have entered into management agreements under which GHI or its affiliates manage the business and affairs of SCI and its broadcast subsidiaries. In consideration for such 'services, GHI is entitled to a management fee consisting of its out-of-pocket expenditures, for employee compensation, office operating costs and other :expenaes.~ The annual management fee is limited to $3,000,000. From time to time, SCI's television stations may have unsold advertising time. SCI .has utilized a portion of the stations' unsold time with certain commercials promoting the Vail and Beaver Creek ski resorts, which are owned by GHI. These c~.~LL«ercials are immediately preemptible for any cash. or barter advertiser. Since these c~.~~.~.ercials are immediately preemptible and utilize otherwise unsold airtime, they are discounted from the normal rates for nongreemptible cash advertisers. These discounted rates are comparable to what the stations charge other advertisers who purchase pref.?~~,tible advertising time with broad parameters as to when their commercials can be telecast. In exchange, the stations are eligible to use services and facilities of Vail and Beaver Creek with the coats of these services and facilities offsetting the c~.~4~~ercial airtime run. At December 31, 1990 and 1989, the net amounts due from GHI under the barter arrangement were $610,000 and $1,074,000, respectively. -69- . As of December 30, 1990, GNG and the related parties identified below were indebted to GHI (or a Subsidiary) in the amount indicated. Amount Due to GHI Name of the Qblicror (or a Subsidiary of GHI) GNG (1) _ $ 350,000 Gillbro Communications L.P. (2) 15,955 WOKR Partners.(3) ~ 9,520* SCI (4) ~ 100,792* ~~~~Peck Foods Corporation (5) 5,593,572 GNG {6) 684,069 Vail Magazine, Inc. (7) 320,000 Gillett Cattle Company (8) 4,616,439 Vail Beaver Creek Jet Center, Inc. (9) 165,000 National Aircraft Sales (10) 19,498*' *Paid in full in 1991. (1) Note payable upon the demand of Packerland. Interest accrues at 10~ and is charged on a non-cash basis to GPdG using a w-2 wage and Tax Statement. (2) Amounts receivable for transactions executed by GHI or its Subsidiaries on behalf of the obligor. The obligor is a partnership in which GNG is the general partner. There is no interest charged. (3) Amounts receivable for transactions executed by GHI or its Subsidiaries on behalf~of the obligor. The obligor is a partnership in which GNG is ' a general partner. There is no interest charged. Amount due was paid in full in 1991. (4) Amounts receivable for transactions executed by GHI or its Subsidiaries - on behalf of the obligor. SCI ie a joint. venture in which the Debtor has an indirect 40~r equity interest. Amount due was paid in full in 1991. (5) Amounts receivabl® for transaction® with th® obligor or executed by GHZ . or its Subsidiaries on behalf of the obligor. The obligor is an affiliate of GNG. There is no interest charged. Balance as of December 29, 1991 was approximately $9.5 million. (6) Amounts reeeivable for advances to GNG and transactions executed by GHI or its Subsidiaries on behalf of GNG. ts- . (7) Amounts r®ceivable for transactions erith the obligor or executed by GHI - or its subsidiaries on behalf of the obligor. The obligor is an affiliate of GNG. There is no interest charged. The amount is approximate. (8) Amounts receivable for advances to the obligor and transactions between ' ~ GHI or its Subsidiaries and the obligor. As discussed in 'Note 11 to GHI's consolidated financial statements (see exhibit 3A), the receivable has been fully reserved for as of December 30, 1990. -70- (9) Amounts receivable are amounts advanced by Vail to finance terminal improvements completed~in December 1989 to accommodate commercial air service. The amount is approximate. '(10) Amount due was paid in full on May 1, 1991. ` J. Litigation D~attere GHI and/or certain of its Subsidiaries are, or may ,become, defendants in a number of lawsuits which have arisen in the normal course of business. Potential or existing material litigation consists of the .following: 1,. Potential Federal and State Incom® Tax Liabilities GHI~and its Subsidiaries are presently being audited by the Service and the State of Wisconsin. The Service and these state revenue authorities have made proposed adjustments to the taxable income of GHI and its Subsidiaries that could result in an income tax deficiency. These tax items are described below. .a. Federal Tait Liability The Service has proposed certain adjustments to the taxable income of GHI and its Subsidiaries for taxable years 1981 through 1983. GHI has protested such adjustments (for itself and as agent for its Subsidiaries) . These proposed adjustments involve the disallowance of depreciation deductions for tangible assets and amortization deductions for intangible assets related tb the acquisition of WSMV-TV in Nashville, Teruiessee on the basis that such value is actually goodwill. The adjustments proposed for taxable years 1981 and 1982 ~4~ould not result in any deficiency in federal income tax but reduce the amount of the net operating loss carryforward of GHI and its Sui~sidiaries. The proposed adjustments for taxable year 1983 would result in an income tax deficiency of $162,018..80. Interest would accrue on any finally determined federal income tax deficiency from the date the return was required to be .filed. Federal income tax, liability is a joint and several obligation of each member of a consolidated group. Accordingly, the Service could proceed to collect federal income tax from GHI or any of its Subsidiaries. The Debtor intends to contest. these proposed adjustments vigorously and has filed a Protest of such adjustments with the Service. The Service is currently auditing GHI and its 'Subsidiaries for taxable years 1984 through 1990. To date, for ~°taxable years 1984, 1985 and 1986, the Service has issued a number '~of Notices of Proposed Adjustment, which assert that depreciation ~~or amortization deductions claimed by GHI with respect to tangible '~-~and intangible assets should be disallowed. In addition, the -71- Service has proposed additional adjustments to the basis of real estate acquired by a Subsidiary of the Debtor and has proposed certain other'insubstantial adjustments to the taxable income of - the Debtor and its Subsidiaries. - For taxable years 1987 through 1990, the Service has not issued any notices of proposed adjustment. For such period, however, GHI and its Subsidiaries have taken depreciation or amortization deductions for tangible and intangible .assets that ..have been characterized by the Service as goodwill and have valued . _ and amortized similar types of intangible assets in connection with acquisitions made after December 31, 1986. Based on the Service's approach in prior taxable years, the Service may also attempt to deny such deductions. In connection with the audit for taxable years 1987 through 1990, the• Service has requested certain information regarding GHI's ownership of WTVT Holdings. In June 1987, a Subsidiary of GHI acquired a 49~ voting interest and a 79~ equity interest in WTVT Holdings. As previously discussed, GHI has exercised an option to purchase- an additional equity interest in WTVT Holdings from Mr. Clarence V. McBee. GHI presently owns 99~ of WTVT, Inc. For federal income tax purposes, GHI included WTVT Holdings in i~t~s consolidated federal income tax returns for taxable periods before it exercised this option and has specifically disclosed this inclusion to the Service in such returns. The Service may not agree that WTV'I' Holdings could be included in these. consolidated returns with separate GHI. In such case, WTVT, Inc. would be forced to file returns for those taxable periods and a substantial portion of the GHI consolidated net operating loss would be apportioned to WTVT, Inc. The Service has also requested information regarding GBT's reinvestment of the proceeds received from the sale of WSMV-TV. GBT reinvested such proceeds by purchasing the stock of WT~1T Holdings. The Service may not agree that GBT properly reinvested such proceeds. In such case, GHI may be liable .for additional federal and state income taxes (.plus interest) related to such sale. b. Stat® Tu Lisbfllity Ae a general rule, any finally determined adjustment r;, to the federal taxable income of GHI and its Subsidiaries (includ- ing those d®scribed above) would result in a similar adjustment to :s: the state taxable income. of GHI or one of its Subsidiaries. Any resulting income tax deficiency would accrue interest from the date the return was required to be filed. Packerland: has been audited by the Wisconsin Department of Revenue for the. taxable years 1984 through 1987, The state has proposed an aggregate tax liability of $395,000 from such audit relating to certain intercompany transactions among Packerland, GHI and its Subsidiaries and Packerland has protested -72- { such tax liability. Interest would accrue on any finally determined income tax deficiency from the date the return was required to b~e filed. The Wisconsin Department of Revenue may assert proposed adjustments for subsequent taxable years on the . same theory as that set forth in this audit. Packerland would be ,.solely liable for any Wisconsin tax deficiency. 2. Priority Dispute On August 16, 1991, Equitable filed the Equitable -.Adversary Proceeding with the Court. As holders of the Senior :.Subordinated Debentures, Equitable has alleged that debt incurred . under the amended Bank Credit Agreement and the Series D and E Zero . Notes as a result of the June 15, 1987 Second Supplemental Indenture is not senior to the Senior Subordinated Debentures held by Equitable. Equitable alleges that the Second Supplemental Indenture's amendment of the terms "Credit Agreement" and "Credit Line " indirectly modified both the definition of "Senior Debt" in Section 10.02 of the August 1, 1986 original Indenture and the~debt which can be repaid from the proceeds of a sale of a GHI Business Segment under Section 4.11 of the original Indenture. Such indirect modifications, Equitable contends, required unanimous consent of all Senior Subordinated Debenture holders under the provisions of Section 9.02 of the Indenture; because the Second Supplemental Indenture was approved only by a majority of such holders, the amendments of "Credit.Agreement" and "Credit Line" are alleged to be ineffective, and. certain, debt incurred under the amended Bank.., Credit Agreement and the Series D and,E Zero Note Indenture therefore cannot be senior to the Senior Subordinated .Debentures held by Plaintiffs. Based upon the foregoing allegations, Equitable has requested relief from the Court in the form of (i) a declaration that the Debtor has breached the Indenture and is~liable for principal and interest due on the Senior Subordinated Debentures; (ii) a declaration that, as to Equitable's debentures, the terms of.the Indenture,. without reference to the amended definitions, shall - govern for purposes of subordination and application of Asset Sale Proceeds°; (iii) a declaration that Equitable's debentures are not subordinated. to the Series D and E Zero Notes or to any debt incurred, under the Bank Credit Agreement to the extent such debt is not subject to the original subordination provisions under Article 10 of the original Indenture; (iv) a declaration that, as to Equitable's debentures, all Asset Sale Proceeds, including proceeds from the sale of WMAR-TV, must be disbursed in accordance _ with the terms of Section 4.11 of the Indenture as originally in effect; and (v) award of costs and, disbursements of action and - reasonable attorneys' fees. i The claims and other rights of Equitable in the Equitable `Adversary Proceeding are further described in Article XIII, Section B Equitable Adversary Proceeding. . -73- 3. 0th®r Litigation ~ - , Certain of the Debtor's Subsidiaries are defendants in various lawsuits involving claims believed by the respective Subsidiary's management and the counsel involved to be adequately covered by one or more insurance policies. In addition, the Debtor and one of the Debtor's Subsidia.=ies are, or were, named as ± defendants in the following actions. Federal Broadcasstino Co. v. 9A'LIIC, Inc., Gillbro Co~unicatione Limited Partnership, and George N. Gill®tt,, D'nit®d Stat®a District Court, $astern District of ~6lisaouri, North®rn Division, Cas® No. 90-0012-C (filed Jua® 1, 1989] traanaf®rr®d from ~aatern District of biiehigan 1/3/90) (th® "Fed®ral Lawsuit"). This lawsuit., which has. been settled as more fully discussed below, arose out of the sale in September 1987 of the assets of two television stations by WLUC, Inc. ("WLUC") and Gillbro Communications Limited Partnership ("Gillbro") to Federal Broadcasting Company ("Federal"). The assets of the station owned by Gillbro, KTVO-TV operating in Kirksville, Missouri, included a 2,000-foot tall television antenna support tower, which was designed and erected by Structural. Systems Technology, Inc. ("SST"). SST subcontracted the manufacture of almost all of the steel structural components to LeBlanc and Royle Communications, :.,.Inc. •.("LeBlanc") . The tower was reported by SST as complete in early September 1997, just before the closing with Federal. However, through discovery in the lawsuit it became evident that SST and LeBlanc discovered a problem with the steel diagonal bracing on the tower. After some further investigation, LeBlanc agreed in December 1987 to supply all new diagonal bracing for the tower, and SST c~.~~«itted to replace the original bracing with the new bracing, all at no charge. Federal was informed of this decision at the time, but no notice ever was sent to WLUC or Gillbro. The replacement operation started in early May 1988, with the diagonals being replaced .starting at the top of the tower and working down. On June 2, 1988, with the diagonals replaced down to approximately the 600-foot level, the tower collapsed. The ' three workers who were working at the 600-foot level were killed in the collapse. - In the sun~ner of 1998 WLUC received notice from Federal of the collapse. This was the first time WLUC was notified of any problem with the structure of the tower. 6dLUC is the indemnifying party in the agreement selling the assets to Federal, wherein it indemnifies Gillbro .from any breach of a representation or warranty in the agreement or closing documents. -74- I Federal sued SST, LeBlanc, L & R Communications, Limited ("L & R") (a subsidiary of LeBlanc), WLUC, Gillbro, and GNG, the general partner of Gillbro. WLUC, Gillbro and GNG have sued SST, LeBlanc and L & R. After more than one year of discovery in these `~~suits, it became clear to WLUC that SST, LeBlanc and L & R are the -primary wrongdoers, but WLUC risked being held liable for the same damages. The television station that lost the tower has been broadcasting since the collapse from an antenna atop the shorter tower that it used before the construction of the tall tower, which r^ederal alleged significantly reduces its audience and advertising revenues. As part of the purchase price, WLUC received from Federal a $3.15 million note, with a maturity date in September 1994. The lawsuit has been settled pursuant to a settlement agreement dated December 20, 1991, under which the principal balance due under the note is reduced by $1.975 million., and WLUC in turn receives part of the proceeds of Federal's liL=gation against SST, LeBlanc and L & R. Under the settlement agreement, WLUC would be made whole, but for the lost interest on the $1.975 million, with a paid . verdict or settlement of approximately $5,500,000, and WLUC has the ability to recoup further proceeds with a higher verdict or settlement. Putnam Hiah Yi®ld Trust, et al., v. Gillett Holdincs. Inca No. 11680, Court of Chancery of th® State o'f D®lawar®, PI®r++ Castl® Couaty. On August 8, 1990, certain investment companies holding $14.7 million in Debentures (the "Putnam Plaintiffs") sought to enjoin GHI from proceeding with a plan to repurchase Debentures from certain holders. The Putnam Plaintiffs and~the Debtor have reached an agreement in principle regarding the voluntary dismissal of the case, subject to approval of the Court after notice and a hearing. - P®te ~111soa, et al. v. ~.H. Belo Corp., at al., Ido. CV-S-91-1206-L~-GGH, united Stat®a District Court for the~$ast®ra District o! Califoraia - KSBY, Inc. is a defendant in a. suit 'brought by Pete Wilson, the current Governor of California, and certain other persons in the United States District Court for the Eastern District of California. This lawsuit involves allegations by the plaintiffs, candidates for the United States Senate in the 1988 ':California senatorial election, that KSBY and various other TV ;_stations in California overcharged these candidates for air time -by failing to charge the candidates the stations' lowest unit rate. -KSBY, Inc. has filed a motion to dismiss this, lawsuit on the . .grounds that the Federal Communications Commission has exclusive .jurisdiction over the issues raised by the lawsuit. -75- The attorney representing the plaintiffs has also threatened litigation before the Federal Communications Commission against other GHI-affiliated television stations. These stations are WAGA-T'V, WTVT-TV, WSBK-TV, KNSD-TV, and KSBW-TV. The threatened litigation relates to alleged overcharges for air time purchased by various political candidates in both federal and state elections during 1990. Management. of the respective GHI-affiliated stations ..,.believe the foregoing litigation and threatened litigation lacks merit and the respective stations intend to contest vigorously the allegations made. The plaintiffs in the California suit have alleged damages in excess of $50,000, which is the minimum jurisdictional amount required before a party may file a lawsuit in federal district court. Bowden v. Gill®tt Broadcasting of Narirlmad. Inc., No. 82JG 89°1038, IInit®d Stmt®s District Court for th® District of bimzyland The plaintiff in this action, a former employee of WMAR-TV, has alleged causes of action relating to the termination of his employment in 1988. This lawsuit seeks compensatory damages in the amount of $95,000 and $500,000 in punitive damages. Gillett .Broadcasting of Maryland, Inc. has filed a motion for summary • judgment which has been pending with the District Court for two years. The Debtor's management believes the Bowden lawsuit lacks merit. 1C. $vents L®mding ~ to C~,~,®nee~ent of th® R®orgsnizmtion Case As previously discussed (See Article V, Section A CORPORATE STRUCTURE AATD DBVBLOPMEIQT) , acquisitions and divestitures have played an important role in GHI's growth. GHI's acquisition strategy has focused, on improving the operations of the companies it acquires through .increased promotion and more effective cost controls. Although GHI's management believes that it is among the best operators of its individual lines of business, management recognized in early 1990 that, due to sluggish economic conditions then existing and forecasted for the intermediate future, projected cash flov~® from those businesses would be insufficient to service the debt incurred to make certain acquisitions in the mid to late 1980'x. Accordingly, GHI's management commenced negotiations with its primary creditors to restructure GHI's capitalization. Those negotiations resulted in the preparation of a formal exchange offer that would reduce indebtedness at the parent company level with new debt to be incurred contemporaneously at the various Subsidiaries. The exchange offer was to be made in August of 1990 but a -76- significant commitment for financing at the Subsidiary level was . unexpectedly withdrawn which effectively nullified the feasibility of exchange offer restructuring. . In addition to the proposed exchange offer, GHI attempted to raise cash through the sale of television station WMAR-TV. A contract for the sale of WMAR-TV to Scripps Howard Broadcasting Company ("Scripps Howard") was signed on August 7, 1990 which contemplated a closing in late 1.990 or early 1991. In early 1991, Scripps Howard refused to close the purchase under the contract and notified GHI by letter dated February 8, 1991 that it was terminating the sale agreement. Although WMAR-TV has since been sold to Scripps Howard, Scripps purported termination of the sale agreement temporarily foreclosed the possibility of raising cash through the sale of assets. Moreover, a change in the composition of GHI's creditor constituency in early 1991 stalled continuing negotiations. As predicted by GHI management, operating cash flows were insufficient to service debt and GHI failed to make the payments of interest due on the Senior Subordinated Debentures on August 1, 1990 and February 1, 1991. In addition, GHI failed to pay interest due on the Bank Credit Agreement on August 7, 1990 and the outstanding indebtedness under the Bank Credit Agreement matured on August 10, 1990. GHI also failed to make the payments of interest due on the Subordinated Debentures on August 15, 1990 and February 15, 1991. , On~ February 27, 1991, three creditors filed an involuntary petition for relief under chapter 11 against GHI commencing the Reorganization Case. On June 25, 1991, the Court entered an Order for relief under chapter it against GHI. -77- VI. D$BT AND BQIIIT7C STRIICl~tcB OF GHI A. Description of Debt Strueture The following is a summary of the current provisions of the outstanding debt of GHI under the Bank Credit Agreement, Zero Notes, Senior Subordinated Debentures and Subordinated Debentures, and a brief description of the equity structure of GHI. . 1. Bank Credit Agreement On June 19, 1987, GHI entered into the Bank Credit . Agreement with the Banks and. The First National Bank of Chicago, as agent. Under the Bank Credit Agreement, the Banks agreed to extend a $195 million term loan facility and, as amended to date, a $68 million revolving loan facility. The indebtedness owed to the Banks, together with the Initial Zero Notes and Second Zero Notes (each as hereinafter defined), is secured by the beneficial interest in the trust estate created under the Collateral Trust • Agreement dated as of June 19, 1987 (as amended, the "Collateral Trust Agreement"). The collateral which makes up the trust estate consists primarily of all of the shares of capital stock of substantially all of GHI's Subsidiaries and indebtedness owed to GHI by WTVT Holdings pursuant to the WTVT Loan Agreement. Certain Subsidiaries have unconditionally guaranteed the obligations of GHI under the Bank Credit Agreement. The proceeds from the Bank Credit Agreement were used by GHI to refinance existing debt and for a portion of its working .capital needs, including payment of interest on its Senior Subordinated Debentures and Subordinated Debentures. 2. Public Debt s. Initial Z®ro Notes On August 1, 1986, GHI entered into an Indenture with First Wisconsin National Bank of Milwaukee ("First Wisconsin"); as trustee (GHI appointed Norwest Bank Minnesota, National Association • to succeed First Wisconsin as trustee pursuant to an "Appointment of Successor Trustee°1 dated December 6, 1989), for the issuance • of, and pursuant to which. GHI did issue, the Series A-C Zero Coupon Senior Notes (the "Initial Zero Notes") in the face amount of $300 million, generating approximately $130,526,000 in net proceeds. ' Payment of the indebtedness represented by the Initial Zero Notes ranks ~1~ with the Bank Credit Agreement, the Second Zero Notes and certain of GHI's other existing indebtedness. The Initial Zero Notes are secured by the beneficial interest in the trust estate created under the Collateral Trust Agreement, which also secures the indebtedness under the Credit Agreement and the Second Zero Notes and certain of GHI's other existing indebtedness. Certain Subsidiaries have unconditionally guaranteed the obligations of GHI under the indenture pursuant to which the Initial Zero Notes were issued. The proceeds from the issuance of -78- the initial Zero Notes and the Senior Subordinated Debentures were used to finance the acquisition of WMAR-TV and another broadcast property, to refinance existing debt and to provide for the general working capital needs of GHI and its Subsidiaries. b. Second Zero Notes On August 14, 1987, GHI entered into an Indenture with First Wisconsin, as trustee (GHI appointed Norwest Bank Minnesota,' National Association to succeed First Wisconsin as trustee pursuant to ,an "Appointment of Successor Trustee" dated December 6, 1989), for the issuance of, and pursuant to which GHI did issue, the Series D-E Zero Coupon Senior Notes (the "Second Zero Notes") in the face amount of $250. million, generating approximately ($116,885,000] in net proceeds. Payment of the indebtedness represented by the Second Zero Notes ranks sari ~assu with the Bank Credit Agreement, the Initial Zero Notes and certain of GHI's other existing indebtedness. The Second Zero Notes are secured by the beneficial interest in the trust estate created under the Collateral Trust Agreement, which also secures the indebtedness under the Bank Credit Agreement, the Initial Zero Notes and certain of GHI's other existing indebtedness. Certain Subsidiaries have unconditionally guaranteed the obligations of GHI under •the indentures pursuant to which the Second Zero Notes were issued. The proceeds from the issuance of the Second Zero Notes and the • Subordinated Debentures were loaned to WTVT• Holdings by GHI to retire debt incurred to finance the acquisition of WTVT-TV on June 19, 1987. c. Senior Subordiaated~Debeatures On August 1, 1986, GHI entered into an Indenture with Bankers Trust Company, as trustee, for the issuance of, and pursuant to which GHI did issue for the full face amount, Senior Subordinated Debentures in the face amount of $254 million. Payment of the Senior Subordinated Debentures is specifically subordinated to payment in full, in cash, of all Senior Debt (as defined in the indenture pursuant to which the Senior Subordinated Debentures were issued) including, without limitation, the indebtedness under the Bank Credit Agreement and the Zero Notes. (As previously discussed at Article V, Section J of this Disclosure Statement, Bquitable has asserted in the Equitable Adversary -Proceeding that certain indebtedness under the. Bank Credit Agreement and the Series D and E Zero Notes is not senior to the Senior Subordinated Debentures held by Equit,able.) Certain _ Subsidiaries have unconditionally guaranteed, on a subordinated •basis, the Senior Subordinated Debentures. The proceeds from the issuance of the Senior Subordinated Debentures and the Initial Zero .-Notes were used to finance the acquisition of WMAR-TV and another broadcast property, to refinance existing debt and to provide for the general working capital needs of GHI and its, Subsidiaries. -79- d< Subordinated Debentures On August 14, 1987, GHI entered into an Indenture with • First National Bank of Minneapolis, as trustee, for the issuance of, and pursuant to which GHI did issue for the full face amount, Subordinated Debentures in the face amount of $170 million. Payment of the Subordinated Debentures is specifically subordinated to payment in full, in cash, of all Senior Debt (as defined i~n the indenture pursuant to which the Subordinated Debentures were issued) including, without limitation, the indebtedness under the Bank Credit Agreement, the Zero Notes and the Senior Subordinated Debentures. Certain Subsidiaries have unconditionally guaranteed, on a subordinated basis, the Subordinated Debentures. The proceeds from the issuance of the Subordinated Debentures and the Second Zero Notes were loaned to WTVT Holdings by GHI to retire debt incurred to finance the acquisition of WTV'T-TV on June 19, 1987. B. Guaraate®s of Iadebteda®ss The Debtor is contingently liable for approximately $48 million on various guarantees made, or joint obligations incurred, in consideration for loans and other financial acc~,?u«odations made to Vail (and certain of its subsidiaries), Packerland, KSBW, Inc., KSBY, Inc., WTVT Holdings, GBT and Gillett Group, Inc. as set forth on the following chart. The primary obligors and the Debtor's joint obligors are current on the primary obligations except for Beaver Creek Resort Company of Colorado which is in default of its principal payment obligations under a revolving credit agreement with NCNB Texas National Hank ("NCNB")~. NCNB has made a demand for payment on Beaver Creek Resort Company of Colorado and on Vail. Beaver Creek Resort Company of Colorado is current on its interest payment obligations under the revolving credit agreement with NCNB. eeneficiarv of Guarantee Guaranteed d~ligatian Prisne,? Obli~{ Co-grantor Aentnt (12/29/91) NCNB Sports Facilities Beaver Creek Vail E2,200,000 Bonds, 1986 Series Associates, Ina. (BeavQr Creek Associates) NCNB Sports Facilities Vail None 2,100,000 Bonds, 1986 Series (Vail Ass~iates) The First National Raliuraeaent elai¦ - Peekerlarid All GNI 3,145,000 Bank of Chicago in consideration of Subsidiaries (FNBC) FNBC'a iasuarre of a letter of credit on - . behalf of Peckerlend Continental Bsnk Guarantee of Veil's Beaver Creek Veil 10,575,137 reimbursesient Associates, Inc. obligations under letter of credit -80- Claiaent Obliaation Pri~arv ~lioor Co-Guarantor Aunt issued by Continental Bank to support 1984 Series Bonds FNBC Guarantee of Vail's Vail None 16,324,727 reimbursement obligations under letter of credit issued by FNBC to , support 1984 Series • Bonds NCNB Loan to Beaver Creek Beaver Creek Resort Vail 6,356,045 Resort Company of Company of Colorado Colorado f/k/a Beaver Creek Resort Company 485,803 FNBC interest Rate Gillett Group, inc. All GH1 Exchange Agreement Subsidiaries with Gillett Group, tnc. (terminates November 11, 1991) • Afl10WL w83 paid SUbSeGUML. t0 ' December 29, 1991. Continental Bank Interest Rate Swap GHI and Vail are • Agreement jointly and severally obligated 700,000 (estimate of total amount that may be payable over the remaining life of • both Interest Rate Swap Agreements with Continental Bank) Continental Bank Interest Rate Swap GHI and Vail are Agreement jointly and severally obligated FNBC Reimbursement Packerlend All GHl 1,,428,034 obligation of Subsidiaries Packerland under a letter of Credit first uisconsin Reimbursement Packerland None 580,000 National Bank of obligation of Milwaukee Peckerland under a Letter of Credit TeleRep, Inc. Rep Agr__ _ is with KS841, Inc. None 51,179,166 KSBY, Inc.; KSBY, KSBT, Inc. Ina.; YTVT Noldinga IITVT Moldings and G8T GBT Michael Sharron Vail's obligations Vail None 5788,297 under 1989 Deferred 1 nCMt 1 Ve Cortpensation Plan Smith Barney, Harris Indemnity None Unliouidated Upham & Co. -81- Claimant Obli9etion Pri~ar~pblioor Co-c~arantor Aamunt Donaldson, Lufkin, ~ Indeaatity None Unliquidated Jenrette International Capital Indemnity None Unliquidated Access Group/ Dabney/Resnick Citibank Indemnity None Unliquidated Cook=Inlet Television Obligations of GBT GBT .None Unliquidated Partners, l.P. to Cook-Inlet under Asset Purchase Agreement Edward W. Karrels (a Separation Agreement Gillett Group, Inc. 1,300,000 Former executive of dated 14arch 9, 1990 and GH1 ere both Gillett Group ~ obligated under the Management, Inc.) Separation Agreement Bankers Trust Company Commitment fees in Vail and GN1 are both 1,403,175 coro~ection with obligated proposed loan facility that was never established C. Post-P®tition Indemnification Obligations Under the Asset Purchase Agreement dated May 30, 1991 pursuant to which TV station WMAR-TV was sold to Scripps Howard Broadcasting Company ("Scripps Howard"), the Debtor, Gillett Group, Inc. ("GGI"), and Gillett Broadcasting of Maryland, Inc. ("GBM") (the Debtor, GGI and GBM are collectively referred to in this .Section as the "Gillett Affiliates") agreed to indemnify and hold Scripps Howard harmless from losses, damages, or expenses suffered as a result of any breach by the Gillett Affiliates of the Agreement, any inaccuracy in or breach of any of the representations, warranties, covenants or agreements made by the Gillett Affiliates in the Agreement, any obligations or liabilities of GBM not assumed by Scripps Howard under the Agreement, and all claims made by creditors with respect to non-compliance with any applicable bulk transfer law. The Gillett Affiliates' maximum aggregate liability to Scripps Howard for indemnification claims under the Agreement is limited to $50 million and no indemnification obligation arises until the aggregate losses, damages, or expenses suffered by Scripps Howard exceed $325,000. Scripps Howard is not entitled, after the first anniversary of the Asset Purchase Agreement, to assert any right of indemnification for any loss, damage or expense suffered by Scripps Howard arising from a breach by the Gillett Affiliates of any covenant, agreement, warranty or representation set forth. in the Agreement, except to the extent that such a claim is pending on the first anniversary. -82- Pursuant to the order entered by the Court approving the sale of WMAR-TV, the Confirmation Order must provide that any indemnity obligations of the Debtor to Scripps Howard under the Asset Purchase Agreement or any related agreement or any obligation arising from any breach of that Agreement or any related agreement shall be excepted from discharge under section 1141(d)(1) of the Bankruptcy Code. The post-petition agreements pursuant to which the Debtors retained Smith Barney, Harris Upham & Co., Incorporated ("Smith Barney") and Donaldson, Lufkin & Jenrette ("DLJ"), both of which were approved by the Court, include.; indemnification provisions which require the Debtor to indemnify Smith Barney and DLJ from any loss, costs, or damages which may arise out of their performance of services on behalf .of the Debtor except for any loss, costs or damages caused by their negligence, gross negligence, or willful misconduct. D. Intercompany Payablea and Receivables A su~nary of the Debtor's intercompany payables and receivables, as of February 27, 1991 and September 29, 1991, follows. -83- GILLER'T HOLDINGS, INC. _ . SDMdIARY OF INTERCOffiPANY/SIIBSIDIARY BALANCES AS OF FEBRIIARY 27, 1991 AND SEPTEMBER 29, 1991 A9 of February 27. 1991 As of September 29. 1991 Subsidiary Camq~gy Pavabl~ Receivable Payable Receivable Gillett Group, Inc. 136,733,415 136,733,415 Vail Associates, Inc.(1) 26,065,904 40,681,523 Packerland Transports, Inc. 3,627,466 3,627,466 Gillett Broadcasting, Inc. 93,192 93,192 Gillett Broadcasting of California, Inc. 2,248,324 2,248,324 Gillett Broadcasting of Oklahoma, Inc. 7,136,863 7,136,863 KSBW, Inc. 7,609,046 7,176,087 KSBY, Inc. 4,232,025 3,798,483 ir3innebago Color Press, Inca 617 617 Gillett Broadcasting of Tennessee, Inc. 7,658,235 ~ 7,658,235 Gillett Productions, Inc. 103,107,547 ~ 107,828,744 Gillett Group Management, Inc. 25,857,645 22,848,237 Gillett I Co. 1,000 Packerland Packing Company 23.8,947,899 244,737,922 Gillett Teleproductions, Inc. 4,886,190 4,886,190 Gillett Broadcasting of Maryland, Inc. 242,021,001 250,069,518 WLUC, Inc. 2,767,093 2,767,093 GCC, Inc. 3,174,214 3,174,214 Gillett Subsidiary Corp. 1.000 187 ~ 746 ~ H52, 6,28_;421, 824 201_,495, 643,970„_153 (1) Vail Associates, Inc. operates on a September 30 fiscal, year end;~therefore, the above balances for Vail are reported on a one quarter lag basis. -84- 8. Equity Structure of GHI GHI is a privately-held company, the stock of which is one hundred percent owned by~GNG. GHI has not declared any • dividends on its stock and is restricted from paying dividends ,,pursuant to various of GHI's debt instruments.. There is no ,established public market for the common stock of GHI. -85- ' VII. DBSCRIPTION OF lan PLAN The following is a detailed summary of certain signifi- cant matters contemplated to occur either pursuant to or in connection with the Consummation of the Plan. lam SIIbmSARY ONLY HIGHLIGHTS CBRTAIN SUESTANTIVB PROVISIONS OF aa~ PLAN AND IS PiOT, NOR IS IT IP,~i1sx1DBD TO BB, A COB2PLsis DESCRIPTION OR SUBSTIiuaB FOR A FIILL AND COMPLETE READING OF ia~' PLAN. ALL HOLDERS OF CLAI~SS OR INTERESTS ARB IIRGED TO REVIE9i CARBIFOLLY aa~s PLAN 1PHICH YS ATTACHED HERETO AS BXHIEIT 1. Article XII discusses in more detail the confirmation process applicable to the Plan. A. Classificatioa of Claims and Latereats The categories of Claims and Interests listed below are classified for all purposes, including voting, confirmation and distribution pursuant to the Plan. A Claim or Interest is in a particular Class only to the extent that the Claim or Interest is an Allowed Claim or allowed interest in that Class and has not been paid, released, or otherwise satisfied before the Effective Date. Class 1 Priority Claims. Class 1 consists of all Priority Claims. Such Claims are not impaired under the Plan. Class 2 General Trade sad Service Claims. Class 2 consists of all General Trade and Service Claims. Such Claims are impaired under the Plan. Class 3 Secondary Liability Claims. Class 3 consists of all Secondary Liability Claims. Such Claims are impaired under the Plan: Class 4 - - Iaterc.,~.aay Claims . Class 4 consists of all Intercompany Claims. Such Claims are impaired under the Plan. Class 5 Bank Cr®dit Agreement sad Z®ro Note Claims. Class 5 consists of all Claims of the Banks and the Agent under or evidenced by the Bank Credit Agreement and all documents, instruments and agreements related thereto, all Claims of holders under or evidenced by the. Zero Notes, and of the Indenture Trustee for the Indentures governing the Zero Notes, and all documents, -~instrumentg and agreements related to such Claims, and all Claims of the Indenture Trustees under the Old Collateral Trust Agreement and all documents, instruments and agreements related thereto. Such Claims are impaired under the Plan. Class 6 Senior Subordinat®d Debentures. Class 6 consists of all Claims of holders under or evidenced by the Senior .Subordinated Debentures, and of the Indenture Trustees for the Senior Subordinated Debenture Indenture, and all documents, -86- instruments and agreements related thereto. Such Claims are impaired under the Plan. • Clara 7 Subordinated Debentures. Class 7 consists of ~•~•.all Claims of holders under or evidenced by the Subordinated Debentures, and of the Indenture Trustees for the Subordinated Debenture Indenture, and all documents, instruments and agreements related thereto. Such Claims are impaired under the Plan. Clara 8 GIdG Interests. Class 8 consists of the GNG Interests. Such Interests are impaired under the Plan. e. General Provisions Regardiag Treatment of Claims and Interests ~ • 1. Agent sad Indenture Trustee Feea In full satisfaction of the Agent Expenses and the Indenture Trustee Expenses, the Debtor shall pay to the Agent and . the Indenture Trustees an amount equal to the amount of such Agent Expenses and Indenture Trustee Expenses; provided that the aggregate amount so paid to the Agent and the Indenture Trustees . on account of Agent Expenses and Indenture Trustee Expenses shall not exceed $ Payment of such expenses shall constitute ,distributions on account of Claims in the Class to which such expenses relate, provided that distributions otherwise provided under the Plan to holders of Allowed Claims under the Bank Credit Agreement and the Old Securities shall not be reduced on account of such payment of Agent Expenses and Indenture Trustee Expenses. Notwithstanding anything in Section 3.03 of the Plan to the contrary, the Debtor's obligation to pay the Agent Expenses and the Indenture Trustee Expenses shall be subject to the same bar date and procedural provisions set forth in Section 3.04 of the Plan, and the procedures regarding resolution of contested Claims set forth in Section 7.02 of the Plan. 2. Administrative Claims, Agent ~cpeasea sad Indenture Trustee 8apeases a. General • Subject to the bar date provisions in the Plan and the provisions of Section 3.03 of the Plan and notwithstanding the bar date set for any other types~of Claims, each holder of an Allowed Administrative Claim, the Agent and the Indenture Trustees shall receive, on account of and in full satisfaction of such Allowed Claim, Agent Expenses or Indenture Trustee Expenses, cash 'equal to the amount of such Allowed Claim, unless the holder agrees to less favorable treatment of such Claim. -87- b. Bas Date for Adminiatrativ® Claims, Agent Bx~ens®s and Indenture Trustee Expenses All applications for final compensation of professional persons for services rendered and for reimbursement of expenses incurred on or before the Effective Date (including, without limitation, any compensation requested by any professional or any other entity for making a substantial contribution in the .Reorganization Case) and all other requests for payment of - administrative ccists and expenses incurred before the Effective Date under sections 507~(a)(1) or 507(b) of the Bankruptcy Code - (except only for Claims for trade debt incurred in the ordinary course of business and claims under 28 U.S.C. § 1930) and requests for payment of Agent Expenses and Indenture Trustee Expenses shall be filed no later than 60 days after the Effective Date. Any such Claim or request for payment of Agent Expenses or Indenture Trustee Expenses that is not filed within this deadline shall be forever barred; and any holders of Administrative Claims, requests for Agent Expenses or Indenture Trustee Expenses who are required to file a request for payment of such Claims and who do not file such requests by the applicable bar date shall be forever barred from asserting such Claims against the Debtor, any of its property or- any distributions under the Plan. 3. Tax Claims Unless otherwise agreed to by the parties, each holder of a Tax Claim that is an Allowed Claim will receive cash equal to the unpaid portion of such Tax Claim on or within ten Business Days after the later of (i) the Effective Date, and (ii) the date on which such Tax Claim becomes an Allowed Claim; -provided, however, that at the Reorganized C~~„rany's option, the Reorganized Company may pay Tax Claims over a period not exceeding ,six (6) years after the date of assessment of the Tax Claims as provided in subsection 1129(a)(9)(C) of the Bankruptcy Code. If the Reorganized Company elects this option as to any Tax Claim, then the payment of such Tax Claim shall be made in equal semi - annual installments with the first installment due on the latest of: (i> the Effective Date, (ii) 30 calendar days after the date on which an order allowing such Tax Claim becomes a Final Order, and (iii) such other time as may be agreed to by the holder of such . Tax Claim and. the Reorganized Company. Each installment shall "include simple interest on the unpaid portion of such Tax Claim, without penalty of any kind, at the statutory rate of interest provided for such taxes under applicable nonbankruptcy law; provided, however, that the Reorganized Company shall reserve the right to pay any Tax Claim, or any remaining balance of such Tax Claim, in full, at any time on or after the Effective Date, without - premium or penalty. -_88- C. Treatment of Priority Claims Each holder of an Allowed-Claim in Class 1 will be paid the allowed amount of such Claim in full in cash. D. Treatment of Classes Impaired IInder the~Plan 1. General Trade and Service Claims Each holder of a Claim in Class 2 shall receive under the Plan in complete settlement, satisfaction and discharge of its Class 2 Claims cash in an amount equal to the lesser of (i) 100% of its Class 2 Claim; or (ii) its pro rata share of if the total amount of all Allowed Claims in Class 2 exceeds . $ . 2. ~ Secondary Liability Claims Each holder of a Claim in Class 3 will receive no distribution under the Plan on account of such Claim and such Claims shall be cancelled as of the Effective Date. 3. Intera~...~any Claims Each holder of a Claim in Class 4 will receive no distribution under the Plan on account of such Claim and such Claims shall be cancelled as of the Effective Date. 4. Dank Credit Agree~meat Claims sad Zero Note Claims Each holder of a Claim in Class 5 (other than Claims constituting Agent Expenses or Indenture Trustee Expenses) shall be entitled to elect under the Plan, in complete settlement, satisfaction and discharge of its Class 5 Claims, either (i) a Type 1 Distribution, (ii) a Type 2 Distribution or (iii) a Type 3 Distribution. Each such holder shall be entitled to split the aggregate amount of its Class 5 Claims between one or more types of distributions under Section 5.04 of the Plan, as such holder shall designate on its ballot, provided the amount of such holder's Class 5 Claims allocated to different types of distributions under Section 5.04 of the Plan shall not exceed in the aggregate 100 of such holder's Class 5 Claims. Sach holder that does not submit a ballot or does not mark its distribution preference oa the ballot in a~~.lete accordance with the instructions set forth is the ballot shall be deemed conclusively to have elected as its preferred distribution any type of distribution selected by the Debtor in its sole discretion after the deadline for receipt of ballots has expired and before the entry of the Confirmation Order. The Debtor shall be entitled to split such holder's Clare 5 Claims among different types of distributions described is Section 5.04 of the Plan -89- provided, that the Debtor shall use reasonable efforts to place the maximum amouat~,~of such Claimffi within one type of distribution and to minimize the amount of such Claims that are treated pursuant to the Bxcesa Distribution provi8loas of Section 5.0~(dD of the Plan. a. Type 1 Distribution Each holder of Claims in Class 5 electing a Type 1 .Distribution (such holder's "Type 1 Distribution") shall receive New Senior Secured Notes in a face principal amount equal to 91.0$ of the amount of such holder's Class 5 Claims designated by such .~:holder to receive a Type 1 Distribution, however, that the aggregate principal amount of New Senior Secured Notes issued to holders of Class 5 Claims under the Plan shall not exceed $200,000,000 (the "Type 1 Note Distribution Cap"). b. Type 2 Distribution Each holder of a Claim in Class 5 electing a Type 2 Distribution (such holder's "Type 2 Distribution") shall receive cash in an amount equal to 75~ of such holder's Class 5 Claims designated by such holder to receive a Type 2 Distribution, however, that the aggregate amount of cash paid to holders of Class 5 Claims under the Plan shall not exceed $73,600,000 or such greater amount as the Debtor may designate in writing sent to all interested parties after the Expiration Date and prior to the Effective Date (the "Type 2 Cash Distribution Cap"). In the event that such holders elect in the aggregate to receive cash in excess of the Type 2 Cash Distribution Cap, such holders in lieu thereof shall receive a portion of the cash otherwise distributable to them in an amount equal to the product of . (i) a fraction (such holder's "Type 2 Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 5 Claims designated by such holder to receive a Type 2 Distribution and the denominator of which is the aggregate amount of all Class 5 Claims making such election, times (ii•) the Type 2 Cash Distribution Cap. To the extent that the aggregate amount of Class 5 Claims making the Type 2 Distribution election (the "Type 2 Electing Claims") exceeds the Type 2 Cash Distribution Cap divided by 0.75 .(the "Type 2 Distribution Excess Amount"),each such Class 5 Claim holder will be entitled to participate, as set forth herein, in the .°Excess Distribution (as defined in Section 5.04(d) of the Plan and D.3.d of ~ this Article VII) in an amount equal to its Type 2 Pro Rata Fraction times the Type 2 Distribution Excess Amount (such holder's "Type 2 Excess Distribution Claim"). -90- c. -;Type 3 Dimmtributioa Each holder of a Claim in Class 5 electing a Type 3 Distribution (such holder's "Type 3 Distribution") shall receive New Senior Subordinated Secured Notes in a face principal amount equal to 89.67$ of the amount of such holder's Class 5 Claims designated by such .holder to receive a Type 3 Distribution provided, that the aggregate principal amount of New Senior Subordinated Secured Notes issued to holders of Class 5 Claims - under the Plan shall not exceed $207,500,000 (the "Type 3 Note Distribution Cap"), together with the number of shares of Class 2 Common Stock equal to the product of: (A) a fraction (such holder's "Type 3 Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 5 Claims designated by such holder to receive a Type 3 Distribution and the denominator of which is _ the' aggregate amount of all Class 5 Claims making such election, times (B) 2,500,000 shares of Class 2 Common Stock. In the event that such holders elect in the aggregate to receive New Senior Subordinated Secured Notes in excess of the Type 3 Note Distribution Cap, each such holder in lieu thereof shall receive a portion of the New Senior Subordinated Secured Notes otherwise distributable to it in an amount equal .to the product of: (A) such holder's Type 3 Pro Rata Fraction, times (B) the Type-3 Note Distribution Cap. To the extent that the aggregate amount of Class 5 Claims making the Type 3 Distribution election (the "Type 3 Electing Claims") exceeds $231,404,037 (the "Type 3 Distribution Excess .Amount"), each such Claim holder will be entitled to participate, as set forth herein, in the Excess Distribution (as defined in Section 5.04 (d) of the Plan) in an amount equal to its Type 3 Pro Rata Fraction times the Type 3 Distribution Excess Amount (such holder's "Type 3 Excess Distribution Claim"). d. ~cc®mma Distribution _ To the extent, if any, that (i) the Type 1 Note Distribution Cap exceeds the amount of New Senior Secured Notes to be distributed to holders of Clasa 5 Claims that elected the Type 1 Distribution (the "Excess New Senior Secured Notes"), or -91- (ii) the Type 2 Cash Distribution Cap exceeds the amount of cash to be distributed to holders of Class 5 Claims that elected the Type 2 Distribution (the "Excess Cash^), then the Excess New Senior Secured Notes and the Excess Cash shall be distributed (the "Excess Distribution") to holders of Class 5 Claims entitled to participate in the Excess Distribution as follows: (A) Typ® 2 Haccees Distribution - Each holder of a T~~rpe 2 Excess Distribution Claim shall receive, as its Excess Distribution, New Senior Secured Notes equal to the product of (a) a fraction, the numerator of which is such - holder's Type 2 Excess Distribution Claim, and the denominator of which is the aggregate amount of Type 2 and Type 3 Excess Distribution~Claims-held by holders of Class 5 Claims, times (b) the principal amount of the Excess New Senior Secured Notes. (H) Z~rpe 3 ~cceas Distribution Each holder of a Type 3 Excess Distribution Claim shall receive, as its Excess Distribution: (i) New Senior Secured Notes equal to the product of (a) a fraction, the numerator of which is such holder's Type 3 Excess Distribution Claim, and the denominator of which is the aggregate amount of Type 2 and Type 3 Excess Distribution Claims held by holders of Class 5 Claims, times (b) the Excess Senior Notes, and (ii) Cash, equal to the product of (a) a fraction, the numerator of which is such holder's Type 3 Excess Distribution Claim, and the denominator of which is the . aggregate amount of Type 3 Excess Distribution Claims held by holders of Class 5 Claims, times (b) the Excess Cash. _ e. Bff®et of Ovmrsubscription of Distributions is Clas® 5 After determining the final Class 5 elections pursuant to Section S.A9 of the Plan, the Effective Date shall not occur if either: (i) the.Type 1 Electing Claims exceed $219,780,220 or (ii) the sum of the Type 1 Electing Claims and Type 2 Electing Claims exceeds the sum of $219,780, 220 plus an amount equal to the Type 2 Cash Distribution Cap divided by 0.75. -92- 4. Senior Subordinat®d Debentures Each holder of a Claim in Class 6 (other than Claims ;constituting Indenture Trustee Expenses) shall receive under the Plan in complete settlement, satisfaction and discharge of its ~rClass 6 Claims ' (a) If Class 7 Accepts th® Plan If Class 7 accepts the Plan within the meaning of section 1126(c) of the Bankruptcy Code, then each holder of a Class 6 Claim shall receive cash in an amount equal to 32.42 of such holder's -Class 6 Claims. In addition, if Class 7~accepts the Plan within the meaning of section 1126(c) of the Bankruptcy Code, then each holder of a Class 6 Claim who qualifies as an Accredited Investor within the meaning of Regulation D under the Securities Act of 1933 shall be entitled to purchase, if such holder has so designated on its ballot and if such holder certifies that it is an Accredited Investor (such holder's "Class 6 Purchase Election") an amount of Junior Debentures equal to the lesser of (i) the face principal amount of Junior Debentures such holder designates on its ballot as its Class 6 Purchase Election, and (ii) a face principal amount of Junior Debentures equal to the product of ''(A) a fraction; the numerator of which is the amount of ' such holder's Class,6 Claims and the denominator of which is the 'aggregate amount of all Class 6 Claims, times (B) the difference of $12,750,000 less the aggregate face principal amount of Junior Debentures issued to holders of Class 7 Claims pursuant to Section 5.06(a)(4) of the Plan. On the Effective Date, each holder making a Class 6 Purchase Election shall pay the Reorganized Company cash in, an amount equal to the face principal amount of the Junior Debentures to be purchased by such holder. A holder shall not be deemed to have made the Class 6 Purchase Election unless such holder shall .have returned with its, ballot a duly executed Class 6 Purchase' Agreement in'the form of Exhibit B attached to the Plan. {b) If Class 7 x®~ects th® Plaa _ If Class 7 does not accept the Plan within the meaning -of section 1126(c) of the Bankruptcy Code, then each holder of a Class 6 Claim shall receive: (i) cash in an amount equal to 32.42 of such holder s Class 6 Claims; and -93- (ii) the number of shares of Class 2 Common Stock equal to .0116437 times the amount of such holder's Class 6 Claims, not to exceed in the aggregate for all such holders, 2, 957, 500 shares of Class 2 Common Stock (equal on the Effective Date to approximately 29.6 of the fully diluted Common Stock), but shall not have the right to purchase any Junior Debentures. (c) ltesolutioa of l~ Clam Regarding Subordination Provisions Notwithstanding the foregoing or any other provision of the Plan, except as otherwise provided in Section 11.02. of the Plan, which addresses the resolution of contractual subordination 'rights, any distribution to the holder of a Claim. in Class 6 shall remain subject to any contractual subordination rights of a holder of a Claim 'in Class 5 under the Senior Subordinated Debenture Indenture. 5. Subordiaat®d D®bentures (a) Zf Class 7 Acc®pts the Plan If Class 7 accepts the Plan within the meaning of section 1126(c) of the Bankruptcy Code, each holder of a Claim in Class 7 (other than Claims constituting Indenture~Tr'ustee Expenses) shall be entitled to elect under the Plan in c~.«~lete settlement, satisfaction and discharge of its Class 7 claims, either (i) a Type A Distribution or (i~i) a Type B Distribution. Each such holder shall be entitled to split the aggregate amount of its Class 7 Claims between such types of distributions under Section 5.06 of the Plan, as such holder shall designate on its ballot, provided the amount of such holder's Class 7 Claims allocated to the types ~y; of distributions under Section 5.06 of the Plan shall not exceed in the aggregate 100 of such holder's Class 7 Claims. Each holder of Clans 7 Clam that does not aubffiit a. ballot or do®s not mark its distribution preference oa the ballot is c..,.~,1®te accordance with th® iastructioa® s®t forth is the ballot shall be deed conclusively to have elect®d a® its ~pref®sred distribution nay type of distribution selected by the Debtor is its sole discretion aft®r the d®adlin® for r®c®ipt of . ~ ballots hffi® e~?ired and be~or® the entry of th® Confirmation Order. The Debtor shall be eatitl®d to split such hold®r°s Class 7 Clam among the typ®• of distributions under Eectioa 5.06 of the Plaa, Y provided that the Debtor shall use reasoaabl® efforts to place the maximum ~ouat of such Claims ~ithia one type of distribution sad to minimize th® amount of such Clam that are treated.purau8at to the Exc®ss Distribution provision® of Section 5.06(a)(3), of th® Plaa. -94- (1) Z'~® A Distributioa Subject to Section 5.06 (b) of the Plan, each holder of Claims 'in Class 7 electing a Type A Distribution (such holder's "Type A Distribution") shall receive cash in an amount equal to 15.84 of the amount of such holder's Class 7 Claims designated by such holder to receive a Type A Distribution, provided that the aggregate amount of cash distributed to holders of Class 7 Claims shall not exceed $13,090,000 (the "Type A Cash Distribution Cap"). In the event - that such holders elect in the aggregate to receive cash in excess of the Type~A Cash Distribution Cap, such holders in lieu thereof will receive a portion of the cash othervise distributable to them in an amount equal to the product of (i) a fraction (such holder's "Type A Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 7 Claims designated by such holder to - receive-a Type A Distribution and the denominator of which is the aggregate amount of all Class 7 Claims making such election, times (ii) the Type A Cash Distribution Cap. To the extent that the aggregate amount of Class 7 Claims making the Type A Distribution election (the "Type A Electing Claims") exceeds $82,638,889 (the "Type A Distribution Excess Amount"), each such Class 7 Claim holder will be entitled to participate, as set forth herein, in the Excess Distribution (as defined in Section 5.06(a)(3) of the Plan) in an amount equal to . its Type A Pro Rata Fraction times the Type A Distribution Excess Amount (such holder's "Type A Excess: Distribution Claim"). (2) Z~?pe H Distributioa Subject to Section 5.06(b) of the Plan each holder of a Claim in Class 7 electing a Type B Distribution (such holder's "Type H Distribution") shall receive the .number of shares of Class 2 Common Stock equal to .02060413 times the amount of such holder's Clasa 7 Claims designated by such holder to receive a Type B Distribution., provided that the aggregate amount of shares of Class 2 Common Stock distributed to holders of Class 7 Claims under the Plan shall not exceed 1,800,000 shares (equal on the Effective Date to 18~C of the fully diluted Common Stock) (the "Type H Stock Distribution Cap"). In the event that such holders elect in the aggregate to receive Claae 2 Common Stock in excess of the Type H Stock - Distribution Cap, such holders in lieu thereof shall receive a _ -portion of such stock othenarise distributable to them in an amount equal to the product of (i) a fraction (such holder's "Type B 'Pro Rata Fraction"), the numerator~of which is the aggregate amount of such holder's Clasa 7 Claims designated by such holder to receive a Type B Distribution and the. denominator of which is -95- the aggregate amount of all Class 7 Claims making such election,.. times (ii) the Type B Stock Distribution Cap. To the extent that the aggregate amount of Class 7 Claims ' making the Type B Distribution election (the "Type B Electing , Claims") exceeds $87,361,111 (the "Type B Distribution Excess Amount"), each such Class 7 Claim holder will be entitled to participate, as set forth herein, in the Excess Distribution (as defined in Section 5.06 (a (3) of the Plan) in an amount equal to _ its Type B Pro Rata Fraction times the Type B Distribution Excess .Amount (such holder's "Type B Excess Distribution Claim">: (3) E$c®sa Diatributioas Subject to Section 5.06 (b) of the Plan, each holder of a Type A Excess Distribution Claim shall receive the--number of~shares of Class 2 Common Stock equal to '.02060413 times the amount of its Type A Excess Distribution Claim. Each holder of a Type B Excess Distribution Claim shall receive cash in an amount equal to 15.94 of its Type B Excess Distribution Claim. (4) Junior D®bentur® Ptxrchas® ~1®etioa In addition, each holder of Class 7 Claims who qualifies as an Accredited Investor within the meaning of Regulation D under the Securities Act of 1933 shall be entitled to purchase, if such holder has so designated on its ballot and if such holder certifies that it is an Accredited Investor (such holder's "Class 7 Purchase Election") an amount of Junior Debentures equal to the leaser of (i) the face principal amount of Junior Debentures such holder designates on its ,ballot as its Class 7 Purchase Election, and (ii) a face principal amount of Junior Debentures equal to the product of (A) a fraction, the numerator of which is-the amount of such holder's Class 7 Claims and the denominator of which is the aggregate amount of all Class 7 Claims, times {B) $12,750,000. On the Effective Date, each holder making the Class 7 Purchase Election shall pay the Reorganized Company cash in an- .amount equal to the face principal amount of the Junior Debentures to be purcha®ed by such holder. A holder shall not be deemed to have made the Class 7 Purchase Election unless such holder shall have returned with its ballot a duly executed Class 7 Purchase Agreement, the farm of which is attached to the Plan as Exhibit C. (b) If Class 7 ~®j®cts th® P1~ - If holders of Claims in Class 7 do not accept the Plan within the meaning of section 1126(c) of the Bankruptcy Code, the distributions and elections described in subsection (a) of Section -96- 5.06 of the Plan shall not be made. Each holder of a Class 7 Claim (other than Claims constituting~Indenture Trustee. Expenses) shall receive in lieu thereof only the number of shares of Class 2 Common :.Stock equal to .00294118 times the amount of such holders Class =7 Claims, not to exceed in the aggregate for all such holders, ,x;500, 000 shares of Class 2 Common Stock (equal on the Effective Date to 5~ of the fully diluted Common Stock), and shall not receive any cash or have the right to purchase any Junior Debentures. (c) Resolution of - Claims Regarding Subordination Provisions Notwithstanding the foregoing or any other provision of the Plan, except as otherwise provided in Section .11.02 of the . Plan, which addresses the resolution of contractual subordination rights, any distribution to the holder of a Claim in Class 7 shall remain subject to any contractual subordination rights of a holder of a Claim in Class 5 or a holder of a Claim in Class 6 under the Subordinated Debenture Indenture. 6. GPIG Iat®r®sts Class 8 Interests shall receive no distribution under the Plan. 7. D®t®rmiaation of Class 5, 6 and 7 Claim Amounts The amount of all Claims in Classes 5, 6 and 7 (other .=than Agent and Indenture Trustee Expenses) shall be determined as ~of~ the Petition Date. For' the purpose of calculating the distributions under Sections 5.04, 5.05 and 5.06 of the Plan however, and solely for such purpose, the amount of Claims in Classes 5, 6 and '7 (other than Agent and Indenture Trustee Expenses) shall be determined as follows: • (i) Clans 5, 6 and 7 Claims to be determined without including any unpaid default interest, unpaid interest on interest, or unpaid fees., coats and expenses; • (ii) Class 5 Claims under the Bank Credit Agreement shall include accrued interest to the Petition Date; (iii) Class 5 Claims under the Zero Nates to be determined based on the accreted amounts of such Claims on the Petition Date; and (iv} Class 6 and 7 Claiats to be determined .based on outstanding prira.~ipal amounts without giving effect to any original issue: discount and without including any acc-rued and unpaid interest. •l -97- 8. Reallocation of Boldera° D®aignated Distributions After the Expiration Date and prior to the entry of the Confirmation Order, the Debtor may,in its sole discretion but subject to the consent of the holder of a Claim in Classes 5, 6, or 7, reallocate any of such holder's distributions available to "holders of Claims in the same Class. 9. Img~aired Clasaea . ~ By virtue of the foregoing provisions of Article V of the Plan, the Claims in Classes 2, 3, 4, 5, 6 and 7 and the Interests in Class 8 are impaired under the Plan. Proviaiona for N~ Inv®ator On or before the Confirmation Date, the Debtor and the New Investor shall enter into the New Investor Agreement. Pursuant to the New Investor Agreement, the New Investor shall, subject to the conditions and on the terms described therein, purchase on or prior to the Effective Date $27,250,000 face principal amount of Junior Debentures, and, if and only if Class 7 accepts the Plan, the face principal amount of Junior Debentures equal to the difference of $12,750,000 minus the aggregate face principal amount of Junior Debentures that are issued under Sections 5.05 (a) and 5.06(x)(4) of the Plan (the "Excess Junior Debentures"). The Junior Debentures purchased by the New Investor under Article VI of the Plan shall be convertible into Class 1 Common Stock in an aggregate amount equal t.o the product of .13 times the aggregate amount of Junior Debentures, including Excess Junior .,Debentures, so purchased. F. Proviaiona for Treatment of Disputed, Contingent and IInliquidated Claims and Adminiatrative.~cpenaea 1. Characterization of Clam as Disputed Pursuant to subsection 1111(x) of the Bankruptcy Code, proof of a:. claim is deemed filed under section 501 of the Bankruptcy Code if that claim is included in the schedules filed under section 1106 (a) (2) of the Bankruptcy Code except if the claim ;r is scheduled as disputed, contingent, or.unliquidated. Such a disputed, contingent, or unliquidated claim must be asserted by its .holder, or an Indenture Trustee representing such holder, by the - timel~y filing of a proof of claim. If a proof of claim is not filed in a timely manner, the claim may be deemed to be disallowed. Except as otherwise provided by the Plan, the Debtor shall have the _right to object to and contest the allowance of any Claim filed ,,.with the Court, whether or not sich Claim was scheduled as ~4 disputed, contingent or unliquidated. -98- 2. Resolutioa of Contested Claims Unless otherwise .ordered by the Court after notice and a hearing, objections to Claims, including Administrative Claims `•or to requests for payment of Agent Expenses or Indenture Trustee 'Expenses, shall be filed and served upon the holder of such Claim ~'or Administrative Claim or upon the Agent or Indenture Trustee, as 'applicable, as soon as practicable, but not later than the later ••of (a) sixty (60) days after the Effective Date, 'and (b) sixty (60) days after a proof of claim or request for payment of such Claim, Administrative Claim, Agent Expense or Indenture Trustee Expense is filed, unless this period is extended by the Court. The Debtor shall have the exclusive right to object to Claims other than Administrative Claims. G. Implementation of th® Plan 1. New Securities, Collateral Trust Agreement and Purehase Agreameata On the Effective Date, the Reorganized Company shall issue, in accordance with the provisions of Article V of the Plan, the New Senior Secured Notes, the New Senior Subordinated Secured Notes, the Junior Debentures, and the Common Stock and shall execute and deliver the New Collateral Documents and New Indentures, and if, and only if, Class 7 accepts the Plan, the Class 6 and Class 7 Purchase Agreements. 2. ~~Caacellation of Old S®curitiea, Ald Collateral Trust . Agreement and.Indenturea Except as expressly provided in the. Plan or in the Confirmation Order, on the Effective Date the Bank Credit Agreement, the Bank Guaranty Agreement, the Zero Notes, the Senior Subordinated Debentures, the Subordinated Debentures, the Old Collateral Trust Agreement, the Old Pledge and Security Agreement, the Indentures, the Proceeds Investment Agreement, the GNG Interests and all obligations of the Debtor, its. Subsidiaries, GHT'V and the GHTV Subsidiaries, under any of the_ foregoing, shall be terminated and cancelled; provided, however, that cancellation of the indentures shall not affect any contractual subordination rights which are preserved by Section 11.02 of the Plan. 3. Certificate of Incorporation and Bylav~ Amendments On or before the Effective Date, the Debtor shall effect the Certificate of Incorporation and Bylaw Amendments. 4. ~3aaagemeat of the Debtor - Upon the Effective Date, the operation of the Reorganized Company shall become the general responsibility of the Board of -99- Directors, who shall, thereafter, have the responsibility for the management, control, and operation of the Reorganized Company. The Board of Directors of the Reorganized Company shall be comprised of nine t9) persons whose names are listed in Exhibit 5. Such persons shall be deemed elected pursuant to the Confirmation Order. The Chairman of the Board of Directors of the Reorganized Company ' shall be G:VG. - Upon the Effective Date, the Board of Directors of the - " Reorganized Company shall delegate to the Management Company, pursuant to the GHT Management Agreement, and to the Operating _ Committee, pursuant to the Certificate of Incorporation and Bylaw Amendments of the Reorganized Company, certain responsibilities for the management and control of the operation of the Reorganized Company and the Reorganized Company Subsidiaries, as more fully described in Exhibits A and D attached to the Plan. Beginning on the first anniversary of the Effective. Date, the Reorganized Company shall issue 500,000 shares of Class 1- - Common Stock and warrants to purchase an additional 3~ of the Common Stock to the Management Company, subject to the terms and conditions, and on the dates set forth in the GHI Management Agreement.- The Reorganized Company shall also issue up to an . additional 2~r of the Common Stock to the Management Company in the - amounts, subject to the terms and conditions, and on the dates set forth in the GHI Management Agreement. - In order to retain the services of certain key management personnel during the pendency of the Reorganization Case, the Debtor has formulated a "Retention Plan," to which the Creditors' Committee does not object, that contemplates payment of specified sums to one or more of Messrs. David A. Ramon, Larry D. Haugen, Robert E. Selwyn, David A. Barnhill and James G. Gorman if, during "the pendency of the Reorganization Case, their respective employment is terminated. The Retention Plan also contemplates payments to such personnel upon confirmation of the Plan. - Mr. Ramon, Mr. Selwyn and Mr. Haugen have earned Deferred Compensation for services rendered to GHI and its Subsidiaries in the amounts shown in 8xhibit 4. Any payments, paid respectively to _ Mr. Ramon, Mr. Selwyn or Mr. Haugen under the Retention Plan shall reduce dollar for dollar the Deferred Compensation amounts due to them. The Debtor is seeking an order of the Court approving the _ Retention Plan. In addition to salary compensation, certain executive officers of the Reorganized Company and the Reorganized Company Subsidiaries shall participate in a new Deferred Compensation Plan to be established by GCC, Inc.., a.wholly owned Subsidiary of the Debtor. -100 5. Danagement of GHTV Upon the Effective Date, the Board of Directors of GHTV ~~shall delegate to the Management Company, pursuant to the GHTV Management Agreement, certain responsibilities for the management .and control of the operation of GHTV and the GHTV Subsidiaries, as more fully described in Exhibit F attached to the Plan. 6. Bsethod of Distribution IInder the Plan - All cash distributions are to be made by the Disbursing Agent. The Disbursing Agent shall establish such account or accounts in a depository bank approved by the U.S. Trustee for the °District-of Colorado as may be necessary to carry out the Plan. 7. Release .of the W Sal® Proceeds to th® Debtor On the Effective Date, Wilmington Trust Company, the custodian under the Proceeds Investment Agreement, shall release "the WMAR Sale Proceeds to the Reorganized Company in accordance with the Confirmation Order and the provisions of the Proceeds Investment Agreement. The Reorganized C~a~.rany shall use the WMAR Sale Proceeds to make cash distributions under the Plan and for general corporate purposes after the Effective Date. Investment in Cash Cash held shall be invested by the Disbursing Agent in United States Treasury Bills, interest bearing certificates of deposit, interest bearing savings accounts, and investments permitted by section 345 of the Bankruptcy Code, using its best efforts to maximize the rates of interest without increasing the risk of the investment.. All interest earned on such cash shall be held by the Disbursing Agent and distributed as part of the estate in accordance with the Plan. 9. D~aaner of Payment Dhder the Plaa Any payment of cash made by the Disbursing Agent pursuant to the Plan may be made either by check drawn on a domestic bank or by wire transfer from a domestic bank,. at the option of the .,Disbursing Agent. lA. Benner of Distribution of Other property Any distribution under the. Plan of property other than cash shall be made by the Reorganized Company or its designee in accordance with the terms of the Plan. ' -101- 11. S®toffs The Debtor may, but shall not be required to, set off against any Claim (for purposes of determining the allowed amount ~of such Claim on which distribution shall be made) other than Class •5, 6 and 7 Claims, any claims of any nature whatsoever the Debtor 'may have against the claimant, but neither the failure to do so nor 3 :~~.the allowance of any Claim hereunder shall constitute a waiver or release by the Debtor of any such elaim the Debtor may have against such claimant. 12. D® Bgini~is Distributions No cash payment of less than five dollars ($5.00) shall be made by the Disbursing Agent to any holder of a Claim unless a request therefor is made in writing to 'the Disbursing Agent. 13. Saturday, Sunday ®r L®gal Holiday If any payment or act under the Plan is required to be made or performed on a date that is not a Business~Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been c~.«~leted as of the required date. 14. Other Doeuffients and Action® The Debtor and the Reorganized C~.«rany may execute such documents and take such other action as is necessary to effectuate- the transactions provided for in the Plan. 15. Corporate Acts®ns The issuance of the Common Stock, the adoption of the Restated Certificate of Incorporation and Bylaw Amendments, the selection of certain directors and officers of the Reorganized Company, the execution and delivery of any documents to be executed and delivered under the Plan, and other matters under the Plan involving the corporate structure of the Debtor or corporate action by the Debtor shall be deemed to have occurred and be effective on and after the Effective Date- without any requirement of further action by stockholders or directors of the Debtor. Without limiting the foregoing, upon entry of the Confirmation Order by the Clerk of the Court, the filing by the Debtor or Reorganized~Company of the Restated Certificate of Incorporation and Bylaw Amendments shall be authorized and approved in all respects. On the Effective Date, or as soon thereafter as is practicable, pursuant to applicable state law, the Reorganized Company shall file with the applicable state governmental agencies or offices the Restated ' Certificate of Incorporation and Restated Bylaws shall be the bylaws of the Reorganized Company. -102- 16. Subsidiary Restructuring As part of the GHI Restructuring Transactions, the Debtor and its Subsidiaries shall take such corporate action and execute such other documents as may be necessary to effect a restructuring of the ownership of .the Debtor's Subsidiaries as more fully ~=~described on Exhibit M attached to the Plan such that the ~~organizational structure of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV and the GHTV .Subsidiaries ~.~~shall be as depicted on Exhibit N attached to the Plan and Exhibit 2B attached hereto. 17. R®solutioa of GIdG Relat®d Claims sad ]?cquisition of 7#s~ets On the Effective Date, GNG shall transfer., or cause to be transferred, to the Reorganized Company the common stock of Vail Magazine, Inc. and Jet Center, Inc., and the Reorganized Company and GHTV shall transfer or cause their subsidiaries to transfer to GNG the accounts receivable of the Reorganized Company, GHTV or any of their subsidiaries outstanding on the Effective Date from Gillett Cattle Company and GNG, and the common stock of Gillett Subsidiary Corp., a Delaware corporation, held by the Debtor or its Subsidiaries (the only asset of Gillett Subsidiary Corp. being the SCI Stock). H. ~?eceptaace or Rejection of the Plan 1.~ appropriately Ddarked Dallote by Hold®rs of-Claims in Classes 5,',6 sad 7 Shall be D®emed ae Releases of the Subsidiary Guaraatees sad gledg®s The ballots used for soliciting acceptances or rejections of the Plan for Classes 5, 6 and 7 shall contain both a space for indicating a holder's acceptance or rejection of the Plan and a separate space for indicating the holder's agreement to release such holder's rights under the Subsidiary Guarantees and Pledges. Ballots so marked to release the holder's rights under the Subsidiary Guarantees and .Pledgee shall be deemed to constitute contractual releases of such holder's rights under the Subsidiary Guarantees and.the Pledges as of the $ffective Date. i. Coaditioas Preeedeat 1. Coaditioas to Confirmation It is a condition to confirmation of the Plan that: (i) the Court make the following findings and determinations at the confirmation hearing so that the Confirmation Order will include provisions: -103- (a) authorizing the Debtor to implement the GHI Restructuring Transactions; ' (b) finding that the Subsidiary Guarantees have been released and discharged pursuant to the Bank Credit Agreement and the Indentures; (c) finding that the Pledges under the Old Pledge and .Security Agreement and the Old Collateral Trust Agreement have been released and discharged; ' (d) ordering that Wilmington Trust Company, the custodian under the Proceeds Investment Agreement, release the WMAR Sale Proceeds to the Debtor free of 'the provisions - of the Proceeds Investment Agreement; and . ~ (e) making the provisions of the Confirmation Order non-severabl`.and mutually dependent, and (ii) the following events shall have occurred: . (a) the Debtor shall have received firm commitment .letters from a bank or banks or such other financial institutions committing such banks or financial institutions to refinance the Subsidiary indebtedness referred to in Exhibit E attached to the Plan substantially on the terms set forth on a refinancing term sheet or sheets to be filed with the Court and served on all creditors and other parties in .interest not later than ten days prior to the hearing on the Debtor's Disclosure Statement filed with the Court pursuant to section 1125 of the Bankruptcy Code; (b) Vail shall possess Forest Service Permits on terms and conditions satisfactory to the Debtor and reasonably satisfactory to the Creditors' C.,..~..ittee; _ ~ (c) the Debtor shall be satisfied and the Creditors' C~,.4~.ittee shall be reasonably satisfied that - neither the confirmation nor Consummation of the Plan, nor any action to be. taken to implement the Plan, nor any of the GHI Restructuring Transactions, will result in the termination or modification of the Forest Service Permits (or any portion thereof); and (d) the New Investor shall have committed to _ purchase Junior Debentures in~the face principal amount of - $27,250,000 plus the Excess Junior Debentures, on the terms and subject to the conditions contained in the New Investor .Agreement by entering into the New Investor Agreement with the Debtor. -104- 2. Conditions ~o the Effective Date It is a condition to the Effective Date of the Plan that: (a) the Confirmation Order shall contain the provisions set forth in Section 10.01 of the Plan; t (b) all conditions to the obligation of the New Investor to purchase Junior Debentures under .the New Investor . Agreement .shall have been satisfied in accordance with the terms of the New Investor Agreement; (c) the GHI Restructuring Transactions shall have r occurred provided,~however, that this condition may be waived in writing by the Debtor and the Creditors' Committee, acting jointly, or by the Debtor acting solely without the consent of the Creditors' Committee by seeking approval of the Court with notice to the Creditors' C~,~u«ittee and such parties in interest as the Court may direct; (d) the~Confirmation Order shall have become a Final Order; provided, however, that this condition may be waived in writing by the Debtor and the Creditors' Committee acting jointly, or by the Debtor acting solely without the consent of the Creditors' Committee by seeking approval of the Court with notice to the Creditors' Committee and such parties in interest as the Court may direct.; t~ (e).,all primazy indebtedness of the Subsidiaries underlying the GHI Guarantee Claims shall have been repaid in full, credit enhanced or remain outstanding on terms such that GHI's obligations under such GHI Guarantee Claims shall have been satisfied, released and discharged; (f) the Debtor shall have received a ruling from the Internal Revenue Service satisfactory to the Debtor; provided, however, that this condition may be waived in writing by the Debtor; and (g) the Debtor shall have obtained the approval by the Federal C~~„~,«snications Commission of the GHI Restructuring Transactions, insofar as they relate to television stations KSBW-T'V, RSBY-TV and W't'VT-TV, on terms and conditions satisfactory to the Debtor and reasonably satisfactory to the Creditors' Committee. 3. Effect o! Noa-occurrence o~ Conditions to Effective Dgte If Confirmation and the conditions to the Effective Date .;have not occurred (or in the case of the conditions described in .:.Section 10.02(c), (d) and (f) of the Plan, been duly waived) by -105- September 30, 1992, or by such later date as is proposed by the Debtor and approved by the Creditors Committee and New Investor and approved by order of the Court on notice to such parties in interest as the Court may direct, then upon motion by any party in interest made (i) after the deadline for satisfying (or obtaining .waivers of) the Effective Date conditions (as such deadline may.be• extended hereunder), and (ii) before the time that the conditions have occurred or, if waivable, have been duly waived, the "Confirmation Order maybe vacated by the Court. Notwithstanding the foregoing, the Confirmation Order may~not be vacated after the `conditions to the Effective Date have either occurred or (in the . •case of the conditions described in 10.02 (c) and (d) of~the Plan) - '°been duly waived. If the Confizznation Order is vacated pursuant ~to the foregoing, then the Plan shall be null and void. J. $ff®cte of Plan Confirmation 1. Di+~ehatrg® Except as otherwise expressly provided in the Plan or Confirmation Order, as of the Effective Date, the Debtor shall be discharged forthwith from, and the Confirmation Order shall operate as an injunction against, the c~..~,~encement or continuation of an action, the employment of process, or an act to collect, recover or offset, any Claim and any "debt" (as that tern is defined in section 101(12) of the Bankruptcy Code), and the Debtor~a liability in respect thereof is extinguished completely, whether reduced to judgment or not, liquidated or unliquidated, contingent or noncontingent, asserted or unasserted, fixed or not, matured or unmatured, disputed or undisputed, legal or equitable, known or unknown, that arose from any agreement of-the Debtor entered into or obligation of the Debtor incurred before the Confirmation Date, or from any conduct of the Debtor prior to the Confirmation Date, s~~or that otherwise arose before the Confirmation Date, including, ~~~~~without limitation, all interest, if any, on any such debts, ' whether such interest accrued before or after the date of commencement of the Reorganization Case, and from any liability of a kind specified in sections 502(8), 502 (h) and 502(i) of the Bankruptcy Code, whether or ,not a proof of claim is filed or deemed filed under section 501 of the Bankruptcy Code, such Claim is ~~allowed under section 502 of the Bankruptcy Code, or the holder of .such Claim has accepted the Plan. Z. T®r~irution oil C®rtain Subordination fights and ` S®ttl~~ent of R®lat®d Clam and Coatroom®rsi®s . 4 -106- . ~~(a) Resolution of Contractual Subordination Claims of Hold®r,s of Claims in Class 5 Against Settling Class 6 Claimants and Settling Class 7 Claimants sad of Holders of Claims in Class 6 Against Settling Class 7 Claimants In consideration for the treatment of Claims in Class 5 . and Class 6 under the Plan and the willingness of Settling Class 6 Claimants and Settling Class 7 Claimants not to assert any challenges with respect to the contractual subordination provisions . contained in the Old Subordinated Indentures, all contractual, ~legal.or equitable subordination rights that the holder of a Claim in Class 5 may otherwise, have with respect to any distribution to be made to a Settling Class 6 Claimant or a Settling Class 7 Claimant under the Plan, or that the holder of a Claim in Class.6 may otherwise ,have with respect to any distribution to be made to a Settling Class 7 Claimant under the Plan, shall be deemed to have been waived, discharged and terminated, and all actions related to . the enforcement of such subordination rights shall be permanently enjoined. Accordingly, distributions pursuant to the Plan to holders of Allowed Claims in Classes 6 and 7 which are held by Settling Class 6 Claimants and Settling Class 7 Claimants shall not be subject to payment to a beneficiary of any subordination rights contained in the Old Subordinated Debentures, or to levy, garnishment, attachment or other legal process by a beneficiary of such subordination rights. ' (b) Resolutioa of Contractual Subordination Claims ,of Class 5 Creditors Against Non-Settling Class 6 Claimants and Noa-Settling Class 7 Claimants and of Class 6 Creditors Against Noa-S®ttling Class 7 Claimants Notwithstanding anything to the contrary contained in • the Plan, any distribution to be made to each Non-Settling Class 6 Claimant and each Non-Settling Class 7 Claimant under the Plan ("Impounded Distribution") shall remain subject to any contractual subordination rights provided in the Old Subordinated Indentures, and shall. be impounded in an escrow and not distributed until the entry of a Final Order of the Court .determining: (i) in the case of impounded property that would otherwise be distributed to a Non- . Settling Class 6 Claimant, the respective rights of Class 5 creditors and the Non-Settling Class 6 Claimant thereto; and (ii) in the case of impounded property that would otherwise be distributed to a Non-Settling Class 7 Claimant, the respective rights of Class 5 creditors, Class 6 creditors and the Non- Settling Class 7 Claimant thereto. The Impounded Distributions shall be distributed in accordance with such Final Orders. -107- (c) Litigation Regarding Contractual Subordination Provisions Any Non-Settling Class 6 Claimant or Non-Settling Class 7 Claimant shall be free to' challenge the scope, effect, enforceability or effectiveness of any contractual subordination provision contained in the Old Subordinated Indentures with respect to the Impounded Distribution, as to which such contractual. `subordination provisions are not being affected by the Plan. Except as provided in the preceding sentence., all actions related to the enforcement of contractual subordination rights, including ,~~the Equitable Adversary Proceeding, shall be permanently enjoined. ;~~~The Equitable Life Insurance Society of the United States and EQJ Partnership, the plaintiffs in the Equitable Adversary Proceeding, shall dismiss the Equitable Adversary Proceeding (which dismissal shall be with prejudice, except to the extent provided in the prior sentence), and the~Confirmation Order shall provide for such dismissal. (d) Non-Contractual Subordination Rights The classification and manner of satisfying all Claims and Interests under the Plan takes into consideration all non- contractual rights of legal and equitable .subordination, whether arising under general principles of equitable subordination, section 510 (c) of the Bankruptcy Code, or otherwise, that a holder of a Claim or Interest may have against other holders of Claims or Interests with respect to any distribution made pursuant to .the Plan.. On the Effective Date, all non-contractual legal or equitable subordination rights that a holder of a Claim or Interest may have with respect to any distribution to be made pursuant to the Plan shall be deemed to have been waived, discharged and terminated, and all actions related to the enforcement of such subordination rights shall be permanently enjoined. No off®ct on N~? Securiti®s Any waiver, discharge or termination of subordination rights provided for herein shall not affect or be deemed to affect any subordination or other provisions contained in any of the New Securities or New Indentures. 3. R®v®ating $xcept as otherwise expressly provided in the Plan, the _ New Indentures or the New Collateral Documents, on the Effective Date the Debtor will be vested with all of the property of the estate free and clear of all Claims, liens, encumbrances, charges and other interests of creditors and equity security holders, and may operate its businesses and exercise its interest in its subsidiaries free of any restrictions imposed by the Bankruptcy Code or by the Court. The Debtor shall continue as a debtor in. -108- possession under the Bankruptcy Code .until the Effective Date, and, thereafter, the Debtor may operate its business free of any restrictions imposed by the Bankruptcy Code or the Court except as " specifically authorized by the Plan. ` 4. Retention of Jurisdiction Notwithstanding entry of the Confirmation Order or the .Effective Date having occurred, the Court will retain jurisdiction (a) to determine any disputed Claims, (b) to determine requests for _payment of Claims entitled to priority under section 507(a)(1) of ...the Bankruptcy Code, including compensation of and reimbursement rof expenses of parties entitled thereto, (c) to resolve . controversies and disputes regarding interpretation and '..implementation of the Plan and the Restructuring Transactions, (d) to enter orders in aid of execution and implementation of the Plan, including; without limitation, orders which may include contempt or other sanctions, (e) to modify the Plan pursuant to Section . 12.05 of the Plan, (f to determine any and all applications, Claims, adversary proceedings and contested or litigated matters pending on the Effective Date, (g) to allow, disallow, estimate, liquidate or determine any Claim against the Debtor and to enter or enforce any order requiring the filing of any such Claim before a particular date, (h) to determine any and all pending applications for rejection or disaffirmance of executory contracts or unexpired leases, and to hear and determine, and if need be to s`liquidate, any and a11.Claims arising therefrom, (i) to adjudicate any claim to::'or controversy regarding the distribution of any ;Impounded Distribution under Section 11.02 of the Plan; and (j) to , enter a final decree closing the Reorganization Case. Notwithstanding anything to the contrary contained herein, the Court. shall not retain jurisdiction over any action or proceeding which relates to the New Investor Agreement, the GHI Management Agreement, the GHTV Management Agreement, the Stockholders Agreement, the New Securities, the New Collateral Documents or the New Indentures including without limitation, any action to enforce, interpret, rescind or reform the New Investor Agreement, the GHI Management Agreement, the GHTV Management Agreement, the ,.Stockholders Agreement, the New Securities, the New Collateral Documents or the New Indentures. 5. Post-Consu~atioa Rffect of B•rideacea of Claims or Interests Notes, stock certificates and other evidences of Claims against or Interests in the Debtor shall, effective upon the Effective Date, represent only the right to participate in the .distributions contemplated by the Plan. { -109- 6. `T®zffi of Iajunetioas os Stays Unless otherwise provided, all injunctions or stays provided for in the Reorganization Case pursuant to sections 105 'or 362 of the Bankruptcy Code or otherwise and in effect on the .Confirmation Date shall remain in full force and effect until the Effective Date. R. B3iscellaaeoug Provisions 1. Surrend®r of Iastru~eats - As a condition to participation under the Plan, (i) a holder of a security that desires to receive the property on account of such holder's Allowed Claim with respect to that . security shall surrender such security, or evidence thereof satisfactory to the Exchange Agent or its designee, and. (ii) the holder of a note; debenture or other evidence of indebtedness of the Debtor (other than a security) that desires to receive the property to be distributed on account of an Allowed Claim based on such note, debenture or other. evidence of indebtedness shall surrender such note, debenture or other evidence of indebtedness to the Exchange Agent, or its designee, and shall execute and deliver such other documents as are necessary to effectuate the Plan. If no surrender of a security, note, debenture or other evidence of indebtedness occurs and a claimant does not provide an affidavit that such security, note, debenture or other evidence of indebtedness was lost in form and substance reasonably satisfactory to the Exchange Agent, then no distribution may be made to any claimant whose Claim is based on such security, note, debenture or other evidence of indebtedness thereof. The Exchange Agent shall ~ make subsequent distributions only to the Persons who surrender the securities for exchange (or their assignees) and the record holders of such securities .shall be those holders of record as of the Distribution Record Date. Pursuant to section 1143 of the Bankruptcy Code, holders of securities, notes, debentures or other ..evidences of indebtedness who fail, within two years after the Confirmation Date, to surrender such securities notes, debentures, or other evidences of indebtedness or fail to provide an acceptable affidavit that such security, note, debenture or other evidence of indebtedness is lost, shall not participate in the distributions { under the Plan. In such an event, the distributions otherwise distributable to such holders together with accrued interest and dividends earned thereon will become the property of and shall be released to the Reorganized Company. 2. ~c®catozy Coatgaets On the Confirmation Date, all executory contracts of the Debtor will be rejected in accordance with the provisions of section 365 and section. 1123 of the Bankruptcy Code, except (a) any and all executory contracts which are the subject of separate -110- motions filed pursuant to section 365 of the Bankruptcy Code by the Debtor prior to the commencement of the hearing on confirmation of the Plan, (b) such contracts as are listed on any "Schedule of Assumed Executory Contracts" filed by the Debtor on or before entry of the Confirmation Order, all of which contracts shall be assumed pursuant to the provisions of section 365 and section 1123 of the -Bankruptcy Code, and (c) any and all such contracts assumed prior to entry of the order confirming the Plan. Contracts entered into after the date of commencement of the Reorganization Case will be performed by the Reorganized Company in the ordinary course of business. Any Claims arising out of the rejection of contracts or leases under Section 12.02 of the Plan must be filed with the Court within 30 days after the Confirmation Date or entry of an order of rejection, whichever is later, or be forever barred. 3. Modification of the Plan The DDebtor reserves the right, in accordance with the- Bankruptcy Code, to amend or modify the Plan in any manner prior to the entry of the Confirmation Order. After the entry of the Confirmation Order, the Debtor may, only with the written consent of the New Investor and the Creditors' Committee, upon order of the Court, amend or modify the Plan only in accordance with, and to the extent permitted by, section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in the Plan in such manner as may be necessary to carry out the purpose and intent of the Plan. 4.~ ";',~ithdrawal of Plan The Debtor reserves the right, at any time prior to entry of the Confirmation Order, to revoke and withdraw the Plan. If the Debtor revokes or withdraws the Plan prior to entry of the Confirmation Order, or if entry of the Confirmation Order does not occur, then the Plan shall be deemed null and void. In such event, nothing contained in the Plan shall be deemed to constitute a waiver or release of any Claims by or against the Debtor or any other person or to prejudice in any manner the rights of the Debtor or any person in any further proceedings involving the Debtor. 5. Limitation of Liability Neither the Reorganized Company, the Subsidiaries, any committees appointed pursuant to section 1102 of the Bankruptcy Code, nor the New Investor, nor any of its or their respective offi-cers, directors, attorneys, accountants, consultants, employees, or agents shall have or incur any liability to any Creditor for any act or omission in connection with or arising out of their formulation, preparation, dissemination, implementation, confirmation, consummation or administration of the Plan or the property to be distributed under the Plan except for willful misconduct or gross negligence, and in all respects, shall be -111- entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan. The Court shall have exclusive jurisdiction to resolve any questions concerning any such liability. - 6. Ind~ification Obligations - Section 12.12 of the Plan provides that for purposes of - :-the Plan and notwithstanding any other term or provision thereof, :the obligations of the Debtor to indemnify its present directors, - •officers, representatives or agents (both in their current capacities. and in any such former capacities occupied by them), respectively, as of the Petition Date against any obligations (other than tax obligations) pursuant to the certificate of incorporation, bylaws, applicable state law or specific agreement or any combination of the foregoing shall survive confirmation of - the Plan, remain unaffected thereby; and not be discharged, irrespective of whether indemnification is owed in connection with - an event occurring before, on, or after the Petition Date. • 7. Releases Section 12.14 of the Plan provides that in consideration of the distributions to be made under the Plan and the compromises and settlements under the Plan, the Reorganized Company, the Subsidiaries, GNG, the Agent, the Indenture Trustees, the Banks, the holders of the Zero Notes, the Senior Subordinated Debentures, the Subordinated Debentures and their respective present affiliates, directors, officers, partners, ~.«rloyees, representatives and agents (both in their current capacity and in any such former capacities occupied by them) and their successors - or assigns shall be released from, and permanently enjoined from any prosecution or attempted prosecution of, any and all actions, causes of action, claims, liabilities, demands and obligations of any kind or nature whatsoever that any of them may have against the other and that arise out of, or are in any way connected with (i) any payment or transfer of property or any interest in property by GHI or the Debtor to or for the benefit of any holder of a Claim or Interest or prior creditor of GHI or the Debtor, or (ii) any act or omission by any such Person related to GHI; the Debtor, the Reorganization Case, the Old Securities, the Bank Credit Agreement or any Claims or Interests in the Reorganization Case. - ~Yo Origiaal issu® Discount No portion of the principal or face amount of the New Senior Secured Notes, the New Senior Subordinated Secured Notes or the Junior Debentures issued hereunder shall constitute original issue discount or unmatured interest within the meaning of section 502(b)(2) of the Bankruptcy Code in this Reorganization Case or in any subsequent case under the Bankruptcy Code or any successor statute by or against the Debtor or the Reorganized Company. - -112- VIII. PRO FORA FINANCIAL DATA AND FINANCIAL PROJECTIONS OF ln,s REORGANIZED CO~ANY AND GHTV A. Unaudited Pro Forma Consolidated Financial Data of the Reorganized C.....~.~aay The following pro forma consolidated balance sheet as of September 29, 1991 gives effect-to the proposed restructuring as if the Effective Date occurred as of September 29, 1991. The pro forma consolidated statement of operations for the nine months ended September 29, 1991 presents pro forma operating results for the Reorganized Company as if the Effective Date had occurred as of January 1, 1991. Accordingly, none of the costs associated with consummating the restructuring transactions are included in the pro forma consolidated statement of operations. Refer to the Projected Statements of Operations and Cash Flows for these costs. The pro forma information is based on the consolidated financial statements of the Debtor after giving effect to the .proposed restructuring. - The pro forma adjustments are described in the acc~~«ranying notes. 'The pro forma operations data do not necessarily indicate either future results or the results that would have occurred if the proposed restructuring had occurred on the dates indicated. The pro forma consolidated financial statements should be read in conjunction with the consolidated financial statements of the Debtor and the related notes thereto and management's discussion thereof contained in Exhibit 3 attached to this Disclosure Statement. , -113- - GILLETI HOLDINGS 1NC. CONSOLIDATED PRO iORMA ~ALANCE SHEET SEPTEMBER 29, 1991 (In lhousends) (Unaudited) Gillett Holdinss~ Inc (Ylvi Acquisition Adjusted Histortcel Pro Forms Pro Forma Pro forme Consolidated Adjustment (1)) Balerxe Consolidated ASSETS ~ 9/29/91 a 9/29/91 8 9/29/91 Pro form.! Adjustments ~ 9/29/91 CURRENT ASSETS: Cash end cash equivalents !143,458 (!3,171) !140,287 1,526 (8) (30,925) (!18,191) 44,439 7,725 52,164 (129,079) (4) Recelvsbles (1 000) (7) 39,710 1 mrent or 1 es _ 13,947 13,947 (11;454) (8)' Other current assets 5,715 409 6,124 (2,368) (8) 13;756 local current assets 207,559 4,963 212,522 1,526 (174,826) 39,222 Property, plent and equipment 127 737 40,748 168 485 (67,333) (B) 101 152 Deterred charges and other assets 42;779 16,969 59;748 4,000 (7) (8,314) (2) 266;814 232,277 (8) (1,801) (6) ReCelv~les from eifiliates - 0 0 ~ (19,096) (B) Invest4tsnt in/advarxes to unconsolidated companies 278,161 (270,161) 0 0 0 Intsnplble assets 33,381 126,445 159,826 (157,884) (8) 1,942 Reoryenlistion value - 0 110,251 (9) 710,251 l689,617 (!89,036) !600,581 !348,056 (5429,254) !519,381 l1AlsIl1T1ES ANO STOCKHOLDER'S EoUIIY (OEflCll) CURREIIi l1ABIl1TIES: Accounts payable and accrued expenses 5105,076 E4, 128 109,204 (3,945) (3) ~ !24,63) (72,631) (4) (7,997) (8) Ineoae! texas payable 417 417 417 Long-term debt due within one year 1,008,608 ~ 1,008,608 (962,538) (4) ~ 3,111 (42,959) (S) lots current liabilities 1,114,101 4,128 1,118,229 (1,090,070) 0 28,159 long-term debt 1,869 0 1,869 380,856 (6) <2D,684 42,959 (5) 4,000 (7) Other lor>0-term liabilities 24,867 16,005 40,872 (16,334) (8) 24,538 Peqeblae to sf4ilistes - Deferred itxome taxes 5,471 (5,471) 0 0 Conasi tsients ti cost ingerx i es ~ _ ' S10trKNOlOER'S Et)UIIY (DEFICIT): C.~ ~ stock and additional paid-in capital 261 0 261 (1) (8) 36,740 (4) 37,000 Deficit (456,957) (103,698) (560,650) (8,314) (2) 488,494 (4) 0 (26,980) 13) 110,751 (9) (1,801 ) (b) (1,000) (7) lot al stockholder's equity (deficit) (456,691) (103,698) (560,389) (38,096) 635,685 37,1,00 !689,617 (589,036) 1600,581 (11,144,500) 51,061,300 5519,381 -I14- GILLEii HOLDINGS, INC. CONSOI{OATED PRO FORMA SIATENENT OF OPERA110NS fOR 1HE NINE NOIIINS ENDED SEPIENBER 29, 1991 (In lhousends) (Unaudited) Historical (11TVT Acquisition Adjusted Pro Fora Consolidated For Pro Forme Pro Forme Consolidated for The Nine Nths. Adjustment (1)) Balance The Nine Ntha. Ended 9/29/91 8 9/29/91 8 4/29/91 Pro Forma Adjustments Ended 9/29/91 NEi REVENUES: Products - beef and other 5446,563 - 4446,563 <46,563 Broadcasting and resort 124,211 25,465 149,676 (37,994) (2) 111.682 Net reverx~es 570,774 25,465 596,239 (37 994) 0 558,245 OPERATING COSTS AND ExPENSES: Cost of prodtxts sold 621,911 - 421,941 --------421,961 . Operating expenses 100,337 14,702 115,039 (23,615) (2) 91,424 Operatl costs end expenses excluding depreciation end eiwortirat~an 522,278 14,-702 536,980 0 (23,615) 513,365 Oepreciatlon 11,210 2,632 13 842 (4,743) (2) 9,044• Amartizetion of intangible assets 3,209 _6,289 -9;498 4,134 (8) (7,214) (2.) 6,418 Total operating costs and expenses 536,697 23,623 560,320 4,134 (35,572) 528,882. Corporate expenses 5,565 272 5,837 (1,077) (2) 4,760 Irecosie (loss) from operations 28,.512 1,570 30,082 (42.,128) 36,649 Y- ZL;603 OTHER INCOME (ENPENSE): foes on sale of comimxiicetions properties (24,811) - (24.811) (24'811) Equityy in losses of unconsolidated companies (1,453) 1,953 ~ 0 0: Bnvettaoent income 2,985 - 2,985 (12) (2) 19,875 (9) 22,848: Interest expense (24,544) (617) (25,161) (38,792) (5) 939 (2) (44,701) (1,827) (6) 20,140 (4) Other (4,009) 17 (3,992) 2,087 l3) (810) 1,095 (2) (52,332) 1,353 (50,979) (40.,631) 44,136 -•------(47,474) REORGAMIYATION (TENS: Leysl and professional fees (13,270) - (13.270) 13.270 (7) ~ Senior subordinated debt - additional discount amortized (2,978) (2,978) 2,978 (7) 0 Lots before income taxes end extraordinary item (40;068) 2,923 (37,145) (82,759) 97,033 (22.871) Provision for income taxes: 0 0 Federal - Stete (73) - ( 0) 1 (2) (1201 Deferred state (73) 0 (73) 0 1 (72) lose before extraordinary item (40,141) 2,923 (37,218) (82,759) 97,034 (27,943) Extraordinary item - recognition of tax benefit 0 of net operating loss carryforwards - - Net loss (f40,141) !2,923 (137,218) (182,759) 197,034 (422,943) -iis- • r ATOTES ~ TO CsI%Lls i EOLDIPT(aS ~ I2dC . PRO FOR~AI COATSOLIDAI'tseJ FIAIANCII~L STRTBi+2ENTS is Thousands) The adjustments to the pro .forma consolidated balance sheet consist of (1) Recording the acquisition of the 199. shares of Class A common stock of W'1'VT Holdings as more fully described in Article V.B.l.d.; consolidating the balance sheet of W'1'V'T, Inc.; and establishing GHTV as a holding company for GHI's broadcast . subsidiaries. - (2) Eliminate capitalized financing costs of debt under the Bank Credit Agreement, the Zero Notes, the Senior Subordinated Debentures and the Subordinated Debentures. (3) Charge to expense the fees. related to the proposed . restructuring. (4) Exchanging the debt under the Bank Credit Agreement, the Zero Notes, the Senior Subordinated Debentures and the Subordinated - Debentures for cash, New Senior Secured Notes, New Senior Subordinated Secured Notes, Junior Debentures and Common Stock. The resulting negative cash balance is caused by the seasonal cash .fluctuations of the Subsidiaries' businesses. The Plan provides for working capital lines of credit to be established at GHTV, Vail and Packerland. (5) Reclassify debt to properly present maturities due within one year. (6) Reduce funded pension asset to amount expected to be realized at termination (approximately $6,000). (7) Exchange certain receivables and investment in Gillett . Subsidiary Corp. for the stock of Vail P4agazine and Vail Beaver Creek Jet Center, Inc. (the "Jet Center"). (8) Record the sale of 100~r of the common stock of GHTV for $1. ~(9) Reflects the estimated net increase in -assets after giving effect to WFresh Start" accounting. The Financial Accounting Standards Board has recently issued Statement of Position 90- 7 ("SOP °90-7")-which governs companies while they operate under the protection of Chapter 11 and as they emerge from Chapter 11. Fresh Start Accounting provides that liabilities be recorded at their present values, based upon market interest rates at the time of emergence. Assets are recorded at their fair market value. Retained earnings start with a zero balance. and the co~non stock account(s) reflect the difference between the stated value of the assets and -116- liabilities. The reorganization value account in the pro forma balance sheet will be assigned to specific assets upon consurc~nat°ion of the transaction. The adjustments to the pro forma consolidated statement of operations consist of: (1) Combining the statement of operations of V1'I'V'!', Inc . for the nine months ended September 29, 1991 with the consolidated statement of operations of the Debtor for~the same period. (2) Elimination of operations of the broadcast subsidiaries to reflect the sale of GHTV. (3) Elimination of amortization o.f capitalized financing costs related to the debt under the Bank Credit Agreement, the Zero Notes, the Senior Subordinated Debentures and the Subordinated Debentures. (4) Eliminate interest expense related to the debt under the Bank Credit Agreement, the Zero Notes, the Senior Subordinated Debentures and the Subordinated Debentures. (5) Interest expense on New Senior Secured Notes and New Senior Subordinated Secured Notes based upon discounting these notes at an effective interest rate of 13~ and 17~, respectively. (6) Interest expense on the Junior Debentures based upon the coupon interest rate of 6~. (7) Remove reorganization items recognized at closing. (8) Reflects the estimated net increase in depreciation expense resulting from the estimated increase in net asset values under "Fresh Start" accounting. (9) Interest income on the ~~~±~,000 of GHTV and GHTV Subsidiaries Notes payable to GHI based on a 10~ interest rate (7~ cash, - 3$ paid in kind). The provision for income taxes and income taxes payable accounts in the pro forma statement of operations and balance sheet assume that the settlement proposal advanced by the Debtor with respect to the audits of~ tax returns filed by the Debtor for prior taxable years is accepted by the Internal Revenue Service. The Debtor and GHTV will enter into separate tax sharing agreements with their subsidiaries subsequent to the restructuring date. In addition, the pro forma. statement of operations does not include any cash. flows for the Jet Center or the Vail Magazine as it is assumed that the future cash flows of these entities will ~be approximately equal to the debt service on the debt of the Jet Center. -117- B. IInaudit®d Pro Forma Consolidated Finaneial Data of GHTV, Inc. - The following pro forma consolidated balanee sheet as of September 29, 1991 gives effect to the transfer of GHTV, Inc. to an independent owner as if i~t had occurred as of September 29, -1991. The pro forma consolidated statement of operations for the --nine months ended September 29, 1991 presents pro -forma operating results for GHTV, Inc. as if its formation had occurred as of January 1, 1991. Accordingly, none of the costs associated with the restructuring transactions are included in the pro forma consolidated statement of operations. Refer to the Projected Statements of Operations and Cash Flows for these costs. The pro forma information is based on the combining financial statements of the Debtor's broadcast subsidiaries and the consolidation of WTV'!' Holdings, Inc., after giving effect to adjustments for the formation of GHTV, Inc. as a holding company. The pro forma adjustments are described in the accompanying notes. The pro forma - operations data do not necessarily indicate either future results or the results that would have occurred if the formation of GHTV, Inc. had occurred on the dates indicated. The pro forma consolidated financial statements should be read in conjunction with the consolidated financial statements of the Debtor and the related notes thereto and management's discussion thereof contained in Exhibit 3 attached to .this Disclosure Statement. -118- GNTV, INC. CO015O1lDATED PRO FORMA BALANCE SHEET SEPTEMBER 24, 1991 (Ln Thousands) (Unaudited) Historical - Dro forma Combined Consolidated ASSETS a 9/29/91 Pro Fornea Adjustments a 9/29/91 CURRENT ASSETS: Casa ano casn equivalents (11,527) (11,527) Receivables 11,454 11,x54 Ctner current assets 2,368 2,368 total current assets 12,295 0 0 12,295 Property, plant and equipment 67,333 b7,333 Deterred cnarges and other assets 19,096 19,096 Intangible assets ~ 157,884 157,884 8256,608 f0 f0 !256,608 xasasaass:sass sassaaasaaoasa cc__s__aasasaa asaasaassasass LIABILI11E5 aN0 STOCKNDIDER'S EQUITY (DEfICiT) CURRENT LlA8lL1T1ES: accounts payable ano accrued expenses 87,997 ~ f T, 997 Total Current liabilities 7,997 0 0 7,997 ~.ong•term oeet 265,000 (32,724)(1) 232,276 Ctner long-term liabilities 16,334 16,334 Cxrtn~tments a contingencies STOCKHOLDER'S EOUlT'f (OEfiCIT): ~ Comrrot+-stocr and additional pa~d-~n cap~tat 259 (258)(1) 1 Deficit (32,981) 32,982 (1) 0 'otal stoctholder's equity (deficit) (32,723) (258) 32,982 t 8256,608 (132,982) !32,982 8256,608 xsasasaasaasaa xsaasasssaasaa asxasaasaaasaa easaasassasasa -119- . , GHTV, INC. CONSOLIDATED PRO fORMiA S1ATEgENT OF OPERATIO:dS FOR THE MINE ?4gdTNS ENDED SEPTEMBER 29, 1991 Historical Pro Forme Coa~binmd Conraol idated For the dine For The Nine Months Ended ?aonehs Ended 9/29/91 Pro Forme Adjustments 9/29/91 NET REVENUES: 8roaocasting and resort 37,994 37,994 wet revenues 37,994 •J 0 37,994 OPERATING COSTS AMD EXPENSES: Operating eacenses ~ 23,615 23,615 Ocerating costs and expanses eacluding depreciation arm amortiiaiion 23,615 0 0 23,615 Depreciation 4,743 4,743 Amortisation of intangible assets 9,122 (1,908)(1) 7,214 total opersting costs and eapenses 37,480 0 (1,908) 35,572 Corporate eaprnses 1,077 500 (2) 1,577 income (loss) from operations (563) (500) 1,908 845 OTHER iMCOME (ExPENSE): Investment inccane 12 t2 Interest eaptnse (59,712) 35,185 (3) (2L,527) Other 141) (G1) (59,741) 0 35,185 (24,556) Bess before incouer tanes and eatraordinary item (b0 ,.304) (500) 37,093 (23,711) Provision for income Canes: federal 0 0 State (t) Deferred state p 0 (1) 0 0 (1) loss before eacraordinery item (60,305) (500) 37,093 (23,712) Extraordinary stare - reeognition of tax benefit of net operating loss carryforeards 0 p Net loss (560,305) (8500) 437,093 (423,712) saaasssaaaasax s:sasasassaasa saaasaaaasszsa assasaaszasass ~12~~ NOTBS TO GHTV, INC. CONSOLIDP,TED FINANCI~iL STI~TSD~ATTS ,A, ( „ in Thousand8 ) The adjustments to the pro forma consolidated balance sheet consist of . (1) Discounting the notes payable to the Reorganized Company to an amount equal to the net assets of GHTV and the GHTV Subsidiaries. The negative cash balance in the 'pro forma balance sheet is caused by the assumption that~the $3,600 WTV'T bank note payable is paid as of September 29, 1991, The GHI Restructuring Transactions provide for a $5,000 working capital line of credit to be established at GHTV. The adjustments to the pro forma consolidated statement of operations consist of: (1) Reduce amortization expense to reflect reduction of intangible assets in acquisition of W'I'V'I' Holdings common stock. (2) Net increase to reflect increased corporate expenses. (3) Net decrease to reflect interest expense on notes payable to the Debtor based upon the interest rates discussed in the notes to the Debtor's pro forma financial statements and discounting these notes as discussed in Section C below. -121- C. Proj®et®d Statements of Operations and Cash Flown 1. Introduction The feasibility of the Plan and the Reorganized Company's ability to meet its obligations in the future are premised upon its anticipated financial performance after the Confirmation Date. The -.`financial projections are provided to demonstrate the feasibility of the Plan. Although all projections are based on assumptions of future events and circumstances which necessarily are uncertain in nature, the Debtor's management believes the financial projections are reasonable. Nevertheless, the aetual results achieved from time to time during the projection period may vary from projected results and no assurance can be provided that these projections will be realized. The financial projections are based generally upon overall economic assumptions, and specifically on certain - assumptions regarding the general demand for the services of the Reorganized Company Subsidiaries and the GHTV Subsidiaries, the competitive position of the Reorganized Company Subsidiaries and the GHTV Subsidiaries in meeting that demand, the ability to - _ dispose of certain assets of the Reorganized Company and GHTV and the ability to operate profitably under the anticipated conditions - that the Reorganized Company and GHTV will face in the near and long term. CERTAIIa OF a~ AsSSUNPTTOATS OAT 1fSICE a~~ FIAtANCIAL PROJECTIOATS ARE E1~SED NAY ATOT NATERIALIZE AA?D VATAATTICIPAa~u EVENTS ~+,ND CIRCU&iSTANCES EEYOA7D `a~Jl9, REORGAATIZED COMPANY ° S AAiD GHTV' S CONTROL NAY OC~:ust SUESEgUEATT TO a1~ CONFIRTIOAT DATE DICE B3P~Y A.PFECT Y'a~ R$ORCsIZED COMPANY°S AND CEZ`V'S ACTUAL FINANCIAL RBSULTS . ACTDAL RESULTS ACEID DU&IATG `b~ PERIOD COVERED RY '1'a~ FIATANCIAL PRO?7EC'I'IOAT3 NAY VAR7t FROM PROJECa~~ RESULTS, AND '1'a,s vARIATIONS COULD EE MATERIAL. IAT J'~ PAST, GEY'S ACTUAL RESULTS HAVB ~TARIED, AT • TICS SIGZIIFIC~LY, FROA~ ITS FORECASTS. ACTUAL - PROFITAEILITY ACEI DURING ABiY PERIOD NAY ALSO NARY FROBd YEAR TO YEAR L~~ TO'- FACTOb~.S 6~ICE ARE EZCE~IPTGLY DIFFICULT TO PR~ICT. Although the Debtor believes that its assumptions are reasonable in light of the circumstances under which they were made, no assurance can be. given that the financial projections will be realizes. The Debtor urges that the financial projections be -examined carefully by each holder of an Allowed Claim or Allowed Interest in evaluating the Plan. The projections should be read in conjunction with the information regarding the GHI Restructuring Transactions summarized in Articles IV, V and IX herein and more fully described in Exhibit E to the Plan and the Selected - Historical Consolidated Financial Data, Management's Discussion and Analysis of Financial Condition and Results of Operations, and Financial Statements set forth in Exhibit 3 attached hereto. -122- 2. F`Genezal Assumptions The 1991 estimated historical results of operations _reflect preliminary estimates based upon current information. available. The projections assume that the Plan is consummated on June 30, 1992. The projected sources and uses of cash (in thousands) in connection with Che GHI Restructuring Transactions are as follows: SOURCES USES WNSAR Proceeds (net) $1.17,000 Senior Debt Proceeds from New Distribution $73,642 (A) Junior Debentures 40,000 Senior Subordinated Debt Distribution 82,347 Cash on Hand 12.079 Subordinated Debt Distribution 13.090 $169,079 $169,079 (A) For purposes of the projections, an additional $42 of cash (beyond the $73,600 Type 2 Distribution cap) was assumed to be used to buy out Class 5 Claims electing a Type 2 Distribution (cash at 75~ of Claim amount). As discussed in Section IV, one of the GHI Restructuring Transactions involves the Debtor selling, for nominal consideration, the common stock of GHTV to an independent third party that is a United States citizen acceptable to the FCC or to an entity controlled by such person. The projections assume that this sale takes place on June 30, 1992. As of the Effective Date, GHTV will enter into the GHTV Management Agreement with the Management Company. Prior to that date, the operations of all of the GHTV Subsidiaries are included in the GHI consolidated projections. Vail resort revenues and operating expenses are projected to increase at an annual rate of approximately 4$ from 1992 to 1995. Vail real estate revenues are expected to average $3.5 million per year and associated expenses are projected to be generally constant from 1992 to 1995. The projections for 1992 through 1995 are based upon projections for Vail's fiscal years - (which end on September 30 of these years) that have been converted to calendar year projections. The projections assume the refinancing of Industrial Development Bonds issued by Vail and Beaver Creek Associates, Inc. on June 30, 1992 as more fully .described in Article IV. -123- Packerland projects revenue growth from 1992 to 1994 at an annual rate of 4~. Packerland~s operating expenses are projected to increase from 1992 to 1994 at an annual rate of 3.5~. Broadcast operations include WMAR-TV (through May 30, 1991), WTVT, Inc<, KSBW, Inc. and KSBY, Inc. The assets of WMAR- , TV were sold on May 30, 1991. Local and national broadcast ' revenues for WTVT, Inc., KSBW, Inc. and KSBY,: Inc. are projected . to grow at a combined annual growth rate of 6~ from 1992 to 1994 due to projected inflation and market growth. Broadcast film payments for WTVT, Inc., KSBW, .Inc. and KSBY, Inc. which are based on existing film contracts plus projected timing and pricing of renewals, are projected to increase from 1992 to 1994 at a combined . annual growth rate of 7~. Other operating expenses for WTVT, Inc., KSBW, Inc. and KSBY, Inc. are projected to increase at an annual rate of 2~ from 1992 through 1994. Total projected cash corporate expenses for 1992 through 1995 are approximately $6,100 per year. The projected decrease in cash corporate expense from $6,900 in 1991 is due to a variety of cost-cutting measures. Of the $6,152 in 1992, approximately $2,950 is assumed to be incurred by the Debtor prior to June 30, 1992. Subsequent to June 30, 1992, an additional. $2,950 is assumed to be ' incurred by the Management C~a~~rany, with Vail, Packerland and GHTV each paying a management fee to the Management Company equal to one-third of this amount. Cash performance bonuses totaling $252 per year are assumed to be paid to certain employees by the Management Company if certain operating performance levels are achieved by Vail, Packerland and GHTV and are included in total projected cash corporate expenses. Non-cash corporate expense relates to accruals under existing deferred compensation plans at Vail. Additional accruals or payments (if any) related to new deferred compensation plans that may be executed in the future with employees at Vail, - - Packerland, WTVT, Inc., KSBY, Inc., KSBW, Inc., or at the Management Company have not been considered. In connection with the sale of the conunon stock of GHTV discussed above, GHTV and the GH'I'~7 Subsidiaries will have the GHTV Subsidiary Notes payable to GHI totaling $265,000. These Notes will bear interest at 10~ and be due 5 years after the restructuring. Of the 10~ interest rate, 7~ will be paid in cash on a semi-annual basis and 3~ will be paid in kind. Principal payments will be required to be made with asset sale proceeds with a required cash sweep for any excess cash flows of GHTV notes.. For financial reporting purposes, these notes are assumed to be discounted by the Reorganized Company and GHTV for $32,724 in order to reduce the carrying amount to the estimated net book value of the GHTV assets as of the Effective Date. This discount is -124- recognized as additional interest expense to GHTV over the 5-year term of the note. No original issue discount accretion income is assumed to be=recognized by the Reorganized Company. The income taxes in the Consolidated Projected Statement Hof Operations for both the Reorganized Company and GHTV represent the estimated current tax liability computed in accordance with ,existing federal and state tax.regulations. This tax liability has been computed based upon the assumption that holders of Class 7 Claims .accept the Plan. In the event that holders of Class 7 Claims reject the Plan, the income tax impact would be nominal. The income tax liability reflected in the Consolidated Projected Statement of Operations is based on the settlement proposal advanced by the Reorganized Company with respect to the audits of tax returns filed by GHI for prior taxable years. GHI and GHTV will enter into separate tax sharing agreements with their subsidiaries subsequent to the restructuring date. The projections assume that the assets of WTVT, Inc., will be sold or refinanced by GHTV on December 31, 1993 for $170,000 and that the assets of ICSBW, Inc. and RSBY Inc. will be sold or refinanced by GHTV on June 30, 1994 for $55,000. The projections also assume that the assets of Packerland will be sold or refinanced by the Reorganized Company on June 30, 1994 for $25,000, 3. Assumptions Relating Only to GHI Proceeds from~the sale of WMAR-TV have earned interest of approximately 52,500 from the closing date (May 30, 1991) through December 31, 1991. It is assumed that interest will be earned at a rate of 4.5~ from January 1, 1992 through the closing date (June 30, 1992). The $480,000 gain on restructuring transactions consists of the exchange of cash, debt and common stock contemplated under the Plan, net of $8,000 of capitalized financing costs, The valuation allowance on WTVT results from reducing the carrying value of the net assets of WTVT, Inc. to the estimated net realizable value ($170,000) as of December 27, 1991 when the Debtor acquired an additional 199 shares of Class A conQnon stock of WTVT Holdings, Inc. The projections assume that the New Senior Secured Notes _ and- New Senior Subordinated Secured Notes are discounted for financial statement purposes, resulting in non-cash interest (discount accretion) in 1992 - 1995. The discount rates used are '13~ for the New Senior Secured Notes and 17~ for the New Senior Subordinated Secured Notes. The Junior Debentures have not been discounted since they result from $40, 000 of new funds being loaned to the Reorganized. Company. -125- The :projections assume that all interest on Junior Debentures is paid in kind, resulting in non-cash interest, in 1992 - 1995. Working capital requirements reflect primarily payments under existing deferred compensation plans and increases in -,inventory and accounts receivable related to operating growth at =Packerland. The projections assume that indebtedness of Vail and Beaver Creek Associates, Inc. under industrial development bonds will be refinanced on June 30, 1992. The projections do not give any. consideration to possible future sources of cash related to interest income earned on excess cash, the WLUC note receivable or the overfunded pension plan (estimated to be approximately $6,000). The projections assume that the common stock of the Jet Center and the Vail Magazine, currently owned by GNG, are transferred to the Reorganized Company or one of the Reorganized Company Subsidiaries in exchange for the Debtor's accounts receivable from GNG, the Gillett Cattle Company acid the common stock of Gillett Subsidiary Corp. owned by a Subsidiary of the Debtor. The fair market value of the net assets of the Jet Center and Vail Magazine have not presently been determined. For purposes of this projection, it is assumed that the value of the assets of these entities is $4,000, which also approximates the debts of these entities. The $1,000 excess of the current carrying value ` of the assets exchanged by the Debtor over the assets and .liabilities of the Jet Center and Vail. A~lagazine, valued 'as discussed above, has been included in the projections as Valuation . Allowance on Asset Exchange. The projections do not include any cash flows for the Jet Center or the Vail Magazine as it is assumed that the future cash flows of these entities will be approximately -equal to the debt service on the debt being assumed. Vail Associates, Inc. and GNG have entered into an agreement to raise or fund $3,000 to be contributed to a medical research foundation in Vail, Colorado. The $3,000 in contributions are to be fully funded by August 1, 1995.~~ Vail Associates, Inc. and GNG will attempt to raise all funds through outside third party contribution® and, accordingly, the projected statements of operations and cash flows do not include any payments related to this obligation. -126- A, GILLETT NOlD1NG5, INC. ~ONSOLIOATED'PROJECTED STATEMENT OF vOPERATIONS " (S in Thousands) • ESTIMATED H15TORICAL ~ROJECIED • 1991 1992 1993 i994 1995 NET REVENUES: vA11. 109,000 103,219 107,384 111,597 115,954 ' PACKERlANO 596,500 597,948 621,8b6 323,370 0 BROADCAST 66,419 29,483 0 0 0 TOTAL NET REVEauES 771,919 730,650 729,250 434,967 115,954 COST OF SALES AND OPERATING ExpENSES (702,659) (670,172) (675,704) (.384,919) (72,190) DEPRECtaTtON AaD A~oRTtZArtoN (31,365) (20,009) (11,403) (9,953) (8,503) " NET OPERATING IaCOIaE 37,845 40,470., 42,143 40,095 35,261 CORPORATE EXPENSE: CASN <6,4Q0) (5,035) (4,049) (5,.035) (b,020) NON-CASN (DEFERRED COMPENSATION) (3,041) (1,334) (1,008) (908) (905') (9,941) (6,369) (5,057) (5,962) (6,925) INTEREST INCOME ON NOTE TO GHTV: CASN INTEREST (7X) 0 9,275 18,766 3,607 0 PIK INTEREST (3X) 0 3,975 8,103 1,546 0 1NTERE51 EARNED ON WMAR PROCEEDS ANO EXCESS CASN 3,526 2,737 0 0 0 GAIN/(LOSS) ON ASSET SALES (24,811) 0 0 (30,000) 0 VALUATION ALLOWANCE ON WTVT (108,000) 0 0 0 0 VALUATION ALLOWANCE ON ASSET EXCHANGE 0 (1,000) 0 0 0 GAIN ON RESTRUCTURING 0 480,000 0 0 0 INTEREST EXPENSE: vAll (4,867) (4,b83J (5,074) (4,941) (4,808) PACKERLAND (361) (572) (875) (415) 0 BROADCASI (618) 0 0 0 0 GiI.IETT NOLDCNGS- NEW SENIOR SECURED NOTES 0 (11,247) (23,262) (601) 0 NEW SENIOR SUB. SECURED NOTES 0 (21,729) (24,572) (25,552) (21,412) NEW JUN10R DEBENTURES 0 (1,200) (2,509) (2,662) (2,824) AOOITIONAL DISCOUNT ACCRETION DUE TO EARIT DEBT RETIREMENTS 0 0 (13,962) (8,979) 0 OTHER DEBT (439) (176) (73) (56) (40) ACCRUED ON OLD DEBT t1-1 TO 2-27) (20,140) 0 0 0 0 TOTAL lNTERE51 EXPENSE (26,425) (39,607) (75,327) (43,206) 029,084) ESTIMATED RESTRUCTURING ANO OTHER EXPEMSE$ (14,400) (25,850) 0 0 0 INCOME (LOSS) BEfORE INCOME TAXES (142,156) 463,630 (11,372) (33,901) '(748) INCOME TAXES 0 (180) (691) 14 (55) NET taCOME (1.055) (142.,156) 463,450 (12,063) (33,8x7) (803) ssssaaassa ssssss.ass sssss-=sss cases:sass aassssasss -127- GILLETT HOLDINGS, tNC. <.x CONSOLIDATED PROJECTED CASH FLON SiATE~ENr (E in Thousands) ESTIMATED NISi0R1CAl P40JEC1ED 1441 1992 1993 1994 1995 SOURCES: NET IaCOME (LOSS) .,(162,156) 463,650 (.12,063) (33,887) (8031 , _ ACCRUED INTEREST IN EXCESS Of CASH var as GILLEST I40L4ING5 DEBT- PIK INTEREST / DISC(AlaT ACCRETIDa 0 8,819 16,561 8,471 8,156 ADOlTIONAL DISCOUaT ACCRETiOa DUE TO EARN DEBT RETIREIaENTS 0 0 13,962 8,979 0 ACCRUED INTEREST ADJUSTMENT 0 5,966 0 (1,946). 0 ACCRUED ON OlD DEBT (1-1 TO 2-27) 20,140 0 0 0 0 DEPRECIAtIOa ANO AMORTtZATi0a. 31,365 20,009 11,L03 9,953 8,503 NOM-CASH COST OF REAL ESTATE SALES 0 ?,687 1,500 1,500 1,500 NOa•CASH CORPORATE EXPENSE (DEF. COMP.) ~3,0~1 1,334 ,1,008 908 905 NOa-CASs RESTRUCTURING ExPENSES 5,238 0. 0 0 ~ (GAIN)./LOSS ON ASSET SALES 24,811 0 0 30,000 0 . ASSET SALES PROCEEDS 117,000 0 0 25,000 0 vALUATiON AlI~AaCE ON kdtvT 108,000 0 0 0 0 vALUA110N All(AdANCE ON ASSET EXCHANGE 0 1,000 0 0 O' aoa-CASH IaTEREST oN GHTV NOTE o (3,975) (8,103) (1,546) 0 PROCEEDS fRO11 aEW JUNIOR oEBEN1uRES 0 60,000 0 0 0 GAIN Oa RESTRUCTURING TRANSACTION 0 (480,000) 0 0 0 DEBT AMORTIZATION PA'rMENTS RECE(YED FRC11 GHTV, INC. 0 887 173,134 53,201 0 TOTAL SOURCES OF CASH 167,439 59,178 197,607 100,636 18,261 uSES: uORKING CAPITAL REOUPREMENTS (10,026) (2,628) ts,r61> (3,558) (3,879) CAP[1Al EXPENDITURES (10,446) (11,b20) (10,620) (9,620) (8,500) DEBT AMORTIZATION AT SUBSIDIARIES: vAII (2,942) (1,.667) 0 0 0 PACXERLANO (244) 1255) (.280) (625) BROADCAST (10,000) 0 0 0 0 TOTAL (13,186) (1,922) (280) (625) 0 CASH USED IN RESTRUC1URING 0 (169,079) 0 0 0 uTVT BUrOUT (1,010) 0 0 0 0 DEBT AM0RT12ATlON AT GHI 0 0 (189,000) (77,600) 0 BROADCAST CASH tiJ1lANCES TRANSFERED TO GHTV, IkC. 0 (125) 0 0 0 TOTAL USES Of CASs (36,648) (185,174) (205,061) (91,403) (12,379) NET CASH f1031 132,771 (125,946) (7,654) 4,231 5,882 CASH BALANCE, BEGIaNIaG Of TEAR 5,005 137,776 11,780 6,125 13,356 CASH BALAaCF, END OF rEAR 137,776 11,780 6,125 13,.356 19,237 =:eaa~~~°~ :____s:::: a:sa:ss.e. ====:ameam aaesa:so.e ~128~ GH1V, INC. CONSOLIDATED PROJECTED STATEMENT OF CPERATfONS ANO CASH fLC~IS (S-•in Thousarias) 1992 '.993 '994 rET REVENUES: BROAOCAST ~ 29,483 59,521 10,580 COST OF SALES ANp OPERATING ExPENSES t16,029> (32,913) (6,253) CEPRECIATION AND AM0RTIZ~TION (8,606) (17,212) (2,200) NET OPERATING INCOME 4,$49 9,396 2,127 CORPORATE EXPENSE: CASH (1,117) (2,103) (1,117) GAIN/(LOSS) ON ASSET SALES 0 30,000 5,000 INTEREST ExPENSE: CASH INTEREST (7X) (9,275) ('8,766) (3,607) PlK iNTEREST•(3X) (3,975) (8,103) (1,546) DISCOUNT ACCRETION (3,101) (21,533) (8,090) (16,351) (48,402) (13,243) INCOME (LOSS) BEFORE INCOME TAXES (12,620) (11,109) (7,233) INCOME TAXES 0 J (1,752) NET INCOME (LOSS) (12,620) (11,109) (8,985) SOURCES: • NET- INCOME (LOSS) (12,620) (11,109) (8,985) DEPRECIATION AND AMORTIZATION 8,,606 17,212 2,200 PIK INTEREST 3,975 8,103 1,546 DISCOUNT ACCRETION 3,101 21,533 8,090 (GAIN)/LOSS ON ASSET SALES 0 (30,000) (5,000) ASSET SALES PROCEEDS 0 170,000 55,000 BROADCAST CASH BALANCES TRANSFEREO FROM GH1 125 0 0 TOTAL souaces of CASH 3,187 175,739 52,851 USES: - u0RK1NG CAPITAL REQUIREMENTS: (300) (600) 0150) cAPl1AL EXPENDITURES <1,000) (2,000) (500) DEBT AM0RTfZAT1OM A7 SUBSIDIARIES: 9ROADCAST (887) (173,139) (53.,201)' TOTAL USES Of CASN (2,187) (175,739) (53,851) HET CASH FLON 1,000 0 (1,000) ~ CASH BALANCE, BEGINNING Of rEAR 0 1,040 1,000 CASH BALANCE, END Of rEAR 1,000 1,000 0 =.a.a.eana __=a_..o.. anaan=aaas BEGINNING GNI LOAN BALANCE 265,000 268,088 103,052 AMORTIZATION (887) (173,139) (53,201) DIK INTEREST PAYMENTS 3,975 8,103 1,566 ENDJNG CHI LOAN BALANCE 268,0$8 103,052 51,397 saaaasaaaa asaaaaasaa aaaaaaassa -129- IX. S Y OF CERTAIAI RISK FACTORS RELATING TO x~xrs PLAN The ability of the Reorganized Company to meet its financial projections and repay the New Securities is subject to certain risks, some of which have been addressed elsewhere in this Disclosure Statement. Set forth below are additional risks associated with the Plan and the New Securities that holders of ..Claims should consider before voting for or rejecting the Plan. A. Bolding Cwr.~,any Strtactur® sad Claims Against Subsidiaries The Reorganized Company will be a holding company that will operate primarily through its Reorganized Company Subsidiaries. GHTV and the GHTV Subsidiaries will be sold to an independent owner and the Reorganized Company's interest in GHTv will consist of the GHTV Note, GBT Note, WTVT Note and GHTV Warrants. By virtue of the release of the Subsidiary Guarantees and the Pledges, the holders of the New Securities will not have a direct claim against the assets of the Reorganized Company Subsidiaries or GHTV Subsidiaries, except to the extent of their security interest in the stock of Vail and Pack~erland and the GHTV Note, GBT Note, WTVT Note, and GHTV Warrants and other collateral granted under the New Collateral Documents. B. Subordination o! C®rtaia Obligations By reason of the subordination of the New Senior Subordinated Secured Notes to the New Senior Secured Notes, and the -subordination of the Junior Debentures to the New Senior Secured Notes and the New Senior Subordinated Secured Notes, payments of principal and interest on the New Senior Subordinated Secured Notes and Junior Debentures are subjeet to the prior payment of the New Senior Secured Notes. In addition, payments of principal and interest on the Junior Debentures are subject to the prior payment of the New Senior Subordinated Secured Notes. C. FCC Regulation Television broadcast licenses are generally issued for a maximum term. o€ five years. Licenses are renewable for additional terms upon application to the Federal Communications Commission ("FCC"), which will- approve the renewal without a hearing if the licensee's qualifications are not materially challenged by a third party or the FCC and if no competing application for the same license is filed. In the event a competing application is filed and not withdrawn, the FCC must conduct a "comparative hearing" to determine which applicant (including the existing licensee) is best qualified to serve the . public interest. In the comparative hearing, the existing .licensee ~~may be entitled to a "renewal expectancy," but no assurance of renewal can be given. In the event of a comparative hearing it could take a substantial period of time before a final -130- l determination as to renewal will occur. (See Article V, Section B.5 Regulation and Le,gislation~ GHI's renewal applications to date have been granted without hearing. Renewal of licenses for KSBY-TV and KSBw-TV were granted in November 198.8, and expire on December 1, 1993. The "license for wTVT-TV was renewed effective February 1, 1992 for a five year period ending February 1, 1997. Although the Debtor has no reason to believe such renewals will not continue, there can be no assurance that such renewals will continue to be granted. KSBY-TV and KSBw-TV are affiliated with NBC under standard network affiliation agreements with a term of two years. WTVT-TV is affiliated with CBS under a similar agreement with a two year term. All three network affiliation agreements are automatically renewable for additional two year terms unless the station or~ the network notifies the other of its intent not to renew at least 180 days in advance of the expiration of the then current term. The Debtor considers the stations' affiliations with NBC and CBS to be advantageous. Although the stations' affiliation agreements have been routinely renewed in the past and, although none of the TV stations has been. notified of its respective network' s intention not to renew its affiliation agreement with the station, there can be no assurance that NBC or CBS will elect to renew the affiliation agreements beyond the expiration of their current terms. Net revenues of GHTV depend in part on compensation payments under these affiliation agreements. There can be no assurance of the continuation of such payments at the levels currently received by the De~~.oL= television stations. D. Forest Service P®rmits As discussed above at Article v, Section C.S, Vail has recently consummated negotiations with the United States Forest Service to convert its existing special use permits for Vail Mountain to a unified ski area permit. Continuation of Forest Service Permits on terms and conditions satisfactory to the Debtor and reasonably satisfactory to the Creditors' C~.,,?«ittee is a condition to Confirmation of the Plan. Permits issued by the Forest Service may be terninated.if such termination is required to promote the public interest. No assurance can be given that the insolvency of GHI, the default by GHI under its indebtedness or the entry of the order for relief in the Reorganization Case would not be considered an event contrary to the public interest which might result in the attempted termination of the Tenn Special Use Permit and Special Use Permit for Beaver Creek or the Unified. Permit for Vail. The Debtor cannot state with certainty what fees Vail will be required to pay under the new ski area permit. Moreover, -131- the Forest Service has broad regulatory authority to administer ski area permits. In 1991, the Town Council of the Town of Vail, Colorado adopted a resolution with the stated purpose of assuring the continued operation and proficient management of the Vail ski area. The resolution enables the Council to evaluate possible legislation, the imposition of fees or taxes, and the negotiation - of "voluntary controls" between Vail and .the Town of Vail . Vail and the Debtor were represented at the meeting and the representatives assured the Council of the willingness of Vail and the Debtor to cooperate and work with the Town of Vail to accomplish the state purpose of the resolution. Certain su;bsidiazy ®bligatioas The Debtor anticipates that the working capital facilities for Vail, Packerland and GHTV will consist of short term facilities. The Debtor can make no assurances that such credit facilities will be renewed as such facilities mature (See Article IV, Section A.5 Subsidiary and GHTV Refinancing) Packerland is obligated under the Packers and Stockyards Act of 1921 (the "Act") to provide a letter of credit in order to . secure the performance of its livestock purchasing obligations. Under the Act, the U.S. Secretary of Agriculture may prevent Packerland from purchasing livestock if it fails to provide the necessary letter of credit. Packerland's inability to maintain its required letter of. credit would prevent its continued purchasing ` operations. The Debtor antieipatea that the Packerland credit facility will include a subfacility for standby letters of credit " which will refinance Packerland's existing letters of credit. . F. Int®r®at Pnl?ment in th® Forffi of Ne~ov 5®curiti®s Under the indentures pursuant to which the New Senior Subordinated Secured Notes and Junior Debentures are issued, the Reorganized C~.~~.any will have the option to pay up to 400 basis points of the stated interest rate annually on the New Senior Subordinated Secured Notes is additional New Senior Subordinated Secured .Notes if an interest coverage ratio is not satisfied, and all interest on the Junior Debentures if a cash flow coverage ratio 'is not satisfied in additional Junior Debentures. The Reorganized Company currently intends, to the extent it is unable to satisfy the interest coverage and cash flow coverage ratios, to satisfy its obligation to pay interest on the New Senior Subordinated Secured Notes and Junior.Debentures by the issuance of additional New Senior Subordinated Secured Notes and Junior Debentures, respectively, in lieu of cash to the extent permitted. Holders of the New Senior Subordinated Secured Notes and Junior Debentures would be required to report taxable income for -132- ' f. .,.federal income tax purposes as interest thereon accrues or is paid. To the extent interest is paid on the New Senior Subordinated Secured Notes. or Junior` Debentures through the issuance of additional New Senior Subordinated Secured Notes or Junior ;Debentures, the holders will accrue interest on a yield to maturity basis for the difference between the adjusted issue price for each ':'securit and the stated redem tion Y p price for each security, which stated redemption price would include any additional debt instruments issued by the Debtor with. respect to each security. (See Article X, Section A.5 Certain Federal Income Tax Considerations Relating to the Plan, Certain Federal Income Tax Consequences to Debtholders, Original Issue Discount) G. Regulatory Approval Other than the approvals set forth in this Disclosure Statement, the Debtor is not aware of any material approval or other action by any state or federal administrative agency that would be required and has not been obtained in connection with the Plan. Should any such approval or action be required, such approval or action will be sought. There can be no assurance that any. approval or action, if needed, would be obtained or if obtained, that it will be obtained without substantial conditions imposed on the Reorganized Company. R. A1o Dividends The Reorganized Company does not anticipate paying any dividends on` the Common Stock. in the foreseeable future. In :addition, the covenants in the New Securities will restrict the ability of the Reorganized Company` to pay dividends. Certain institutional investors may only invest in dividend-paying equity - securities or may operate under other restrictions which may prohibit or limit their ability to invest in Common Stock. (See Article IV, Section C General Description of the Plan, Principal Attributes of the New Securities). I. Lack of Public ~,arket . ~ There is no existing market for the New Securities or the Common Stock. The New .Securities and Common Stock will not be listed on any exchange, and there can he no assurance that an active market therefor will develop or as to the degree of price volatility in any such market. The New Securities will not be registered securities. No assurance can be given that a market :will be available for a holder of the New Securities or Common Stock to sell such securities in the future or as to the price at which any such sale may occur. If such markets were to exist, such securities could trade at prices higher or lower than the face amount thereof, depending upon many factors,~including prevailing interest rates, markets for similar securities, industry -133- conditions, and the performance of, and investor expectations fc-, the Reorganized Company. J. .Coafir~,atioa and Elgectiv® Dat® Conditions Section 10.01 of the Plan includes a number of conditions to confirmation of the Plan and Section 10.02 of the Plan includes a number of conditions to the Effective Date. Among these conditions are the release of the Subsidiary Guarantees and the Pledges, the requirements that the FCC consent to the corporate - structure of the Reorganized Company and GHTV, that the Forest -.Service Permits will be in effect on reasonable terms and conditions, that Vail, Packerland and GHTV obtain working capital facilities, and that certain. industrial revenue bonds and other obligations of Vail and Packerland. are refinanced. The Debtor believes, based on 'its discussions with existing creditors and prospective lenders, as well as on its discussions with Forest Service personnel and FCC staff, that these conditions to confirmation and to the Effective Date will be satisfied on a timely basis following the deadline for submitting ballots. The Debtor, however, can give no assurances that such conditions will be satisfied on a timely basis, and in such event the Plan may not be confirmed or become effective. 1C. IItilizatioa of N®t ®p®gatiag Loss Carxyforv~ards after th® R®structuriaq •~.~The consolidated. group (the "GHI Group") that includes =the Debtor and those Subsidiaries that currently file a consolidated federal income tax return with the Debtor has substantial consolidated net operating loss ("NOL") carryforwards for federal income tax purposes. The. GHI Group desires to utilize its NOL carryforwards in the future to reduce, to the extent possible, its federal income tax liability. The Code imposes certain limitations upon the utilization of NOL carryforwards. Under section 382 of the Code, all the NOL carryfonaards of the GHI . Group that exist prior to the Effective Date will be subject to a section 382 limitation; however, certain aspects of such limitation _ are uncertain due, in part, to a lack of final regulations under section 382.. (,Article X,.Section B.2 Certain Federal Income Tax Considerations Relating to the Plan, Certain Federal Income Tax .~Consequence~ to the Debtor and the Subsidiaries, Section 382) The Debtor will also realize a substantial amount of 'discharge of indebtedness upon consummation of the Plan. The Debtor mill not recognize this income, but certain tax attributes of the Debtor, including NOL carryforwards, will be reduced by the amount of this income at the end of the taxable year which includes the Effective Date. (See Article X, Section B.l Certain Federal - Income Tax Considerations Relating to the Plan, Certain Federal Income Tax Consequences to the Debtor and the Subsidiaries, Discharge of Indebtedness Income) -134- s1 i X . C$RTAIN FSDBRAL INCOBD3 TAX CONS IDHRATLONS RSLATING TO gas PLAN A. C®rtain Federal Income Tax Coasequeacea to Debtholders The following summary of federal income tax consequences is based on current law and is for general information only. Forthcoming legislative, judicial~or..administrative changes or interpretations could affect the tax consequences to Banks or other holders of GHI debt. In addition, the tax treatment of a holder or Bank may vary depending on the holder or Bank's particular situation. For example, certain holders or Banks, including insurance companies, tax-exempt organizations, financial institutions,.broker-dealers and foreign persons may be subject to special rules not discussed below. 1. Gain or Loss upon Distribution a. Bank Credit Agreement Claims The exchange by a Bank pursuant to the election (or deemed election if such Bank fails to submit a ballot or does not mark its distribution preference) of a Type 1 Distribution, Type 2 Distribution or .Type 3 Distribution and the participation by the Bank in a Type 2 Excess Distribution or Type 3 Excess Distribution will be a taxable transaction to such Bank. Each exchanging Bank will recognize a gain or loss equal to the difference between (a) the sum of (i) the aggregate issue price (as described below) of the New Senior Secured Notes received, (ii) the aggregate issue price (as described below) of the New Senior Subordinated Secured Notes received, (iii) the amount of cash received, and (iv) the .fair market value of the Class 2 Common Stock received (hereinafter, this sum is the "Senior Debt Amount Realized") and (b) its adjusted tax basis in its Claim under the Bank Credit Agreement. A Banks adjusted tax basis~in its Claim under the Bank Credit Agreement will generally be equal to the sum of the principal amount of such Claim and the amount of accrued but unpaid interest on such debt that the Bank had previously included in income, except that such adjusted tax basis will have been reduced by the amount of any bad. debt deduction that the Bank has previously taken with respect to all or a part of its Claim under the Bank Credit Agreement. b. Holders og Zero Notes The exchange by a holder of a Zero Note pursuant to an election (or deemed election if such holder fails '`to submit a ballot or does not mark its distribution preference> of a Type 1 Distribution, Type 2 Distribution or Type 3 -135- Distribution and the participation by the holder of a Zero Note in a Type 2 Excess .Distribution or a Type 3 Excess Distribution should constitute a recapitalization under section 368(a)(1)(E) of the Code provided the holder receives Common Stock in such exchange. The exchange by a holder of a Zero Note should also constitute a recapitalization if the holder •receives a debt instrument in the exchange that qualifies as a "security," even if the holder does :not receive Common Stock. However, although not free from doubt, tit appears that the New Senior Secured Notes and the New Senior Subordinated Secured Notes will not qualify as securities for - federal income tax purposes, and that, consequently, the receipt of such a New Senior Secured Note or New Senior Subordinated Note by a holder of a Zero Note would not by itself cause the exchange . to constitute a recapitalization. - . ~ If a holder's exchange constitutes a recapitalization, such holder (i) will not recognize any loss realized on such exchange, except to the extent that the holder • allocates part of its distribution to accrued but unpaid interest on the Zero Note, which was previously included in income by sueh holder, and such allocation is less than the amount of such accrued but unpaid interest, and (ii) will recognize any gain realized on such exchange to the extent of the lesser of (a) the fair market value of any "other property" received in the exchange or (b) the amount of such gain. 'The fair market value of the "other property" received by an exchanging holder of Zero Notes will be equal to the sum of (i) the aggregate issue price of the New Senior Secured Notes received, (ii) the aggregate issue price of the New Senior - Subordinated Secured Notes received and (iii) the amount of cash received. The amount of gain or loss realized by a holder of a Zero Note on an exchange will be equal to the difference between (a) its Senior Debt Amount Realized and (b) its adjusted tax basis in the Zero Notes exchanged. An exchanging holder's adjusted tax basis in a Zero Note will generally be equal to the sum of the amount paid .for or advanced under such Zero Note and the amount of accrued but unpaid interest on such note (ineluding any original issue discount ("OID") and any market discount which the holder elects to accrue into gross income currently) that the holder has previously included in income, except that such adjusted tax basis will .have been reduced by the amount of any loss that~the holder has previously taken with respect to the Zero Note. If the holder's exchange does not constitute a recapitalization, the holder will recognize any gain or loss realized on the exchange. • -136- _ c. Holders of Senior Subordinated Debentures and Subordinated Debentures The exchange by a holder of a Senior •.Subordinated Debenture and the exchange by a holder of a .Subordinated Debenture pursuant to an election (or deemed election if such holder fails to submit a ballot or does not. work its distribution preference) of a Type A Distribution or Type B Distribution and the participation by the holder of a Subordinated Debenture in~a 'T`ype A Excess Distribution or a Type B Excess .Distribution will constitute a recapitalization to such holde r under section 368 (a) (1) (E) of the Code provided the holder receives Common Stock in such exchange. If the exchange by a holder of a Senior Subordinated Debenture or Subordinated Debenture constitutes a recapitalization, the holder (a) will not recognize any loss •realized on such exchange, except to the extent that a holder of a Senior Subordinated Debenture or Subordinated Debenture allocates part of its. distribution to accrued but unpaid interest on such debenture, which was previously included in income by such holder, and such allocation is less than the amount of such accrued but unpaid interest, and (b) will recognize any gain realized on such exchange to the extent of the lesser of (x) the cash received in the exchange and (y) the amount of such gain. - The amount of gain or loss realized by a holder of a Senior Subordinated Debenture or Subordinated Debenture. will be equal. to the difference between (a) the sum of (i) the fair market value of the Class 2 COnQnOn Stock received and (ii) the amount of cash received in the exchange and (b) the holder's adjusted tax basis in the debenture exchanged. An exchanging holder's adjusted tax basis in its Senior Subordinated Debenture or Subordinated Debenture will generally be equal to. the sum of the amount paid for or advanced under such Senior Subord~.nated Debenture or Subordinated Debenture, as applicable, and the amount of accrued but unpaid interest on such debenture (including any OID and any market discount which the. holder elects to accrue into gross income currently with respect to such debenture) that the holder has previously included in income with respect to such debenture, except that such adjusted tax basis will have been°reduced by the amount of any loss that the holder has previously taken with respect to such debenture. r If the holder's exchange does not constitute a recapitalization because the holder receives only cash, the holder will recognize any gain or loss realized on the exchange. -1~37- 2. Character of Gaia or Loss Recognized a. ~aak Credit ~.greement Clare ' The gain or loss recognized by an exchanging Bank will generally be ordinary income or loss, as the case may be. b. Rold®rs o£ Z®ro Note Claims, Senior Subordinated Debeatur®s aad Subordinated Deb®atur®s . Capital v®rsu~ ®rdinaxy Subject to the market discount rules discussed below, gain recognized by an exchanging holder of a Zero Note, Senior Subordinated Debenture or Subordinated Debenture will be capital gain provided that the holder held the Zero Note, Senior Subordinated Debenture or Subordinated Debenture exchanged, as applicable, as a capital asset. This capital gain will be a long- term capital gain if the holder's holding period was longer than one year. An~ exchanging holder should have an ordinary loss to the extent of the difference between the amount of accrued but unpaid interest on a Zero Note, Senior Subordinated Debenture or Subordinated Debenture and the part of its distribution allocated to, such interest. Othenaise, any recognized loss to an~exchanging holder will constitute a capital loss, provided that the holder held the debt sold or exchanged as a capital asset. This capital loss will be a long-term capital loss i~f the holder's holding period was longer than one year. (z) ~r~®t Discount Subjeot to a ~g minimis,exception, a Bank or a holder of a Zero Note, Senior Subordinated Debenture or Subordinated Debenture that. acquired its Claim against the Debtor at a market discount moat report any gain recognized on the exchange of such Claim pursuant to the Plan as ordinary income rather than as eapital. gain to the extent of accrued market ..discount. This rule will not apply if the exchanging Bank or 'holder elected to include such market discount in income as it accrued. Market discount generally equals the excess of the adjusted issue price of the debt at the time of the holder's acquisition of the debt over the holder's initial tax basis in such debt. A holder generally accrues market discount on a ratable basis, but may elect to accrue market discount on the basis of a constant interest rate. Since the Service is authorized to, but has not yet, issued regulations regarding the application -138- .of market discount rules, the federal income. tax consequences related to market discount cannot be fully.deterznined. To the extent that the exchange of a Zero Note, Senior Subordinated Debenture or Subordinated Debenture with accrued market discount is treated as a recapitalization, as . described above, the amount of accrued market discount that exceeds the gain recognized on the exchange will be allocated to the Class 2 Common Stock received by. the holder in such exchange. Upon the disposition of the Class 2 Common Stock, the holder will recognize this excess market discount as ordinary income to the extent of the gain recognized on such disposition. - A holder of a Zero Note, Senior Subordinated Debenture or Subordinated Debenture, as applicable, that acquired such debt at a market discount may have been required to defer the deduction of a portion of the .interest on any indebtedness incurred or continued to purchase or carry the debt pursuant to section 1277 of the Code. Subject to any other • limitation on deducting such interest (for example, the limitation upon the deduction of investment interest in section 163(d) of the Code), the holder should be allowed a deduction for such deferred interest upon the exchange of the Zero Note, Senior Subordinated Debenture .or Subordinated Debenture, as applicable. 3. initial Tam basis Based upon the treatment described above in "Gain ~.or~Loss upon Distribution," a' Bank, a holder of Zero Notes, a holder of Senior Subordinated Debentures and a holder of Subordinated Debentures will have an initial tax basis in the consideration received~as follows: a. Ham Cr®dit 11gr®®m~t Clmime and Holders of Zero Idotea An exchanging Bank or holder of Zero Notes will have an initial tax basis in a New Senior Secured Note received equal to the issue price of such New Senior Secured Note. An exchanging Bank or holder of Zero Notes will have an initial tax basis in a New Senior Subordinated Secured Note received equal to the issue price of such New Senior Subordinated Secured Note. An exchanging Bank will have an initial tax basis in the Common Stock • received equal to the fair market value of such Common Stock at the . time of the exchange. An exchanging holder of a Zero Note will have an initial tax basis in the Common Stock equal to the adjusted tax basis in the Zero Note exchanged therefor at the time {~f the exchange, plus the amount of gain recognized upon such exchange, less the sum of the amount of cash received and the aggregate issue price of the New Senior Secured Note or New Senior Subordinated Secured Note received for such Zero Note. -139- b. Holders of Senior Subordinated Debentures and Subordinated Debentures An exchanging holder of a Senior Subordinated Debenture or Subordinated Debenture, as applicable, will have an aggregate initial tax basis in the Class 2 Common Stock received equal to the adjusted tax basis of the. Senior Subordinated Debenture or Subordinated Debenture exchanged therefor, plus the amount of gain recognized upon such exchange, less the amount of ' cash received for such debenture. Holding Period An exchanging holder of a Senior Subordinated Debenture, Subordinated Debenture or Zero Note will have a holding period in the Common Stock and Junior Debentures received in such exchange that includes the period during which the Zero Note, Senior Subordinated Debenture or Subordinated Debenture, as applicable, was held. An exchanging Bank~and an exchanging holder of a Zero Note will have a holding period in the New Senior Secured Notes and the New Senior Subordinated Secured Notes received that -will generally begin upon the receipt of such notes. 5. Origina?1 issue Diseount _ The New Senior Subordinated Secured Notes and the Junior Debentures will be issued with OID interest for federal income tax purposes. Consequently, holders of such debt generally . will be subject to the special tax accounting rules for OID 'obligations provided by the Code and certain proposed regulations 'thereunder (the "Proposed Regulations"). Because the Proposed Regulations do not address certain issues, are unclear in certain respects and are not in final form. (and, thus, cannot be relied upon as legal authority), the application of the OID rules to the New Senior Subordinated Secured Notes and the Junior Debentures cannot be fully determined until regulations are issued in final or temporary form or until further guidance is issued by the Service. Exchanging holders that receive such debt should be aware that, as described in greater detail below, they may be required to include OID in ordinary gross income for United States federal income tax purposes as~it accrues, in advance of the receipt of cash attributable to that income. The aggregate amount of OID interest with respect to a Junior Debenture would be equal to the difference between (i) the sum of all principal and interest to be paid under such note and (ii} the issue price of such note. The issue price of a Junior Debenture will be the amount of cash paid for such debenture: The aggregate amount of OID interest with respect to a New Senior Subordinated Secured Note will be equal to the difference between (a) the sum of (i) all principal, (ii) any -140- interest payable on September 30, 1992 and (iii) any interest that may be paid under such note in additional Senior Subordinated Secured Notes and (b) the issue price of such note. If issued as ,of the date of this Disclosure Statement, a New Senior Subordinated Secured Note would have adequate stated interest such that the ~~issue price of such ..note would be its stated principal amount. ',(The issue price of a New Senior Secured Note should be, equal to its stated principal amount; although not free from .doubt, if issued. as of the date of this Disclosure Statement, the New Senior - Secured Notes should not have any OID interest.) In general, each holder of a New Senior Subordinated Secured Note or Junior Debenture, whether such holder uses the cash or the accrual method of tax accounting, will be required to include in ordinary gross income the sum of the "daily portion" of OID on that debt for all days during the taxable year on which the holder owns the debt. The daily portion of OID on a New Senior Subordinated Secured Note or Junior Debenture is determined by allocating to each day in any accrual period (each semi-annual period,, with respect to the New Senior Subordinated Secured Notes and the Junior Debentures, that begins on the day in each calendar year corresponding to the stated maturity date of the debt or six months prior thereto) a ratable portion of the OID allocable to that accrual period. In the. case of an initial holder, the amount of OID allocable to each accrual period is determined by (i) .multiplying the "adjusted issue price" (as defined below) of the debt at the_ beginning.. of an accrual period by a fraction, the numerator of .;which is the applicable yield to maturity (determined by compounding at the end of each accrual period and properly adjusted for the length of the accrual period) of the debt and the denominator of which is the number of accrual periods in a year and (ii) subtracting from that ,product the amount payable and paid as interest in cash during that accrual period. , The adjusted issue price of a New Senior Subordinated Secured Note or Junior Debenture at the beginning of any semi-annual accrual period will be the sum of its issue price, which as described above should be equal to its stated principal amount, and the amount of OID allocable to all prior accrual periods, reduced by the amount.of all payments made with respect to~ such debt (other than interest payments made through the issuance of additional New Senior Subordinated Secured Notes or additional Junior Debentures, as applicable) in all prior accrual .periods. ~ 6. Nithholdinq, Intormatios R®porting and Backup Nithholding a. ~1lthholding and Infor~atioa R®porting a The Reorganized Company will withhold all amounts required by law to be withheld from distributions of cash -141- or property to holders of New Senior Secured Notes, New Senior 'Subordinated Secured Notes, Junior Debentures or Common Stock and will comply with all applicable information reporting requirements with respect to such distributions. b. Backup Nithholdiag ~ A holder of New Senior Secured Notes, .New Senior Subordinated Secured Notes, Junior Debentures or Common Stock will be subject to backup withholding at a twenty percent ,_rate on reportable payments made pursuant to the Plan (or as a. distribution with respect to the COttQnOn Stock or as interest with respect to the New Senior Secured Notes, New Senior Subordinated Secured Notes or Junior Debentures) unless either 'the holder provides his correct taxpayer identification number to the Debtor and certifies°~that he is not subject to backup withholding or the holder demonstrates when required that it is a corporation or otherwise exempt from backup withholding. A holder of New Senior Secured Notes, New Senior Subordinated Secured Notes, Junior Debentures or Common Stock that does not provide the Debtor with his correct taxpayer identification number also may be subject to penalties imposed by the Service. Amounts withheld under these ~~rules are creditable against the holder's federal income tax liability. .b"~ ~OS~OOINO DISCCSSI08T O~ ~:TllIN r'~~~ ZNCO~ T1~ CONS~QD~C~3 IS F0~ G IN~OS~ATION ONLY AND IS NOT TA7C ~iDNICS. ACCORDZNC3LY, ~iCE AND RCN ~OLDS& OF OLD SB~,u~cITIS3 SNO~LD CONSItLT ITS Odd TA8 ADYISO~ AS TO SA&TIC®LA~ TAB CONS~gU~YCSS OF NOLDINO, ~ GINO OR SNLLIRTO INDSS~~?NSSS ~PTDBR a~ DANA CHIT ACS AND OLD SS~:~?~ITISS, INCLIIDINC °l~ 1~PLIC]~TION A1~dD SF~SCT O~ ANY t~~SEl~L, STATS, LOCi~L OR FORSIGRT TA% L,~1NS, AND OF ~Y C~NG~S IN A~PLICA~LS T~ LA/1S . S . C®rt~aia ~®d®acal Iacosl® Tu Coasequ®ac®s to th® Debtor and th® Subsidiari®® 1. Discharg® of Iad®bt®da®sa Iac~® The aggregate aanount of indebtedness of the Debtor Viand certain of the Subsidiaries tpursuant to the Subsidiary Guarantees) will be substantially reduced under the Plan. .Generally, cancellation or other discharge of indebtedness causes a debtor to recognize ordinary income equal to the amount (as determined for federal income tax purposes) of the indebtedness forgiven. If debt is discharged in a chapter 11 case, however, ~~=-no ordinary income generally results for the debtor. Instead, certain tax attributes otherwise available to the debtor are reduced, in most cases by an amount equal to the amount of the indebtedness forgiven. Tax attributes subject to reduction -142- include: (i) the current year NOL and the NOL carryforwards; (ii) most credit carryforwards; (iii) capital losses and carryforwards; (iv) the tax basis of the debtor's depreciable and nondepreciable assets, but not in an amount greater than the excess of tre aggregate adjusted tax basis of the property held by the debtor =•immediately after the discharge over the aggregate of the debtor's liabilities immediately after the discharge; and (v) foreign tax credit carryforwards. Attribute reduction is calculated only after the tax for the .year of discharge has been determined. Notwithstanding the foregoing, no~ordinary income or attribute reduction generally results from the satisfaction of .debt through issuance by a bankrupt or insolvent debtor of its stock to the holder of 'the debt. However, only stock that is not "disqualified stock" may qualify for the stock-for-debt exception. Stock that is redeemable at the option of the issuer at one or more times is disqualified stock. All of the Common Stock may be .redeemed by the Reorganized Company on various terms and • conditions. Thus, the Common Stock distributed under the Plan will not qualify for the stock-for-debt exception. The Debtor intends to take the position that, because the discharge of the Subsidiaries' obligation under the Subsidiary Guarantees is the cancellation of a debt owed by the Debtor (and for which the Subsidiaries are only contingently liable under the Subsidiary Guarantees), only the Debtor will realize any ordinary income from the discharge of the Claims under the Bank Credit Agreement, 'the Zero Notes, the Senior Subordinated Debentures and the Subordinated Debentures. Consequently, none of 'the Subsidiaries will realize any ordinary income from the =discharge of the Subsidiary Guarantees. Because only the Debtor will realize ordinary income from the discharge of such debt, only the separate attributes of the Reorganized Company (and none of the attributes of the Subsidiaries or GHTV) will be reduced. The Debtor believes that after this attribute reduction the GHI Group and the GHTV Group will have significant consolidated NOL carryforwards, although these NOL carryforwarda will be subject to a limitation under section 382 (a) (as discussed below). 2.' Bastion 382 Under regulations, both temporary and proposed by the Service, the issuance of Common Stock will. cause the Reorganized Company and the Subsidiaries that remain members of the GHI Group after the Effective Date to have an "ownership change" :under section 382 of the Code because the issuance of Common Stock would cause a greater than fifty percentage point change in the ownership of the Debtor. Under regulations proposed by the Service, this ownership change will be treated as occurring upon the Effective Date of the Plan. Based upon the approach taken by these proposed regulations, this ownership change will trigger a . 'section 382 limitation on the amount of consolidated taxable income -143- of the GHI Group that can be offset with any consolidated NOL, consoli~ated..NOL carryforwards or consolidated net unrealized built-in losses (collectively, "losses") apportioned to the Reorganized Company and the Subsidiaries that remain members of the GHI Group after the Effective Date in the year of the ownership change and thereafter. Consolidated taxable income in excess of the section 382 limitation. generally will be subject to current federal income tax. Upon the sale by GHI of its GHTV common stock on the Effective Date, GHTV and the GHTV Subsidiaries will deconsolidate from the GHI Group and will f orn a separate consolidated group ( the "GHTV Group"). Upon deconsolidation, some of the consolidated NOL carryforwards of the GHI Group will be apportioned to the GHTV Group. Under proposed regulations, this deconsolidation will also cause the~GHTV Group to have an ownership change under section 382. This ownership change will similarly cause a section 382 (a1 limitation on the amount of consolidated taxable income of the GHTV Group in its taxable years following the Effective Date that may . be offset with its losses. Consolidated taxable income of the GHTV Group in excess of this section 382 (a) limitation generally will be subject to current federal income tax. In determining the amount of these section 382 .limitations under the Service's proposed regulations, the equity value of the GHI Group and the GHTV Group, respectively, at the Effective Date will be multiplied by the long-teen tax-exempt rate. The Debtor expects that the equity value of both the GHI Group and the GHTV Group at the Effective Date will be sufficiently small such that the section 382 (a) limitation will cause a substantial ' restriction on the ability of the GHI Group and the GHTV Group to use their respective losses after the Effective Date. The section 382 limitation is zero unless the loss corporation maintains continuity of .business enterprise during the two-years following an ownership change.. To satisfy this requirement under the Service°s proposed regulations, the GHI-Group must either continue its resort operations or .meat packing operations. as one of its historic lines of business or use' a significant portion of the assets of either its resort operations or meat packing operations in another line of business. The Debtor expects that the GHI Group will continue its resort operations "business after the Plan for at least the requisite two-year period following the Bffective Date and thus satisfy this requirement. However, the assets cf the GHTV Group may be sold prior to the end of -the two-year period following the Effective Date. In such case, - - the GHTV Group would have a general section 382 limitation of zero. Even if the .section 382 (a) limitation with respect to the GHI -Group is zero after the Effective Date, under the approach adopted by proposed regulations, the Debtor believes that the GHI Group wil]. be able to increase its section 382 (a) -144° ..limitation in a taxable year after the Effective Date by the amount of gain recognized by it from the sale of assets (including the stock of a member of the GHI Group) in such year to the extent such :.gain was inherent or "built-in" on the Effective Date and is ;.recognized within the five-year period following the Effective •~::Date. However, the aggregate increase in the section 382 (a) .•limitation due to the recognition of such gains may not exceed the net amount of built-in gain (taking into account built-in losses) ° that exists on the Effective Date. • Section 382 will continue to apply to the GHI Group and the GHTV Group after the Effective Date of the Plan. Thus, an ownership change may result from future direct or indirect changes in the ownership of Common Stock,. including issuances, redemptions . and transfers of direct or indirect ownership of Common Stock and Junior Debentures.' A subsequent ownership. change would cause a subsequent section 382 (a) limitation that would apply to any losses that arise after the Effective Date. A subsequent section 382 limitation would also apply to losses that arise prior to the Effective Date if the subsequent ownership change results in a section 382 limitation that is less than the section 382 limitation that results from the ownership change that occurs on the Effective Date. The Reorganized Company and GHTV will be required by the temporary regulations under section 382 to keep track of certain direct and indirect changes in the ownership of the equity and to report such changes on an information statement filed with its .income tax return. C. Taa Sharing Agreement On August 1, 1988, the Debtor and those Subsidiaries that filed a consolidated federal income tax return with the Debtor entered into a Tax Sharing Agreement. The Tax Sharing Agreement provides that each such Subsidiary will calculate 'its federal income tax liability on a separate return basis and pay such liability to the Debtor on an agreed upon basis. On the Effective Date, the August 1, 1988 .Tax Sharing .Agreement will be terminated and the Reorganized Company and those Subsidiaries, that remain members of the GHI Group will enter into ~a new Tax Sharing Agreement substantially in the form of Exhibit 8. Similarly, on the Effective Date, GHTV and the other members of the GHTV Group will enter into a new Tax Sharing Agreement substantially in the form of Exhibit 9. -145- XI. APPLICI~ILIT'Y OF F~D~RAL AATD Ot~sR S~~uRITI~S LA6~S With respect to the New Securities to be issued to certain holders of Claims under the Plan, the Debtor intends to rely upon the exemptions from the registration requirements of the 'Securities Act of 1933, as amended (the "Securities Act"), and of equivalent state securities or "blue sky" laws provided by section 114.5 (a) (1) ~ of the Bankruptcy Code and by Section 4 (2) of the Securities Act, together with Regulation D promulgated thereunder. ' A. Isauanc® of New Securities IIad®r the P1~ Section 1145(a)(1) of the Bankruptcy Code exempts the. issuance of securities under a plan of reorganization from registration under the Securities Act and under equivalent state securities or'"blue sky" laws if three principal requirements are satisfied: (i) the securities must be issued "under a plan" of reorganization by the debtor or its successor under a plan or an affiliate participating in a joint plan of reorganization with the debtor; (ii) the recipients of the securities must hold a claim against the debtor, an interest in the debtor or a claim for an administrative expense against the debtor; and (iii) the securities must be issued entirely in exchange for. the recipient's claim against or interest in the debtor, or "principally" in such exchange and "partly" for cash or property. The Debtor believes that the exchange of the New Securities (other than the purchase of Junior Debentures for cash as discussed below)~and the Common Stock for Claims and Interests under the Plan satisfies the requirements of section 1145(a)(1) of the Bankruptcy Code and is, therefore, exempt from registration under federal and state securities laws. The private offering exemption set forth in Section 4(2) of the Securities Act and Regulation D promulgated thereunder, exempts from the registration requirements of the Securities Act all "transactions by an issuer not involving any public offering." Generally, this exemption applies when the offerees of securities (i) have sufficient net worth and are sophisticated in investment matters to not require the protection afforded by the registration and. prospectus delivery requirements under the Securities Act; and ~,~(ii) have access to sufficient information to permit an informed "investment decision. The New Investor Agreement and the Class 6 'and Class 7 Purchase Agreements will require New Investor and holders of Class 6 and Class 7 Claims to warrant as to their accredited investor status as a condition to the purchase of Junior Debentures under the Plan. Such parties will not be permitted to purchase Junior Debentures under the Plan if they fail to meet the ' accredited investor requirements set forth in Section 4(2) of the :Securities Act and Regulation D promulgated thereunder. Based on "the foregoing, the Debtor believes that. the issuance of the Junior Debentures to (a) New Investor pursuant to the New Investor , -146- Agreement and (b) holders of Class 6 and Class 7 Claims pursuant to the Class 6 and Class 7. Purchase Agreements, in exchange for cash, satisfies the requirements of Section 4(2) of the Securities Act and Regulation D promulgated thereunder, and is, therefore, eexempt from registration under federal and .state securities laws. B'. Transfer of New. Securities. 1. New Securities Issued Pursuant to Section 1145 Exemption The New Securities that are issued under.. the section ~1145(a)(1) exemption discussed above may be freely transferred by most recipients thereof, and all resales and subsequent °trans.actions for the Nevi Securities are exempt from registration under federal and state securities laws, unless the holder is an "underwriter" with respect to such securities. Section 1145(b)(1) of the Bankruptcy Code defines four types of "underwriters": ~(i) persons who purchase a claim against, an interest in, or a claim for administrative expense against .the debtor with a view to distributing any security received in exchange for such a claim or interest; (ii) persons who offer to sell securities issued under a bankruptcy plan on behalf of the holders of such securities; (iii)° persons who offer to buy securities issued under a bankruptcy plan from the persons receiving such securities, if the offer to buy is .made with a view to distributing such securities; and (iv) a person who is an "issuer" with respect to the securities, as the term "issuer" is defined in Section 2(11) of the Securities Act. Under Section 2(11) of the Securities Act, an "issuer" includes any -person directly or indirectly controlling or controlled by the issuer, or any person under direct or indirect c~.,~«on control with •°the issuer.. ~~"Control" (as such term is defined in Rule 405 of Regulation C under the Securities Act) means the possession, direct or indirect, of the power to direct or cause the direction of the •policies of a person., whether through the ownership of voting securities, by contract, or otherwise. Accordingly, an officer or _ ~~director of a reorganized debtor (or its affiliate or successor) under a plan of reorganization may be deemed to "control" such debtor (and therefore be an underwriter for purposes of section 1145), particularly if such management position is coupled with the =ownership of a significant percentage of the debtor's (or :affiliate's or successor's) voting securities. Moreover, the legislative history of section 1145 of the Bankruptcy Code suggests -147- that a creditor who owns at least 10~ of the securities of a reorganized debtor may be presumed to be a "control person." To the extent that persons deemed to be "underwriters" receive New Securities pursuant to the Plan, resales by such persons would not be exempted by section 1145(a)(1) of the Bankruptcy Code from registration under the Securities Act or other applicable law. Persons deemed to be underwriters, however, may ~,be able to. sell such securities without registration subject to the provisions of either Rule 144A or Rule 144 under the Securities Act :as discussed below.- 2. N~o S®curities Iseu®d Pursuant to S®ctioa 4(2) EJC t ion Rule 144A, promulgated under the Securities Act, provides a non-exclusive safe harbor exemption from the registration requirements of the Securities Act .for resales to certain "qualified institutional buyers" of securities which are . "restricted securities" within the meaning of the Securities Act, irrespective of whether the seller of such securities purchased his or its securities with a view towards reselling such securities under the provisions of Rule 144A. Under Rule 144A, a "qualified institutional buyer" is defined to include, among other Persona (e.a., "dealers" registered as such pursuant to Section 15 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and "banks" as defined in Section 3(a)(2) of the Securities Act>, any entity which purchases securities for its oven account or for the account of~anather qualified institutional buyer and which (in the aggregate) owns and invests on a discretionary basis at least $100 million in the securities of unaffiliated issuers. Subject to certain qualifications, Rule 144A does not exempt the offer or sale of securities which, at the time of their issuance, were securities of the same class of securities then listed on a national securities exchange (registered as such under Section 6 of the Exchange Act), or quoted in.a U.S. automated inter-dealer quotation system .(e•a., NASDAQ). Given that none of the New Securities to be issued under the Plan will be securities of a class then listed or quoted as described above, holders of Junior Debentures received in .exchange for cash and holders of New Securities who are deemed to be "underwriters" within the meaning of section 1145(b)(1) of the Bankruptcy Code or who may otherwise ~be deemed to be "affiliates" of, or to exercise "control" over, the Debtor within the meaning of Rule 405 of Regulation C under the Securities Act should, assuming that all other conditions of Rule 144A are met, be entitled to avail themselves of the safe harbor resale provisions thereof. To the extent that Rule 144A is unavailable, holders may, under certain circumstances, be able to sell their securities pursuant to the more limited safe harbor resale provisions .of Rule 144 under the Securities Act. Generally, Rule 144 provides that . -148- if certain conditions are met (e.a., two-year holding period with respect to "restricted securities," volume limitations, manner of sale, availability of current information about the issuer, etc.), specified persons who (a) resell "restricted securities" or (b) resell securities which are not restricted but who are "affiliates" of the issuer of the securities sought to be resold, will not be •~'~~deemed to be "underwriters" as defined in Section 2(11) of the Securities Act. Under paragraph (k) of Rule 144, the aforementioned conditions to resale will no longer apply to restricted securities sold for the account of a holder who is not an affiliate of the Debtor at the time of such resale and who has_ ~~not been such during the three-month period next preceding such resale, so long as a period of at least three years has elapsed since the later of (i) the Effective Date and (ii) the date on which such holder acquired his. or its securities from an affiliate of the Debtor. ~tus FOREGOING SUB~dARY DISCUSSION IS GENERAL IN NAi~RE AND HAS BEEN INCLDDSD IN THIS DISCLOSURE STATEMSIJT SOLELY FOR INFORMATIONAL PURPOSES. a~ DEBTOR DOSS NOT MARS ANY REFRBSBPITATIONS CONCERNING AND DOSS NOT PROi~IDS ANY OPINION OR ADVICE KITH RESPECT T0, THS SS~1~aaITIES LAlt AND BANKRUPTCY LAN MA~~1~RS DESCRIBED ABOVE. tam DEBTOR ENCOURAGES EACH PERSON oPHO IS TO RECEIVE NB6I SS~uxITIES PURSUANT TO ~aa PLAN TO CONSIDER CARET uLLY AND CONSULT 1~ITH HI3 OR ITS ONN LEGAL ADVISOR (S) FAITH RESPECT TO SUCH (AND ANY RSLAaa~L) BsA~ ~~RS, IN VIS1A OF aan UNCERTAINTY CONCERNING THS AVAILABILITY OF TIONS FROGS tn~ REGISTRATION REQUIREt~]TS OF SS~r~t~ITIES ACT AND EQIIIVAL$NT STATE SE~uxITIES OR ":BLUR SKY° LA1AS ~ TO A RECIPIENT OF NSOA SEw1cITIES NRO MAY BE DSSB~D TO BS AN "UNDSR6ARITER" (IAITHIN ia~ MEANING OF SECTION 1145 (BD (1) OF rte BANEI3UPTCY CODE) AND/OR AN "AFFILIATE" OF, OR A PERSON 1AH0 F~ICSRCISSS "CONTROL" OVER, iti~ DEBTOR UNDER APPLICABLE FEDERAL AND STATE SB~,u~%TIES LAMS. -149- XII. CONFIRMATION STANDARDS . A. Classification of Claims and Interests IInder the ' D~kruptcy Cod® The Plan divides the Claims and Interests into eight classes and sets forth the treatment offered each class. Section ~~.101(5) of the Bankruptcy Code defines !'claim" broadly as a "right to payment, whether or not such right is reduced to judgment, -liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured" or a "right to an equitable remedy for breach of performance if such breach gives rise to a right to payment whether or not such right to an equitable remedy is reduced to judgment., fixed, contingent, matured, unmatured, disputed, undisputed, secured, or unsecured." In order for the holder of a claim to participate in_a plan and receive the treatment offered to the class in which it is . classified., the claim must be "allowed." A claim is allowed under the Bankruptcy Code i.f such claim or a portion thereof either (i) has been scheduled by the debtor in its bankruptcy filing, is not scheduled as disputed, contingent or unliquidated, and is not subject to any pending objection timely filed by any party-in-interest or (ii) has been timely filed by way of a proof of claim with the court and (A) is not. sttbj ect' to an objection filed within the period for objections fixed by the Bankruptcy Code, the Bankruptcy Rules, or an order of the court, or (B) the court has allowed the claim despite an objection. Pursuant to section 1122 of the Bankruptcy Code, claims and interests must be grouped into classes or "classified" under a plan of reorganization. All claims or interests within a particular class must be substantially similar to each other, and must in general receive the same treatment as each other, except 'to the extent that a particular holder agrees to a less favorable .treatment. The Debtor believes that the classification of Claims ' and Interests under the Plan is proper under the Bankruptcy Code. Modifications or amendments to a plan's classification system may be made with the Bankruptcy Court's approval and may, .under certain circumstances, be approved by ,the Bankruptcy Court °at the confirmation hearing without resolicitation of holders of 'claims and interests who are not materially and adversely affected thereby. It is the present intention of the Debtor to use; to the extent permitted by the Court and the Bankruptcy Code, each . -150- acceptance received by the Debtor pursuant to this solicitation for the purpose of obtaining the acceptance of the Class of which a holder of Claims or Interests is ultimately deemed to be a member, in the event of an amendment or modification of the classification scheme under the Plan. It is possible that reclassification of Claims or Interests could affect the Classes in which such Claims >>or Interests were initially classified, or another Class under the •:wPlan, by changing the composition of such Classes and the votes of the members thereof required for acceptance of the Plan by such Classes. Therefore, a reclassification of Claims or Interests after this solicitation could necessitate a resolicitation of acceptances. TO i~us BBTBIdT PBRB~Ii'i~tJ HY t~ COURT, BANlCRIIPTCY CODB AND BANKRUPTCY ROLBS, ACCRPTANCB BY ANY BOLDBR OF CLAI~3S OR INTBRBSTS OF PLAN PURSIIANT TO THI3 SOLICITATION 1iILL BB DBBB~D TO BB ia~ ACCBPTANCB OF a~xa PLAAT ° S TRBATI~T OF SIICH CLAD OR INTBRSST, RBGARDLBSS OF Y~ CLASS' OF iPHICB SIICN CLAIM OR INTBRBST IS IILTINATBLY DBBb~D TO H8 A ABR. H. Impairmeat of Claims wad Iat®r®etaa Impair®d Claws®s The Bankruptcy Code requires that, in order to be confirmed, a plan of reorganization must specify whether a class of claims or interests is "impaired" by its treatment under the Plan. A claim or .interest is "impaired" unless the plan (i). leaves unaltered the legal, equitable and contractual rights to which the claim~or interest entitles the holder thereof, (ii) with certain exceptions, cures any default which occurred before or after the commencement of the chapter 11 case, reinstates the original maturity of the claim or interest and compensates the holder for any damages resulting from any reasonable reliance by the holder on the debtor's performance of its obligations with respect to such claim or interest, or - (iii) provides that, upon confirmation of the plan,, the -holder of the claim or interest receives cash equal to the allowed amount of such claim, or with respect to any interest, any fixed liquidation preference to which the interest holder is entitled or any fixed pries at which the debtor may redeem the security. Under the Plan, Clasa 1 is not impaired, and Classes 2 through 8 are impaired. See Article VII hereof for more detailed descriptions of the classification and treatment of Claims and Interests. Classes 3, 4 and 8 are impaired and are deemed to have 'rejected the plan. Although those Classes are deemed to have •rejected the Plan because they will receive no distributions -151- thereunder, the Debtor will collect acceptances from those Classes and, in the-event they accept; their acceptance will overcome the presumption of rejection. - C. Solieitstioa of Impaired Class®s and Voting Requireffients A class of claims or interests that is not impaired under a plan of reorganization is deemed under the Bankruptcy Code to have accepted the plan, and, therefore, solicitation of acceptances with respect to such class is not required. A class that does not - ~ receive or retain any property under the' plan is deemed to have rejected the plan. With the transmittal of this Disclosure Statement, the Plan and the ballots, the Debtor is soliciting acceptances from the holders of Claims in Classes 2 through 7 and Interests in Class S because such classes of Claims are impaired under the Plan, and are, therefore, entitled to vote on the Plan. Section 1125 of the Bankruptcy Code requires that disclosure of "adequate information" be made to all impaired creditors and interest holders at the time of or before solicitation of acceptances of a plan of reorganization. "Adequate information" means "information of a kind,. and in sufficient detail, as far as is reasonably practicable in light of the nature _ and history of the debtor and the condition of the debtor's books and records, that would enable a hypothetical and reasonable investor typical of holders of the claims or interests of the relevant class to make an informed judgment about the plan, but adequate information need not include such information about any other possible or proposed plan." An "investor typical of holders of claims or interests of the relevant class" means an investor having, among other things, "such ability to obtain such information from sources other than the disclosure required by section 1125 as holders of claims or interests in such class generally have." The Debtor believes that it is transmitting the Plan to substantially all holders of impaired Claims and Interests in connection with this ..solicitation, and that this Disclosure - Statement satisfies the requirements of section 1125 with regard to "adequate information" provided by a disclosure statement under the Bankruptcy Code. For an .impaired class of claims to be determined to have accepted a plan of reorganization, the holders of at least two- thirds in amount and more than one-half in number of the claims of the holders within such class who actually vote must accept the . plan. With respect to an impaired class of interests, the holders of at .least two-thirds in amount of the interests of holders who actually vote in such class must vote to accept the plan. -1s2-. As described above, the Bankruptcy Code does not require that each holde-r of a claim or interest vote in favor of a plan in order for the Court to confirm the plan, as long as the requisite number and amount of votes are obtained to constitute acceptance ~~by impaired classes. In addition, the Bankruptcy Code does not require that every impaired class accept a plan. Lf one or more -'impaired classes of claims exists, the plan must be accepted by at least one class of impaired claims to be confirmed., without considering the votes of "insiders" as defined by the Bankruptcy .Code. In addition, if certain requirements are met, the court can confirm the plan over the objection and nonacceptance of .a class of impaired claims or interests. The Debtor reserves the right to ask the Court to confirm the Plan notwithstanding the rejection by a Class of impaired Claims or Interests in the event that not all impaired Classes of Claims and Interests accept the Plan. Finally, it is possible that even if all Classes of Claims and Interests accept the Plan, the Court may not confirm the Plan if it finds that certain other requirements for confirmation were not met. D. Possible Poat-Solicitation, Pr®•Confir~ation gv®ats The Debtor may seek to amend or modify the Plan as the result of substantive or technical objections to the Plan filed by holders of Claims or Interests, or as a result of any other matter that may affect the Debtor's ability to obtain confirmation of the Plan, or, if for any other reason that cannot be foreseen at the present time,, such amendment or modification is determined by the Debtor to be in its best interest. Such an amendment or modification may occur before or after objections to the Plan are filed, if any, or even after confirmation of the Plan. With respect to modifications or amendments made after confirmation of the Plan, the Court may remedy any defects or omissions or reconcile any inconsistencies in the Plan or in the order which confirms the Plan in such manner as may be necessary to implements. the purposes and intent of the Plan, so long as the holders of Claims and Interests are. not materially and adversely affected. The potential impact of a possible amendment or modification on the holders of Claims and Interests cannot now be foreseen, but with respect to an amendment or modification prior to confirmation, may include a change in the economic impact of the Plan on some or all of the Classes of Claims or Interests and/or -a change in the relative rights of such Classes. If the change materially and adversely affects the treatment of a Class of Claims or Interests as determined by the Court, the members of such Class in general would be entitled to withdraw and/or change any votes cast to accept or reject the Plan. - 153- , The Debtor .reserves the right to use the ballots of . holders of Claims and Interests to obtain confirmation with .respect to any modified Plan so long as the amendment does r_ot materially and adversely affect the treatment of the Class of .Claims and Interests under the Plan whose votes are sought. to be used. If the Plan, is so amended or modified, only for cause shown and pursuant to a request made within the time fixed for acceptance or objection may a holder of Claims or Interests change or withdraw its ballot. E. Confirmation Procedures and Requireffienta 1. Confirmation ~er® Sufficieat Acceptances ar® Obtained The Debtor intends to request the Court to hold a confirmation hearing to confirm the Plan, upon such notice to parties in interest as is required by the Bankruptcy Rules and the Court. Parties in interest, including holders of Claims and Interests, will receive notice of the date and time fixed by the Court for the confirmation hearing. The Court will also fix procedures and deadlines for the filing and service of objections to confirmation of the Plan. The Bankruptcy Code contains specific requirements for confirmation of a plan in section 1129. For example, a Bankruptcy Court must find that a plan is proposed in "good faith," that it makes certain specified disclosures, and that it provides that any payment made to any person in connection' with such plan and incident to the reorganization case be reasonable and subject to . the Court's approval. In addition, a plan must satisfy the "best interest of creditors" test and must be financially feasible. 2. Chapt®r 7 Ligtaidation Analysis and pB®st Interest of Cr®ditors® Test Before a plan can be confirmed, a.Bankruptcy Court must find under section 1129(a)(7) (with certain exceptions) that the plan provides, with respect to each class of claims or interests, that each holder of a claim or interest in such class either (i) has accepted the plan, or (ii) will ,receive or retain under the plan property of . a value, a® of the effective date of the plan, that is not less than such person would receive or .retain if the debtor were liquidated on such date under chapter 7 of the Bankruptcy Code. A detailed analysis of this requirement. as it relates to the Plan and the Debtor is provided in Exhibit 6. a~ D~~TOH IIHG83 MACH _ HOLDER OF CLAD ADD IHTHST3 3°® P~ IBIT 6 CAHELY III ~ALIIATIRTG tam PL~1PT. In summary, the. Debtor believes that this test will be satisfied with respect to the Plan. -154- - 3,. ,Feasibility Teat Pursuant to the Bankruptcy Code, a Bankruptcy Court must determine that confirmation of a plan is not likely to be followed by the liquidation or need for further financial reorganization of the debtor. The Debtor believes the Plan meets this requirement. To reach this conclusion, the Debtc~x has analyzed the ability of the Reorganized Company to meet its obligations under the Plan while retaining a sufficient amount of cash to carry on its operations. The feasibility of the Plan can best be analyzed . when the Plan is considered in light of the Debtor's recent operating results and the Reorganized Company's projections for the next 5 years. A detailed analysis of the foregoing appears at Article VIII .hereof and Exhibit 3 attached hereto. In assessing the Plan's feasibility, certain matters which constitute important risk factors have been set forth in Article IX. ia~ DHHTOR DRGHS $ACH HOI~DHR OF CZ~AINS AND INTHRSSTS TO SXAMINS CARBF~LLY ARTICL$S VIII AND IR IN HVALIIATING ials PLAN. 4. "Cram Dower" Power Fair and Squitable Teat If all of the requirements of subsection 1129(a) of the Bankruptcy Code are met other than the acceptance of the plan by each class of impaired claims or interests, a Bankruptcy Court, on . the request of .,a plan proponent, shall.confirm a plan pursuant to ' subsection 1129 (b) of the Bankruptcy Code if it does not discriminate unfairly and is fair and. equitable with respect to each impaired class that has not accepted the plan. Tests for defining the term "fair and equitable" are contained in section 1129(b)(2) of the Bankruptcy Code. A plan is deemed fair and equitable with respect to an impaired class of unsecured claims if each member of the class receives or retains on account of his claim property of a value, as of the effective date of the plan, equal to the allowed amount of the claim, or alternatively, no holder of a claim or interest that is junior to the claims of the. rejecting class will receive or retain. any value under the plan on account of such junior claims or interests. The requirement that a plan not "discriminate unfairly" means, among other things', that a dissenting class must be treated substantially equally with respect to other classes of equal rank. The Debtor does not believe that the Plan unfairly discriminates against any Class that may not accept or otherwise consent to the Plan. -155- F. Eallots and Voting Deadlin® A form of ballot to be used for voting to accept or reject the Plan, together with a postage paid return envelope, is enclosed with this Disclosure Statement. Also enclosed with this Disclosure Statement is a Letter of Transmittal which holders of .Old Securities are required to complete and' return together with certificates representing their Old Securities to the. Exchange .Agent in order for their ballots to be accepted and. New Securities or cash to be issued to them upon confirmation of the Plan. (See Section H of this Article XII Letters of Transmittal) The solicitation period for ballots with respect to the Plan will expire at 5 :00 p.m. , Denver time, on unless and until the Court extends the date by which ballots will be accepted, in which event such solicitation period will expire at 5:00 p.m., Denver time on such extended date (the "Expiration Date"). .Except to the extent requested by the Debtor and allowed by the Court, ballots that are received after the Expiration Date will not be accepted or used by the Debtor in connection with tl~e Debtors request for confirmation of the Plan or any modification thereof. _ NOTgiIT'ESTANDIAi(~ FOREGOING, A,~~°x~jc i~ EZPYRATION DATE AND PRIOR TO TEE ~ OF a~ CONFI TIO~T ORDER, DEBTOR BSAY, IN ITS SOLE DISCRETION ~°1`Y- ~u~T 'I°0 CONSENT OF a~ FOLDER OF A CLAIDq IFd CLASSES 5, 6 OR 7, REALLOCATE ANY OF SIICE FOLDER°S DISTRIEIITION DESIGATA'~1 ODY ITS EALLOT Z'0 O"axs ALTERNATIVE DISTRIRIITIONS AVAILAELE TO FOLD OF CLAD IBi TEE SAS CLASS, PROVIDED SIICE REALLOCATION DOES NOT CAIISE ANY O"a'I~R FOLDER OF CLAI~S.S IN SIICE CLASS TO RECEIVE LESS IN A~OIINT OF ITS PREFERRED DISTRISIITI01~?. G. E®a®ficial Folders IF A FOLDER ° S CLAIB[ OR mad ~ 13R,BST IS A RESIILT OF SIICH FOLDER'S ONNERBEIP OF OLD SE~.ukITIES AND SIICE FOLDER°S OLD SB~uxITIES ARE ON ~u~ EOLDER° S EEEAI+F IDT ~ ATA OF A SROICER, D , C CIAL , TRIIST CON~ANY OR 0'1'x$ NOMINEE, ;ONLY E ICIAL FOLDER ~3AY ~:u A EALLOT ~9ITE RESPECT TO SIICE CL.AI~d OE ST TO ACCEPT OR REJECT a PL~d II3dLESS a~ RECORD EOLDEE SEALL SAVE PRESffi~"~ N9RIa.;~ EVIDENCE SATISFACTORY TO a~ DEE°~OR AND ITS Cvt~a~SEL TEAT TEE EENEFICIAL FOLDER EA.S _ Au .las?ORIZED A RECORD FOLDER TO 4,~ a~ .AND DELI dldet A EALLOT OBT ITS . BEEALF. - H. L®tt®rs of Tran~ittal Included with this Disclosure Statement as Exhibit 7, is a Letter of Transmittal which holders of Old Securities are required to complete and return to the Exchange Agent, together -156- -`with certificates representing their Old Securities (the "Tendered Certificates")., in order for their ballots to be accepted (although the Debtor reserves the right, in its sole discretion, to count ballots returned without properly completed Letters - of 'Transmittal). Promptly following the Effective Date, the Exchange ;Agent will mail to those persons who have properly completed and ~~returned Letters of Transmittal and Tendered Certificates, ~F certificates representing the New Securities to be issued or the cash to be paid in exchange for Old Securities as the case may be, in accordance with the instructions set forth ~in the Letter of Transmittal. Promptly following confirmation of the Plan, the Reorganized Company will transmit Letters of Transmittal to~the holders of Old Securities who have not previously completed and submitted Letters of Transmittal, together with Tendered Certificates, to the Exchange Agent.- HOLDERS OF OLD SE~,uaaITIES DdHO HAVE NOT PROPERLY COB~L,~ a ~ AND RE a u rildBD TO i ~ EBCHANGE a1GENT LEi1rsRS OF TRANSB~ITTAL .BAITHIN TPiO YEAIZH OF i~ EFFECT%VE DATE, TOGEiajsR 6/ITH Y~ TEPdDERED CERTIFICATES, p1ILL NOT RECEIVE i~ CERTIFICATES OR CASE TO 6PHICS a~x ARE OinaRMISE BNTITLED ruxtSIIANT TO ads PLAN NOR HILL in.~~ EE ENTITLED TO AN7t O~~riR DISTRYEUTION IINDER sari PLAN. Signatures on a Letter of Transmittal must be guaranteed., unless the Old Securities tendered pursuant thereto are tendered (i) by a registered holder who has not completed the box entitled "Special Issuance Instructions" or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution (as ,defined below) . If signatures on a Letter of Transmittal are required to be guaranteed, such guarantees must be by a member firm of a registered national securities exchange in the United States, a member of the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office or a correspondent in the United States (each of which is an "Eligible Institution"). If Old Securities are registered in the name of a person other :than the person signing the Letter of Transmittal, in order to be validly tendered, the Old Securities must be endorsed or accompanied by properly completed stock. or bond powers, as the ..case may be, with signatures guaranteed by an Eligible Institution. Holders of Old Securities who are not holders of record should (i) obtain a properly completed Letter of Transmittal (or facsimile thereof) from the record holder, -157- (ii) obtain and include with the Letter. of Transmittal a properly completed stock or bond power, as the case may be, from the record holder, or (iii) effect a record transfer of their Old Securities prior to delivery of the Letter of Transmittal. If a holder desires to tender Old Securities, pursuant to -the .Letter of Transmittal but is unable to locate the Tendered 'Certificates, such holder should write to or telephone the Exchange = Agent about procedures for obtaining replacement certificates for - Old Securities or arranging for indemnification. All questions as to the validity, form, eligibility (including time of receipt), and aceeptance of ballots, Letters of Transmittal and .Tendered Certificates will be resolved by the Debtor, whose determination will be final and binding. The Debtor reserves the right to reject any and all ballots, Letters of. Transmittal and Tendered Certificates not in proper form or ballot, or Letters of Transmittal and Tendered Certificates the Debtor s acceptance of which would, in the opinion of the Debtor or its counsel, be unlawful. The Debtor also reserves the right to waive any defects or irregularities or conditions of delivery as to any = particular ballot, Letter of Transmittal or Tendered Certificate. The interpretation of the terms and conditions of this solicitation ' (including the ballot and Letter of Transmittal and the respective ..instructions thereto) by the Debtor will be final and binding on all parties.-:. Unless waived, any defects or irregularities in connection with deliveries of ballots, Letters of Transmittal and Tendered Certificates must be cured within such time as the Debtor will determine. Neither the Debtor nor any other Person will be under any duty to give notification of defects or irregularities with respect to deliveries of ballots, Letters of Transmittal and Tendered Certificates, nor will any of them incur any liabilities for failure to give such notification. Delivery of such ballots, Letters of Transmittal and Tendered Certificates will not be deemed to have been made until such irregularities have been cured or waived. -158- XIII. RSSOLIITION OF CONTRACTIIAL AND.NON-CONTR.ACTQAL SIIHORDINATION RIGHTS This article summarizes the resolution effected by the Plan of the contractual and non-contractual subordination rights ~~~of certain classes of GHI creditors. Part A summarizes the =resolution of certain contractual subordination rights Class 5 and 6 creditors have asserted pursuant to the Bank Credit Agreement, ` the Zero Note Indentures, and the Old Subordinated Indentures. Part B describes the claims and other rights asserted by Equitable in the Equitable Adversary Proceeding filed against the Debtor, two of its Subsidiaries, The First National Bank of Chicago and Norwest Bank Minnesota, N.A. Part C describes the Plan's resolution of any equitable subordination or other non-contractual subordination rights the holder of any claim or interest may have against any other holder of a claim with respect to any distribution under the Plan. A. Resolutioa of Contractual Subordination Rights of Class 5 sad 6 Creditors Pursuant to Article 10 of the Senior Subordinated Indenture, which provides for the subordination of the payment of all indebtedness thereunder to the payment of senior debt, the . Class 5 creditors (the Banks and holders of the Zero Notes) have asserted the contractual right to be paid the indebtedness owed by the Debtor to those creditors prior to any payment being made to Class 6 creditors. These contractual subordination rights would extend by their terms to any distribution made to the Class 6 creditors pursuant to a chapter 11 plan of reorganization so as to entitle Class 5' creditors to payment in full from such a distribution prior to Class 6 creditors receiving any payment. Article 10 of the Subordinated Indenture contains similar contractual subordination provisions. Class 5 and 6 creditors have asserted the contractual right to be paid in full prior to any payment being made to the Subordinated Debenture holders (Class 7 under the Plan). These subordination rights extend by their terms to distributions pursuant to a chapter 11 plan otherwise payable to the Subordinated Debenture. holders. Contractual subordination rights are enforceable under the state law of New York, which is the governing law under the Old Subordinated Indentures, and are also enforceable in a bankruptcy case to the same extent that they are enforceable under New York state law. However, contractual subordination rights will generally not be enforced in a chapter 11 case in which the class of claims holding the contractual rights has accepted a plan that waives such rights. -159- •F~ under the term "Credit Line," as originally defined in the Senior Subordinated Debenture. Equitable further contends that GHI did not meet the "financial ratios which had to be satisfied as a condition to the incurrence of additional debt under the Senior Subordinated Indenture; that certain proceeds from sales of GHI assets were improperly used to pay some of the Bank indebtedness yin derogation of the terms of the original Indenture; and that GHI 'has breached the Indenture by adopting the amendments, .incurring .additional Bank indebtedness and issuing the Series D and E Zero Notes without first obtaining the consent of all Senior Subordinated Debenture holders. Equitable seeks a reordering of priorities which would provide Equitable with the same level of priority as the D and E Zero Notes and a portion of the existing Bank indebtedness. (An additional description of the claims and other rights asserted by Equitable is included in Article V, Part J Priority Dispute.) The Debtor and the other defendants have examined the claims and other rights asserted by Equitable in the Equitable Adversary Proceeding and concluded that these claims and other asserted rights lack substantial merit. The Debtor and the other defendants have determined that Equitable has failed to comply with certain conditions set forth in the Senior Subordinated Indenture, which must be satisfied before bringing suit under the Indenture, and a joint motion~to dismiss the Equitable Adversary Proceeding on that ground has been filed with the Court. The Court has taken the motion under advisement. The Debtor's investigation has also disclosed certain meritorious substantive defenses to the Equitable Adversary Proceeding. To the extent Equitable weeks to continue the Equitable Adversary Proceeding subsequent to a date ten days prior to the hearing on the Disclosure Statement, Equitable will be a Non- settling Class 6 Claimant. As a result, Class 5 creditors will not be deemed to release any contractual subordination rights respecting distributions under the Plan to Equitable (or any other Non-settling Class 6 Claimant) and the distribution portion of Equitable or any other Non-settling Class 6 Claimant will be placed in escrow pending a final determination of the respective rights of the Banks, the Zero Note holders and Non-settling Class 6 Claimants. C. Reaolutioa of Noa-Contractual Subordination Rights Under section 510(c) of the Bankruptcy Code, the Court may, under principles of equitable subordination, subordinate all or part of an allowed claim or interest to all or part of another •allowed claim or interest. Equitable subordination of a claim would in most instances require proof that a particular claimant had engaged in some type of inequitable conduct and that the •conduct has resulted in injury to other creditors or conferred an unfair advantage on the claimant. -161- %IV • S$11 ~+BMffiJT AND CObII~ROMISB OF GNG - RBLAi CLAIMS AND ACQIIISITION OF ASSETS The Debtor, through its wholly-owned indirect subsidiary, iGillett~I Co., owns 100 of the common stock of Gillett Subsidiary Corp. Gillett Subsidiary Corp.'s soli asset is 40~ of the outstanding Class B common stock of SCI Television, Inc. which stock interest is of nominal value at this time. Packerland, an indirect subsidiary of the Debtor, is owed certain amounts from GNG and Gillett Cattle Company, a company in which GNG holds the sole equity interest. The total amount due from GNG is $350,000 and the total amount due from Gillett Cattle Company is $4,616,439. Given the financial condition of Gillett Cattle Company and GNG, it is unlikely that Packerland will be able to collect the amounts owed by Gillett Cattle Company and GNG. (The obligations of GNG and the Gillett Cattle Company are also described in Article V, Section I Affiliate Relationships and Related Transactions) GNG is the sole equity owner of GHI and also its director and President. GNG is an insider of GHI within the meaning of section 101(31)(B) of the Bankruptcy Code. GNG has proposed that, in full settlement of the aforementioned debts of GNG and Gillett Cattle Company, and as -payment for a 100 interest in the common stock of Gillett Subsidiary Corp., GNG shall transfer to the Reorganized Company his 100 interest in the common stock of Vail Magazine, Inc. and the Jet Center. Jet Center is the owner and operator of the public passenger terminal facilities at the Jet Center and leases facilities to various rental car companies and airlines. Over the last nine years the Airport has expanded from a 5000-foot strip 60 feet wide with no commercial air service to an 8000-foot strip 150 feet wide with daily Boeing 757 service. Although Jet Center has historically operated at a lose, the Jet Center operated at a small profit for the eight months ending December 31, 1991 and management forecasts indicate future profitable operations. The Jet Center owes GHI and its Subsidiaries approximately $165,000. Vail Magazine, Inc. currently publishes "Vail Magazine," a biannual magazine covering matters of interest to guests and residents of Vail Valley, Colorado. Vail Magazine, Inc. is under contract with The Mayer Company, a sole proprietorship, with respect to the publication of Vail Magazine. Vail Magazine earns ~ . its revenue primarily from advertising and secondarily from subscription and sales revenue. Vail Magazine, Inc. is currently operating at a small profit. Vail Magazine, Inc. owes GHI and its Subsidiaries approximately $320,000 and GNG approximately $250,000. -163- 2V . CO~IICLVO IOIT The Debtor believed that coafircnation and lanplmoeatatiDn of the Plan io preferable to any alternative treata+eut of holdecs of Allowed Claims because the Plaa provides greater recovery to ouch holders than nay ~?lteraative. Ia addition, alternatives would involve significant delay, uncertainty and oubetantial additional administrative costa. Therstore, the Debtor urges creditors to vote for the Plan by marking th.ir balloto accordingly, and returning the signed ballots so they ars received on or before 199. GILL~.~ + HOLDINC3S, INC. Debtor and Debtor in Possession f David A. Ramon / Executive vice president and Chiet Financial Ottic~r Douglas M. Tiodale, Beq. L. Louire Roa?ero-Atwood, fisq. BR01~8TBIN, HYATT, FARHSR & STRICICLAND, P . C . 410 8eventeeath Street Denver, Colorado _sOZ02.446d t~oai s~4ia~~e Attorneyw for the.Debtor L.wis S. Ro~enbioaan, Bsq. Thomas F. Blakemore. Soq. N. Theodore Zink, Bsq. Winston a 9travrn 35 West Wacker Drive Chicago, Illinoio 60601.9703 (312) 558.5600 8peeial Counerel to the Debtor aaa Debtor St1 Foaaesalon and Attornay~ for the Buberidiar~ee -165- IN THE-UNITED STATES BANKRUPTCY COURT - DISTRICT OF COLORADO In re ) Chapter 11 GILL~li HOLDINGS, INC., ) Case No. 91-12465 SBB Debtor. ) DEBTOR'S PLAN OF REORGANIZATION Douglas M. Tisdale, Esq. L. Louise Romero-Atwood, Esq. Brownstein, Hyatt, Farber ~ Strickland, P.C. _ 410 Seventeenth Street Denver, Colorado 80202-4468 (303) 534-6335 Attorneys for the Debtor and Debtor in Possession Lewis S. Rosenbloom, Esq. Thomas F. Blakemore, Esq. N. Theodore Zink, Jr., Esq. Winston ~ Strawn 35 West Wacker Drive Chicago, Illinois -60601-9703 (312) 558-5600 Special Counsel to -the Debtor and Debtor in Possession and Attorneys for the Subsidiaries February 4, 1992 (b) If Class 7 Rejects the Plan 37 (c) Resolution of Claims Regarding Subordination Provisions . 37 5.07 GNG Interests 38 5.08 Determination of Class 5, 6 and 7 Claim Amounts 38 5.09 Reallocation of Holders' Designated Distributions 38 5.10 Impaired Classes 39 'ARTICLE VI PROVISIONS FOR NEW INVESTOR 39 ARTICLE VII PROVISIONS FOR TREATMENT OF DISPUTED, CONTINGENT AND UNLIQUIDATED CLAIMS AND ADMINISTRATIVE EXPENSES 40 7.01 Characterization of Claims as Disputed 40 7.02 Resolution of Contested Claims 40. ARTICLE VIII IMPLEMENTATION OF THE PLAN 41 8.01 New Securities, Collateral Trust Agreement and Purchase Agreements 41 8.02 Cancellation of Old Securities, Old Collateral Trust Agreement and Indentures 41 8.03 Certificate of Incorporation and Bylaw Amendments 42 8.04 Management of the Debtor 42 8.05 Management of GHTV 43 8.06 Method of Distribution Under the Plan 43 8.07 Release of the WMAR Sale Proceeds to the.Debtor 43 8.08 Investment in Cash 43 8.09 Manner of Payment Under the Plan 44 8.10 Manner of Distribution of Other Property 44 8 .11 Setoff s 44 8.12 De Minimis Distributions 44 8.13 Saturday, Sunday or Legal Holiday 44 8.14 Other Documents and Actions 45 8.15 Corporate Actions 45 8.16 Subsidiary Restructuring 45 8.17 Resolution of GNG Related Claims and Acquisition of Assets. 46 ARTICLE IX ACCEPTANCE OR REJECTION OF THE PLAN 46 9.01 Appropriately Marked Ballots by Holders of Claims in Classes 5, 6 and 7 Shall be Deemed as Releases of the Subsidiary Guarantees and Pledges 46 9.02 Nonconsensual Confirmation 47 ARTICLE X CONDITIONS PRECEDENT 47 10.01 Conditions to Confirmation 47 10.02 Conditions to the Effective Date 49 10.03 Effect of Non-occurrence of Conditions to - Effective Date 50 ii EXHIBITS (continued) M. Summary of Restructuring of the Ownership of the Debtor s Subsidiaries N. Corporate Organizational Structure of the Reorganized Company, the Reorganized Company Subsidiaries, GHTV, and the GHTV Subsidiaries ~ , iv unless the context requires otherwise. Exhibits referred to in the definitions or elsewhere in the Plan shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed to certain creditors and other parties in interest in accordance with Bankruptcy Rule 3017(a). Any reference in the Plan to an agreement or document being in a particular form or on particular terms and conditions means that such document shall be in substantially such form or on substantially such terms and conditions. Any reference in the Plan to an existing document or Exhibit filed or to be filed means such document or Exhibit as it may have been or may be amended, modified or supplemented. Administrative Claim means a Claim for payment of an administrative expense of a kind specified in section 503{b) of the Bankruptcy Code and referred to in section 507(a)(1) of the Bankruptcy Code, including, without limitation, the actual, necessary costs and expenses incurred after the c~.~~?~encement of the Reorganization Case of preserving the Debtor's estate and operating the business of the Debtor, including wages, salaries or commissions for services, compensation for legal and other services and reimbursement of expenses awarded under sections 330(a) or 331 of the Bankruptcy Code, and all fees and charges assessed against the estate under Chapter 123 of title 28, United States Code. Agent means Manufacturers Hanover Trust Company as successor agent under the. Bank Credit Agreement, and any predecessor or successor agent thereto. -2- or motion has been overruled), or (c) as to which a Final Order has been entered allowing such Claim. Bank Credit Agreement means the Credit Agreement dated as of June 19, 1987, among GHI, Manufacturers Hanover Trust Company, as successor agent,.and .the Banks that are parties thereto, as amended, modified or supplemented through the Effective Date of this Plan. Bank Guaranty Agreement means that certain Guaranty Agreement, dated June 17, 1987, pursuant to which certain Subsidiaries guaranteed GHI's obligations under the Bank Credit Agreement, as amended, modified or supplemented through the Effective Date of the Plan. Banks means the lenders from time to time who are parties to the Bank Credit Agreement, and their successors and assigns. Bankruptcy Code means title 11 of the United States Code, as amended. Bankruptcy Rules means the Federal Rules of Bankruptcy Procedure, as amended, promulgated under 28 U.S.C. §2075 and the local rules of the Court, as applicable from time to time to the Reorganization Case. Business Day means any day except Saturday, Sunday or any other day on which commercial banks are authorized by law to close . Certificate of. Incorporation and Bylaw Amendments means the Restated Certificate of Incorporation and the Amended Bylaws of the Debtor in the form of Exhibit A hereto. -4- Confirmation Order means the order confirming the Plan pursuant to section 1129 of the Bankruptcy Code. Consummation means with respect to the Plan the "substantial consummation" of the Plan, as such term is defined in section 1101(2) of the Bankruptcy Code. Court means the United States Bankruptcy Court for the District. of Colorado and, to the extent it may exercise jurisdiction in the Reorganization Case, the United States District Court for the District of Colorado, or if either such court ceases to exercise jurisdiction over the Reorganization Case, such other court that exercises jurisdiction over the Reorganization Case. Creditors' Committee means the Official Creditors' C~.~LL«ittee appointed in the Reorganization Case. Debentures means the Senior Subordinated Debentures and the Subordinated Debentures. Debtor means GHI as a debtor and debtor in possession in the Reorganization Case under the Bankruptcy Code. Disbursing Agent means the Reorganized Company, or such other designee appointed by the Court on request of the Debtor following notice and a hearing. Disclosure Statement means the Debtor's Disclosure Statement, dated February 4, 1992, and filed with the Court in connection with this Plan, as it may be amended or modified by the Debtor from time to time in accordance with the Bankruptcy Code and the Bankruptcy Rules. Distribution Record Date means the date fixed by the_ Court as the record date for determining the holders of Old -6- rehearing, appeal or petition for certiorari that has been filed has been resolved by the highest court to which the order was timely appealed, or from which certiorari or rehearing was sought. Forest Service Permits means the permits issued by the U.S. Forest Service .for Vail's use of federal land in connection with its ski operations. General Trade and Service Claims means all Claims (other than the GHI Guarantee Claims) against the Debtor arising prior to the Petition Date and that are not otherwise included in another Class, including Claims arising out of the rejection of executory contracts or unexpired leases. GHI means Gillett Holdings,, Inc., a Delaware corporation. GHI Guarantee Claims means all contingent or unliquidated Claims against the Debtor arising out of all guarantees of payment or performance of the obligations of (a) Vail and/or Packerland under (x) industrial development bonds, (y) reimbursement agreements executed in connection with letters of credit, (z) interest rate swap agreements; (b) Beaver Creek Resort Company of Colorado under a loan agreement with NCNB Texas National Bank; (c) GHTV, Inc. under an interest rate exchange agreement with The First National Bank of Chicago; and (d) KSBY, Inc., RSBW, Inc., Gillett Broadcasting of Tennessee, Inc., and WTVT, Inc. under certain representative agreements with TeleRep, Inc. GHI Management Agreement means the Management Agreement between the Management Company, the Reorganized Company and certain of the Reorganized Company Subsidiaries, dated as of the Effective Date, in the form of Exhibit D hereto. -8- in-law, and sisters-in-law (including adoptive children) as of the Effective Date. GNG Interests means the 1,000 shares of common stock of GHI, which common. stock as of the date hereof is owned by GNG. Indenture Trustees means, collectively: (a) Norwest Bank Minnesota, National Association, as successor trustee under the Zero Coupon Senior Notes Series A-C and Series D-E Indentures dated as of August 1, 1986 and August 1, 1987 respectively; (b) Bankers Trust C~~«rany, as trustee under the Senior Subordinated Debenture Indenture dated as of August 1, 1986; (c) the First National Bank of Minneapolis, as trustee under the Subordinated Debenture Indenture dated as of August 1, 1987; and (d) First Wisconsin Trust Company, as trustee under the Old Collateral Trust Agreement, and any predecessor or successor trustees to any of the aforementioned trustees . Indenture Trustee Expenses means any unpaid Indenture Trustee's fees, and reasonable unpaid out-of-pocket costs or expenses incurred through the Effective Date by an Indenture Trustee, including, without limitation, reasonable out-of-pocket costs and expenses and reasonable fees of legal counsel to an Indenture Trustee, which are secured under the respective Indentures or Old Collateral Trust Agreement by a lien or other priority in payment against distributions to be made to holders of Claims under the Indentures. Indentures means, collectively, the Zero Coupon Senior Notes, Series A-C Indenture dated as of August 1, 1986 by and between GHI and Norwest Bank Minnesota, National Association, as~ -10- New Investor means an investment entity organized on .behalf of Altus Finance, Apollo Investment Fund, L.P. and other identified investors, if any, that shall enter into the New Investor Agreement. New Investor Agreement means the "Investor Agreement, dated as of the Effective Date, between the New Investor and the Debtor, in the form of Exhibit I hereto. New Securities means, collectively, the New Senior Secured Notes, the New Senior Subordinated Secured Notes and the Junior Debentures. New Senior Secured Notes means the Senior Secured Notes of the Reorganized Company, dated as of the Effective Date and issued pursuant to the New Senior Secured Note Indenture, the form .of which is Exhibit J hereto, the total principal amount of which shall not exceed $200,000.,000. New Senior Subordinated Secured Notes means the Senior Subordinated Secured Notes of the Reorganized Company, dated as of the Effective Date and issued pursuant to the New Senior Subordinated Secured Note Indenture, the form of which is Exhibit R hereto, the total principal amount of which shall not exceed $207,500,000. Non-Settling Class 6 Claimant means any holder of a Claim in Class 6 who is not a Settling Class 6 Claimant. Non-Settling Class 7 Claimant means any holder of a Claim in Class 7 who is not a Settling Class 7 Claimant. -12- Agreement to secure GHI's obligations under the Bank Credit Agreement and the Zero Notes. • Priority Claim means a Claim for an amount entitled to priority under section 507 (a) of the Bankruptcy Code, other than an Administrative Claim or a Tax Claim. Proceeds Investment Agreement means that certain WMAR Proceeds Investment Agreement approved by the Court by order dated May 23, 1991, by and among the Debtor, Gillett Group, Inc., Gillett Broadcasting of Maryland, Inc., and Wilmington Trust Company, as custodian, pursuant to which the WMAR Sale Proceeds are held by Wilmington Trust C~.«rany. Reorganization Case means the Debtor's case under chapter • it of the Bankruptcy Code . Reorganized Company means the Debtor on and after the Effective Date. • Reorganized Company Subsidiary means any corporation of which more than 50~ of the outstanding capital stock entitled to vote for the election of directors (other than as a result of a dividend arrearage or other default) is owned or controlled, directly or indirectly, by the Reorganized Cvu?rany, by one or more of the Reorganized Company Subsidiaries or by the Reorganized Company and one or more Reorganized Company Subsidiaries. _ SCI Stock means the 40~ non-voting common equity interest held by Gillett Subsidiary Corp., a Delaware corporation and a Subsidiary of the Debtor, in .SCI Television, Inc., a Delaware corporation. -14- out of, or relates~to the issuance of any of the Zero Notes, the ~incurring,~of any indebtedness under the Bank Credit Agreement or the Bank Guaranty Agreement, or the scope, validity, effect or enforceability of any subordination provision contained in any of the Old Subordinated Indentures or any purported amended thereto; or (b) has commenced or joined in any such adversary proceeding,. motion, objection or other action or proceeding, or has otherwise filed any pleading with any court, which falls within the scope of subsection (a) above, who waives, withdraws and dismisses any such challenge, contest, attempt to limit or modify, claim, right or cause of action, all with prejudice, in a pleading filed with the Court and any other applicable court, no later than the tenth day prior to the c~.~LL«encement of the hearing on the approval of the Disclosure Statement. For purposes of applying this definition, a Class 6 Claim held by a record holder of any Senior Subordinated Debentures who is not also the beneficial holder of such Senior Subordinated Debentures shall be deemed to be held by a Settling Class 6 Claimant only to the extent that the beneficial holder of such Claim would be deemed to be a Settling Class 6 Claimant if such beneficial holder were treated as the holder of the Claim for all purposes under the Plan. Settling Class 7 Claimant means each holder of a Claim in Class 7 who: (a) has not c~,~u~?enced or joined in any adversary proceeding, motion, objection or other action or proceeding, and has not otherwise filed and does not at any time prior to the Effective Date otherwise file any pleading with any court, which in any way: (i) seeks to challenge, contest, limit or modify the -16- Stockholders Agreement means the Stockholders Agreement between the Management Company and the New Investor, dated as of the Effective Date, in the form of Exhibit L hereto. Subordinated Debentures means the 13-7/8~ Subordinated Debentures of GHI due August 15,. 1999 issued pursuant to the Subordinated Debenture Indenture between GHI and the First National Bank of Minneapolis, as trustee, dated August 1, 1987. Subordinated Debenture Indenture means the Indenture between GHI and First National Bank of Minneapolis, as trustee, dated August 1, 1987, pursuant to which the Subordinated Debentures were issued, as such Indenture may have been amended, modified or otherwise supplemented. Subsidiary means any corporation of which more than 50~ of the outstanding capital stock entitled to vote for the election cf. directors (other than as a result of a dividend arrearage or otizer default) is owned or controlled, directly or indirectly, by the Debtor, by one or more Subsidiaries of the Debtor or by the Debtor and one or more of its Subsidiaries. Subsidiary Guarantees means, collectively, the Bank Guaranty Agreement and the guarantees executed by certain Subsidiaries of the obligations of the Debtor outstanding under the Bank Credit Agreement and. the Old Securities. - Tax Claim means a Claim for an amount entitled to priority under section 507(a)(7) of the Bankruptcy Code. Vail means Vail Associates, Inc., a Colorado corporation, and its subsidiaries. -18- Status Impaired. 2.04 Class 4 Intercompany Claims. Class 4 consists of all Intercompany Claims. Status Impaired. 2.05 Class 5 Bank Credit Agreement and Zero Note Claims. Class 5 consists of all Claims of the Banks and the Agent under or evidenced by the Bank Credit Agreement and all documents, instruments and agreements related thereto, all Claims of holders under or evidenced by the Zero Notes, and of the Indenture Trustee for the Indentures governing the Zero Notes, and all documents, instruments and agreements related to such Claims, and all Claims of the Indenture Trustees under the Old Coll~:.teral Trust Agreement and all documents, instruments and agreements related thereto. Status Impaired. 2.06'~~<Class 6 Senior Subordinated Debentures. Class 6 consists of all Claims of holders under or evidenced by th.e Senior Subordinated Debentures, and of the Indenture Trustees for~the Senior Subordinated Debenture Indenture, and all documents, instruments and agreements related thereto. Status Impaired. 2.07 Class 7 Subordinated Debentures. Class 7 consists of all Claims of holders under or evidenced by the . Subordinated Debentures, and of the Indenture Trustees for the - Subordinated Debenture Indenture, and all documents, instruments and agreements related thereto. Status Impaired. -20- Allowed Claim under or evidenced by the Old Securities shall be distributed to holders of record as of the Distribution Record Date. At the close of business on the Distribution Record Date, the transfer ledgers for the Old Securities shall be closed, and there shall be no further changes in the record holders of the Old Securities. The Debtor and the Indenture Trustees shall have no obligation to recognize any transfer of the Old Securities occurring on or after the Distribution Record Date. The Debtor and the Indenture Trustees shall be entitled instead to recognize and deal for all purposes hereunder with only those record holders stated on the transfer ledgers of the Indenture Trustees as of the close of business on the Distribution Record Date. 3.03 Agent and Indenture Trustee Fees. In full satisfaction of the Agent Expenses and the' Indenture Trustee Expenses, the Debtor shall pay to the Agent and the Indenture Trustees an amount equal to the amount of such Agent Expenses and 9 Indenture Trustee Expenses; provided that the aggregate amount so paid to the Agent and the Indenture Trustees on account of Agent Expenses and Indenture Trustee Expenses shall not exceed $ Payment of such expenses shall constitute distributions on account of Claims in the Class to which such expenses relate, provided that distributions otherwise provided under the Plan to holders of Allowed Claims under the Bank Credit Agreement and the Old Securities shall not be reduced on account of such payment of Agent Expenses and Indenture Trustee Expenses. Notwithstanding anything in this Section 3.03 to the contrary, the Debtors obligation to pay the Agent Expenses and the Indenture -22- .Date. Any such Claim or request for payment of Agent Expenses or .Indenture Trustee Expenses that is not filed within this deadline .shall be forever barred; and any holders of Administrative Claims, requests for Agent Expenses or Indenture Trustee Expenses who are required to file a request for payment of such Claims and who do not file such requests by the applicable bar date shall be forever barred from asserting such Claims against the Debtor, any of its property or any distributions under this Plan. 3.05 Tax Claims. Unless otherwise agreed to by the parties, each holder of a Tax Claim that is an Allowed Claim will receive cash equal to the unpaid portion of such Tax Claim on or within ten Business Days after the later of (i) the Effective Date, and (ii) the date on which such Tax Claim becomes an Allowed Claim; provided, however, that at the Reorganized Company's option, the Reorganized Company may pay Tax Claims over a period not exceeding six (6) years after the date of assessment of the Tax Claims as provided in subsection 1129(a)(9)(C) of the Bankruptcy Code. If the Reorganized Company elects this option as to any Tax Claim, then the payment of such Tax Claim shall be made in equal semiannual installments with the first installment due on the latest of: (i) the Effective Date, (ii) 30 calendar days after the date on which an order allowing such Tax Claim becomes a Final Order, and (iii) such other time as may be agreed to by the holder of such Tax Claim and the Reorganized Company. Each installment shall include simple interest on the unpaid portion of such Tax Claim, without penalty of any kind, at the statutory rate of interest provided for such taxes under applicable nonbankruptcy -24- Each holder of a Claim in Class 5 (.other than Claims constituting Agent Expenses or Indenture Trustee Expenses) shall be entitled to :elect under the Plan, in complete settlement, satisfaction and - discharge of its Class 5 Claims, either (i) a Type 1 Distribution, (ii) a Type 2 Distribution or (iii) a Type 3 Distribution. Each such holder shall be entitled to split the aggregate amount of its Class 5 Claims between one or more types of distributions under 'this Section 5.04, as such holder shall designate on its ballot, provided the amount of such holder's Class 5 Claims allocated to different types of distributions under this Section 5.04 shall not exceed in the aggregate 100 of such holder's Class 5 Claims. Bach holder that does not submit a ballot or does not mark its distribution preference on the ballot in complete accordance with the instructions set forth in the ballot shall be deemed conclusively to have elected as its preferred distribution any type of distribution selected by the Debtor is its sole discretion after the deadline for receipt of ballots has expired and before the entry of the Confirmation Order. The Debtor shall be entitled to split such holder's Class 5 Claims among different types of distributions under this Section 5.04, provided the Debtor shall use reasonable efforts to place the maximum amount of such Claims within one type of distribution and to minimize the amount of such Claims that are treated pursuant to the Excess Distribution - provisions of Section 5.04(d). (a) Type 1 Distribution. Each holder of Claims in Class 5 electing a Type 1 Distribution (such holder's "Type 1 Distribution") shall receive New Senior Secured Notes in a face -26- (ii) the Type 2 Cash Distribution Cap. To the extent that the aggregate amount of Class 5 Claims making the Type 2 Distribution election (the "Type 2 Electing Claims") exceeds the Type~2 Cash Distribution Cap divided by. 0.75 (the "Type 2 Distribution Excess Amount"), each such Class 5 Claim holder will be entitled to participate, as set forth herein, in the • Excess Distribution (as defined in Section 5.04(d)) in an amount equal to its Type 2 Pro Rata Fraction times the Type 2 Distribution Excess Amount (such holder's "Type 2 Excess Distribution Claim").. (c) ~rpe 3 Distribution. ~ Each holder of a Claim in Class 5 electing a Type 3 Distribution (such holder's "Type 3 Distribution") shall receive New Senior Subordinated Secured Notes in a face principal amount equal to 89.67 of the amount of such holder's Class 5 Claims designated by such holder to receive a Type 3 Distribution;, provided that the aggregate principal amount of New Senior Subordinated Secured Notes issued to holders of Class 5 ' Claims under the Plan shall not exceed $207,500,000 (the "Type 3 Note Distribution Cap"), together with the number of shares of Class 2 Common Stock equal to the product of: (A) a fraction (such holder's "Type 3 Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 5 Claims designated by such holder to receive a Type 3 Distribution and the denominator of which is the aggregate amount of all Class 5 Claims making. such election, times . (B) 2,500,000 shares of Class 2 Common Stock. -28- <.r; (A) Type 2 Excess Distribution. Each holder of a Type 2 Excess Distribution Claim shall receive, as its Excess Distribution, New Senior--Secured Notes equal to the product of (a) a fraction, the numerator.of which is such holder's Type 2 Excess Distribution Claim, and the denominator of which is the aggregate -amount of Type 2 and Type 3 Excess Distribution Claims held by holders of Class 5 Claims, times (b) the principal amount of the Excess New Senior~Secured Notes. (B) Type 3 Excess Distribution. Each holder of a Type 3 Excess Distribution Claim shall receive, as its Excess Distribution: (i) New Senior Secured Notes equal to the product of (a) a fraction, the numerator of which is such holder's Type 3 Excess Distribution Claim, and the denominator of which is the aggregate amount of Type 2 and Type 3 Excess Distribution Claims held by holders of Class 5 Claims, times (b) the Excess Senior Notes, and (ii) Cash, equal to the product of (a) a fraction, the numerator of which is such holder's Type 3 Excess Distr;~.bution Claim, and the denominator of which is the aggregate amount of Type 3 Excess Distribution Claims held by holders of Class 5 Claims, times (b) the Excess Cash. (e) Effect of Oversubscription of Distributions in Class _ 5. After determining the final Class 5 elections pursuant to Section 5.09, the Effective Date shall not occur if either (i) the Typed Electing Claims exceed $219,780,220 or -30- (B) the difference of $12,750,000 less the aggregate face principal amount of Junior Debentures issued to holders of Class 7 Claims pursuant to Section 5.06(x_)_(4) of the Plan. On the Effective Date, each holder making a Class 6 .Purchase Election shall pay the Reorganized Company cash in an amount equal to the face principal amount of the Junior Debentures to be purchased by such holder. A holder shall not be deemed to have made the Class 6 Purchase Election unless such holder sYiall have returned with its ballot a duly executed Class 6 Purchase Agreement in the form of Exhibit B. . (b) If Class 7 Rejects the Plan. If Class ? does not accept the Plan within the meaning of section 1126 (c) of the Bankruptcy Code, then each holder of a Class 6 Claim shall receive: (i~).~ cash in an amount equal to 32.42 of such holder's Class 6 Claims; and (ii) the number of shares of Class 2 Common Stock equal to .0116437 times the amount of such holder's Class 6 Claims, not to exceed in the aggregate for all such holders, 2, 957, 500 shares of Class 2 Common Stock (equal on the Effective Date to approximately 29 .6~ of the fully diluted C"~~LL«On Stock) , but shall not have the right to purchase any Junior Debentures. (c) Resolutioa of Claims Regarding Subordination Provisions. , Notwithstanding the foregoing or any other provision of ,this Plan, except as otherwise provided in Section 11.02, which addresses the resolution of contractual subordination rights, any -32- . the Debtor shall use reasonable efforts to place the maximum amount of such Claims withia oae type of distribution aad to minimize the amount of such Claims that are treated pursuant to the Faccess Distribution provisions of Section 5.06(a)(3). (1) Type A Distribution,. Subject to Section 5.06 (b) each holder of Claims in Class 7 electing a Type A Distribution (such holder's "Type A Distribution") shall receive cash in an amount equal to 15.84 of the amount of such holder's Class 7 Claims designated by such holder to receive a Type A Distribution, provided that the aggregate amount of cash distributed to holders of Class 7 Claims shall not exceed $13,090,000 (the "Type A Cash Distribution Cap"). In the event that such holders elect in the - aggregate to receive cash in excess of the Type A Cash Distribution Cap, such holders in lieu thereof will receive a portion of the cash otherwise distributable to them in an amount equal to the product of (i) a fraction {such holder's "Type A Pro Rata Fraction"), the numerator of which is the aggregate amount of such holder's Class 7 Claims designated by such holder to receive a Type A Distribution and the denominator of which is the aggregate amount of all Class 7 Claims making such election, times (ii) the Type A Cash Distribution Cap. To the extent that the aggregate amount of Class 7 Claims making the Type A Distribution election (the "Type A Electing Claims") exceeds $82,638,889 (the "Type A Distribution Excess Amount"), each such Class 7 Claim holder will be entitled to -34- To the extent that the aggregate amount of Class 7 Claims making the Type B Distribution election (the "Type B Electing Claims") exceeds $87,361,111 (the "Type B Distribution Excess Amount"), each such Class 7 Claim holder will be entitled to participate, as set forth herein, in the Excess Distribution (as defined in Section 5.06 (a) (3) ) in an amount equal to its Type B Pro Rata Fraction times the Type B Distribution Excess Amount (such holder's "Type B Excess Distribution Claim"). (3) Excess Distributions. Subject to Section 5.06 (b) each holder of a Type A Excess Distribution Claim shall receive the number of shares of Class 2 Common Stock equal to .02060413 times the amount of its Type A Excess Distribution Claim. Each holder of a Type B Excess Distribution Claim shall receive cash in an amount equal to 15.84 of its Type B Excess Distribution Claim. (4) Junior Debenture Purchase Election. In addition, each holder of Class 7 Claims who qualifies as an Accredited Investor within the meaning of Regulation D under the Securities Act of 1933 shall be entitled to purchase, if such holder has so designated on its ballot and if such holder certifies that it is an Accredited Investor (such holder's "Class 7 Purchase Election") an amount of~Junior Debentures equal to the lesser of (i) the face principal amount of Junior Debentures such holder designates on its ballot as its Class 7 Purchase Election, and (ii) a face principal ~ - amount of Junior Debentures equal to the product of (A) a fraction, the numerator of which is the amount of such holder's Class 7 Claims and the denominator of which is the aggregate amount of all Class 7 Claims, times -36- ,.Fy Claim in Class 5 or a holder of a Claim in Class 6 under the <Subordinated Debenture Indenture. 5.07 GNG Interests. Class 8 Interests shall receive no distribution under the Plan. ` 5.08 Determination of Class 5, 6 and 7 Claim Amounts. The amount of all Claims in Classes 5, 6 and 7 (other than Agent and Indenture Trustee Expenses) shall be determined as of the Petition Date. For the purpose of calculating the distributions under Sections 5.04, 5.05 and 5.06 however, and solely for such purpose, the amount of Claims in Classes 5, 6 and 7 (other than Agent and Indenture Trustee Expenses) shall be determined as follows: (i) Class 5, 6 and 7 Claims to be determined without including any unpaid default interest, unpaid interest on interest,, or unpaid fees, costs and expenses; (ii) Class 5 Claims under the Bank Credit Agreement shall include accrued interest to the Petition Date; (iii) Class 5 Claims under the Zero Notes to be determined based on the accreted amounts of such Claims on the Petition Date;, and (iv) Class 6 and 7 Claims to be determined based on outstanding principal amounts without giving effect to any original issue discount and without including any accrued and unpaid interest. 5.09 Reallocation of Holders' Designated Distributions. After the Expiration Date and prior to the entry of the Confirmation Order, the Debtor may, in its sole discretion but -38- ARTICLE VII PROVISIONS FOR TREATMENT OF DISPviss~, CONTINGSN'T AND UNLIQIIIDAr~? CLAIMS AND ADMINISTRATIVE EXPENSES 7.01 Characterization of Claims as Disputed. Pursuant to subsection 1111(a) of the Bankruptcy Code, proof of a claim is deemed filed under section 501 of the Bankruptcy Code if that claim is included in the schedules filed under section 1106(a)(2) of the ,Bankruptcy Code except if the claim is scheduled as disputed, contingent, or unliquidated. Such a disputed, contingent, or unliquidated claim must be asserted by its holder, or an Indenture Trustee representing such holder, by the timely filing of a proof of claim. If a proof of claim is not filed in a timely manner, the claim may be deemed to be disallowed. Except as otherwise provided by the Plan, the Debtor shall have the right to object to and contest the allowance of any Claim filed with the Court, whether or not such Claim was scheduled as disputed, contingent or unliquidated. 7.02 Resolution of Contested Claims. Unless otherwise ordered by the Court after notice and a hearing, objections to Claims, including Administrative Claims or to requests for payment of Agent Expenses or Indenture Trustee Expenses, shall be filed and served upon the holder of such Claim or Administrative Claim or upon the Agent or Indenture Trustee, as applicable, as soon as practicable, but not later than the later of (a) sixty (60) days after the Effective Date, and (b) sixty (60) days after a proof of claim or request for payment of such Claim, Administrative Claim, Agent Expense or Indenture Trustee Expense -40- 8.03 Certificate of Incorporation and Bylaw Amendments. ~On or before the Effective Date, the Debtor shall effect the Certificate of Incorporation and Bylaw Amendments. 8.04 Management of the Debtor. Upon the Effective Date, the operation of the Reorganized Company shall become the general .responsibility of the Board of Directors, who shall, thereafter, .have the responsibility for the management, control, and operation of the Reorganized Company. The Board of Directors of the Reorganized Company shall be comprised of nine (9) persons whose names are listed in the accompanying Disclosure Statement. Such persons shall be deemed elected pursuant to the Confirmation Order. The initial Chairman of the Board of Directors of the Reorganized ~~•Company shall be George N. Gillett, Jr. Upon the Effective Date, the Board of Directors of the Reorganized Company shall delegate to the Management Company, pursuant to the GHI Management Agreement, and to the Operating C~~~LL«ittee, pursuant to the Certificate of Incorporation and Bylaw ~`~~:~endments of the Reorganized Company, certain responsibilities for the management and control of the operation of the Reorganized Company and the Reorganized Company Subsidiaries, as more fully described in Exhibits A and D. Beginning on the first anniversary of the Effective Date, the_ Reorganized Company shall issue 500,000 shares of Class 1 - C~.,u«on Stock and warrants to purchase an additional 3~ of the Common Stock to the Management Company, subject to the terms and conditions, and on the dates set forth in the GHI Management Agreement. The Reorganized Company shall also issue up to an -42- increasing the risk of the investment. All interest earned on such cash shall be held by the Disbursing Agent and distributed as part of the estate in accordance with the Plan. 8.09 Manner of Payment Under the Plan. Any payment of cash made by the Disbursing Agent pursuant to the Plan may be made either by check drawn on a domestic bank or by wire transfer from a domestic bank, at the option of the Disbursing Agent. 8.10 Manner of Distribution of Other Property. Any distribution under the Plan of property other than cash shall be made by the Reorganized Comp;~ny or its designee in accordance with the terms of the Plan. 8.11 Setoffs. The Debtor may, but shall not be required to, set off against any Claim (for purposes of determining the allowed amount of such Claim on which distribution shall be made) other than Class 5, 6 and 7 Claims, any claims of any nature whatsoever the Debtor may have against the claimant, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Debtor of any such claim the Debtor may have against such claimant. 8.12 De Minimis Distributions. No cash payment of less than five dollars ($5.00) shall be made by the Disbursing Agent to any holder of a Claim unless a request therefor is made in writing to the Disbursing Agent. 8.13 Saturday, Sunday or Legal Holiday. If any payment or act under the Plan is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be c~.«~leted on the next succeeding -44- s be necessary to effect a restructuring of the ownership of the 4 Debtor's Subsidiaries as more fully described on Exhibit M attached hereto such that the organizational structure of the Reorganized Company, the Reorganized Company Subsidiaries, GH'I'V and the GHTV -Subsidiaries shall be as depicted on Exhibit N attached hereto. 8.17 Resolution of. GNG Related Claims and Acquisition of . Assets. On the Effective Date, GNG shall transfer, or cause to be transferred, to the Reorganized C~.«rany the c~.,4~,on stock of Vail 't~iagazine, Inc. and Vail Beaver Creek Jet' Center, Inc., and the Reorganized Company and GHTV shall transfer or cause their subsidiaries to transfer to GNG the accounts receivable of~ the Reorganized Company, GHTV or any of their subsidiaries outstanding on the Effective Date from Gillett Cattle Company and GNG, and the common stock of Gillett Subsidiary Corp. , a Delaware corporation held by the Debtor or its Subsidiaries (the only asset of Gillett Subsidiary Corp. being the SCI Stock). ARTICLE IX ACCEPTANCE OR REJECTION OF ~~s PLAN 9.01 Appropriately Marked Ballots by Holders of Claims in Classes 5, 6 and 7 Shall be Deemed as Releases of the Subsidiary Guarantees and Pledges. .The ballots used for soliciting acceptances or rejections of the Plan for Classes 5, 6 and 7 shall _ contain both a space for indicating a holder's acceptance or rejection of the Plan and a separate space for indicating the ;;;holder's agreement to release such holder's rights under the Subsidiary Guarantees and Pledges. Ballots so marked to release -46- (d) ordering that Wilmington Trust Company, the y. custodian under the Proceeds Investment Agreement, release the WMAR Sale Proceeds to the Debtor free of the provisions of the Proceeds Investment Agreement; and (e) making the provisions of the Confirmation Order non-severable and mutually dependent, and (ii) the following events shall have occurred: (a) the Debtor shall have received firm commitment letters from a bank or banks or such other financial institutions committing such banks or financial institutions to refinance the Subsidiary indebtedness referred to in Exhibit E substantially on' the terms set forth on a refinancing term sheet or sheets to be filed with the Court and served on all creditors and other parties in interest not later than ten days prior to the hearing on the Debtor's Disclosure Statement filed with the Court pursuant to section 1125 of the Bankruptcy Code; (b) Vail shall possess Forest Service Permits on terms and conditions satisfactory to the Debtor and reasonably satisfactory to the Creditors' Committee; (c) the Debtor shall be satisfied and the Creditors' Committee shall be reasonably satisfied that neither the confirmation nor Consummation .of the Plan, nor any action to be taken to implement the Plan, nor any of the . GHI Restructuring Transactions, will result in the termination or modification of the Forest Service Permits (or any portion _ thereof); and -48- the Court with notice to the Creditors' Committee and such parties in interest as the Court may direct; . (e) all primary indebtedness of the Subsidiaries underlying the GHI Guarantee Claims shall have been repaid in full, credit enhanced or remain outstanding on terms such that GHI's obligations under such GHI Guarantee Claims shall have been satisfied, released and discharged; (f) the Debtor shall have received a ruling from the Internal Revenue Service satisfactory to the Debtor; provided, however, that this condition may be waived in writing by the Debtor; and (g) the Debtor shall have obtained the approval by - the Federal Communications Commission of the GHI Restructuring Transactions, insofar as they relate to television stations KSBW-TV;. KSBY-TV and WTVT-TV, on terms and conditions satisfactory to the Debtor and reasonably satisfactory to the Creditors' Committee. - 10.03 ~ Effect of Non-occurrence of Conditions to Effective Date. If Confirmation and the conditions to the - Effective Date have not occurred (or in the case of the conditions described in Section 10.02 (c} , (d) and (f) , been duly waived) by September 30, 1992, or by such later date as is proposed by the Debtor and approved by the Creditors' C~.~~«ittee and New Investor _ and approved by order of the Court on notice to such parties in interest as the Court may direct, then upon motion by any party in interest made (i) after the deadline for satisfying (or obtaining waivers of) the Effective Date conditions (as such deadline may be -50- such debts, whether such interest accrued before or after the date of commencement of the Reorganization Case, and from any liability of a kind specified in sections 502 (g) , 502 (h) and 502 (i) of the .Bankruptcy Code, whether or not a proof of claim is filed or deemed filed under section 501 of the Bankruptcy Code, such Claim is allowed under section 502 of the Bankruptcy Code, or the holder of such Claim has accepted the Plan. 11.02 Termination of Certain Subordination Rights and Settlement of Related Claims and Controversies. (a) Resolution of Contractual Subordination Claims of Holders of Claims in Class 5 Against Settling Class 6 Claimants and Settling-Class 7-Claimants and of Holders of Claims in Class 6 Against Settling Class 7 Claimants. In consideration for the treatment of Claims in Class 5 and Class 6 under this Plan and the willingness of Settling Class 6 Claimants and Settling Class 7 Claimants not to assert any challenges with respect to the contractual subordination provisions contained in the Old Subordinated Indentures, all. contractual, legal or equitable subordination right s. that the holder of a Claim in Class 5 may otherwise have with respect to any distribution to be made to a Settling Class 6 Claimant or a Settling Class 7 Claimant under this Plan, or that the holder of a Claim in Class 6 may otherwise have with respect to any distribution to be made _ to a Settling Class 7 Claimant under this Plan, shall be deemed to have been waived, discharged and terminated, and all actions related to the enforcement of such subordination rights shall be permanently enjoined. Accordingly, distributions pursuant to the -52- Any Non-Settling Class 6 Claimant or Non-Settling Class 7 Claimant shall be free to challenge the scope, effect, enforceability or effectiveness of any contractual subordination . provision contained in the Old Subordinated Indentures with respect to the Impounded Distribution, as to which ;such contractual subordination provisions are not being affected by .this Plan. . Except as provided in the preceding sentence, all actions related to the enforcement of contractual subordination rights, including the Equitable Adversary Proceeding, shall be permanently enjoined. The Equitable Life Insurance Sociery of the United States and EQJ Partnership,. the plaintiffs in the Equitable Adversary Proceeding, shall dismiss the Equitable Adversary Proceeding (which dismissal shall be with prejudice, except to the extent provided in the prior sentence), and the Confirmation Order shall provide for such dismissal. ~ . (d) Non-Coatractual Subordination Rights. The classification and manner of satisfying all Claims and Interests under the Plan takes into consideration all non- . contractual rights of legal and equitable subordination, whether arising under general principles of equitable subordination, section 510(c)" of the Bankruptcy Code, or otherwise, that a holder of a Claim or Interest may have against other holders of Claims or Interests with respect to any distribution made, pursuant to the Plan. On the Effective Date, all non-contractual legal or equitable subordination rights that a holder of a ,Claim or Interest may have with respect to any distribution to be made pursuant to the Plan shall be deemed to have been waived, discharged and -54- Restructuring Transactions, (d) to enter orders in aid of execution and implementation of the Plan, including, without limitation, orders which may include contempt or other sanctions, (e) to modify the Plan pursuant to Section 12.05 of the Plan, (f) to determine any and all applications, Claims, adversary proceedings and contested or litigated matters pending on the Effective Date, (g) to allow, disallow, estimate, liquidate or determine any Claim against the Debtor and to enter or enforce any order requiring the filing of any such Claim before a particular date, (h) to determine any and all pending applications for rejection or~disaffirmance of executory contracts or unexpired lease:,. and to hear and determine, and if need be to liquidate, any and all Claims arising therefrom, (i) to adjudicate any claim to or controversy regarding the distribution of any Impounded Distribution under Section 11.02; and (j) to enter a final decree closing the Reorganization Case. Notwithstanding anything to the contrary contained herein, the Court shall not retain jurisdiction over any action or proceeding which relates to the New Investor Agreement, the GHI Management Agreement, the. GHTV Management Agreement, t;he Stockholders Agreement, the New Securities, the New Collateral Documents or the .New Indentures including without limitation, any action to enforce, ,interpret, rescind or reform the New Investor Agreement, the GHI Management Agreement, the GHTV Management Agreement the Stocka.ol~aers Agreement, the New Securities, .the New Collateral .Documents or the New Indentures. 11.05 Post-Consummation Effect of Evidences of Claims or Interests. Notes, stock certificates and other evidences of Claims -56- indebtedness s~:~?11 surrender such note, debenture or other evidence " of indebtedness to the Exchange Agent, or its designee, and shall execute and deliver such other documents as are necessary to effectuate this Plan. If no surrender of a security, note, debenture or other evidence of indebtedness occurs and a claimant does not provide an affidavit that such security., note, debenture. or other evidence of indebtedness was lost in form and substance reasonably satisfactory to the Exchange Agent, then no distribution may be made to any claimant whose Claim is based on such security, note, debenture or. other evidence of indebtedness thereof. The Exchange Agent shall make subsequent distributions only to the Persons who surrender the securities for exchange (or their assignees) and the record holders of such securities shall be those holders of record as of the Distribution Record Date. Pursuant to section 1143++of the Bankruptcy Code, holders of securities, notes, debentures or other evidences of indebtedness who fail, within two years after the Confirmation Date, to surrender such securities, notes, debentures, or other evidences of indebtedness or fail to provide an acceptable affidavit that such security, note,-debenture or other evidence of indebtedness is lost, shall not participate in the distributions under the Plan. In such an event, the distributions otherwise distributable to such holders together with accrued interest and dividends earned thereon will become the - . property of and shall be released to the Reorganized C~.«~any. 12.02 Executory Contracts. On the Confirmation Date, all executory contracts of the Debtor will be rejected in accordance with the provisions of section 365 and section 1123 of -58- Reorganized Company; provided, however, that nothing contained in ' this Plan shall require the Reorganized Company to attempt to locate such person. 12.04 Fractional Dollars and Shares. Any other provision of the Plan notwithstanding, no payments of fractions of dollars or issuance of fractions of shares of Common Stock will be made to any holder of an Allowed Claim. Whenever any payment of a fraction of a dollar or issuance of a fraction of a share. to any holder of an Allowed Claim would otherwise be called for, the actual payment or issuance made will reflect a rounding of such fraction up to the nearest whole dollar or share in the case of fractions equal to 1/2 or more and down to the nearest whole dollar or share in all other cases. 12.05 Modification of Plan. The Debtor reserves the right, in accordance with the Bankruptcy Code, to amend or modify the Plan in any manner prior to the entry of ,the Confirmation Order. After the entry of the Confirmation Order, the Debtor may, only with the written consent of the New Investor and the Creditors' Committee, upon order of the Court, amend or modify the Plan only in accordance with, and to the extent permitted by, section 1127(b) of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in the Plan in such manner as_may be necessary to carry out the purpose and intent of the Plan. 12.06 Withdrawal of Plan. The Debtor reserves the right, at any time prior to entry of the Confirmation Order, to revoke and withdraw this Plan. If the Debtor revokes or withdraws this Plan -60- a accountants, consultants, employees or agents shall have or incur any liability to any Creditor for any act or omission in connection with or arising out of their formulation, preparation, . dissemination, implementation, confirmation, consumenation or administration of the Plan or the property to be distributed under the Plan except for willful misconduct or gross negligence, and in all respects, shall be entitled to rely upon the advice of counsel with respect to their duties and responsibilities under the Plan a The Court shall have exclusive jurisdiction 'to resolve any questions concerning any such liability. 12.12 Indemnification Obligations. For purposes of the Plan and notwithstanding any other term or provision thereof, the obligations of the Debtor to indemnify its present directors, officers, representatives or agents (both in their current capacities and in any such former capacities occupied by them), respectively, as of the Petition Date against any obligations (other than tax obligations) pursuant to the certificate of incorporation, bylaws, applicable state law or specific agreement _ or any combination of the foregoing shall survive confirmation of the Plan, remain, unaffected thereby, and not be discharged, irrespective of whether indemnification is owed in connection with an event occurring before, on, or after the Petition Date. 12.13 Payment of Statutory Fees. All fees payable pursuant to 28 U.S.C. §1930, as determined by the Court at the hearing pursuant to section 1128 of the Bankruptcy Code, shall be paid on or before the Effective Date. -62- 12.16 No Original Issue Discount. No portion of the principal or face amount of the New Senior Secured Notes, the New Senior Subordinated Secured Notes or the Junior Debentures issued hereunder shall constitute original issue .discount or unmatured interest within. the meaning of section 502(b)(2) of the Bankruptcy Code in this Reorganization Case or in any subsequent case under the Bankruptcy Code or any successor statute by or against the Debtor or the Reorganized Company. 12.17 Severability of Plan Provisions. If prior to confirmation, any term or provision of the Plan which does not govern the treatment of Claims or Interests is held by the Court to be invalid, void or unenforceable, the Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any .such holding, alteration or interpretation, the remainder of the terms and provisions of the Plan will remain in full force and effect and will in no way be affected, impaired or invalidated by such holding, alteration or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered - ; or interpreted in accordance with the. foregoing, is valid and enforceable pursuant to its terms. 12.18 Exhibits. Exhibits to the Plan that are not filed simultaneously with the Plan shall be filed with the Court not less -64- . ARTICLE BIII CONFIRKATION REQIIEST The Debtor requests Confirmation of this Plan under Section 1129(b) of the Bankruptcy Code if any impaired Class (other than Class 5) does .not accept this Plan, GILLETT OLDINGS, IDiC. _ By Geor a Gillett, Jr.' Presgd~t and Chief l./ Executive Officer Douglas M. Tisdale, Esq. . L. Louise Romero Atwood, Esq. Brownstein, Hyatt, Farber ~ Strickland, P.C. 410 17th Street Denver, Colorado 80202-4468 (303) 534-6335 Attorneys for the Debtor and Debtor in Possession Lewis S. Rosenbloom, Esq. Thomas F. Blakemore, Esq. Winston ~ Strawn 35 West Wacker Drive Chicago, Illinois 60601-9703 (312) 558-5600 Special Counsel to the Debtor and Debtor in Possession and Attorneys for the Subsidiaries -66- EXHIBIT 2A 2/04/92 Current GHI Corporate Structure George N. Gillett, Jr. Gillett Holdings, Inc. I Gillett GHTV, Inc. Gillett I Co. Productions, Inc. (f/k/a Gillett Group, I Packerland Inc.) I Packing I I Company, I Inc. Vatl I Gillett Sub- Associates, Gillett Broad- I i ~ sidiary Corp. Inc. casting, Inc. I Packerland Packerland Packerland WLUC, Inc. l:zports, Ltd. Exports II, Ltd. Transport, Inc. 140% Vail Gillett Broadcasting Class B Associates of SCI Subsidiaries Tennessee, Inc. Television, Inc. Gillett Teleproduc- !Gillett Broadcasting Clarence lions, Inc. II of California, Inc. McKee WM, Inc. - 1% Gillett Broad- KSBW, casting of Inc. Maryland, Inc. KSBY, Inc. Waltham Publishing Company Gillett Broadcast- ing of Oklahoma, Inc. Winnebago Color Press, Inc. Gillett Group Management, Inc. GCC, Inc. GNG-1, Inc. GNG-3, Inc. EXHIBIT 2B z 2/04/92 GHI Corporate Structure as ~ Creditors Investor Management of Effective Date of Plan I ~Ompa"y ~ 143% 152% I5% (issued t year after Effective Date) Gillett Holdings, Inc. Gillett ~ Third Party I Warrants Productions, Inc. 1100% ' Packerland I ~ GHN, Inc. I Packing Vail Company, Associates, I Inc. Inc. Gillett Broadcasting I ~ of California, Inc. I I Vail Associates Packerland Packerland Packerland Subsidiaries KSBW Exports II, Ltd. Exports, Lida Transport, Inc. Inc. Gillett Broadcasting ~ KSBY, ~ ~ KSgyy of Inc. License, Inc. Tennessee, Inc. WLUC, Inc. 99% KSBY Clarence I Gillett ~ License, Inc. McKee WM, Inc. Teleproductions, Inc. 1% Gillett Broadcasting Gillett Group of Maryland Inc. Management, Inc. WM License, Inc. GNG-3, Inc. ! EXHIBIT 3 SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA, MANAGE~ZJT'S'DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS; AND FINANCIAL STATEi~NTS Attached as Exhibit 3A is GHI's Aaaual Report for the Fiscal Year Ended December 30, 1990 and as Exhibit 38 is GHI's IInaudited Condensed Consolidated Financial Statements for the Period Ending September 29, 1991 and the corresponding bianagemeat's Discussion and Analysis of Financial Condition and Result of Operations. EXHIBIT 3A GILLE l t HOLDINGS, INC. ANNUAL REPORT FOR THE FISCAL YEAR ENDED DECEMBER 30, 1990 Rio Gillett Group Management, Inc. - Anaconda Tower Suite 3300 555 Seventeenth Street Denver, Colorado 80202 (303) 292-0045 GILLe,i i HOLDINGS, INC. Annual Report For The Fiscal Year Ended December 30, 1990 TABLE OF CONTENTS PART I Page Item 1. Business 3 Item 2. Properties 18 Item 3. Legal Proceedings 19 Item 4. Submission of Matters to a Vote of Security Holders 19 PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matter 20 Item 6. Selected Financial Data 20 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 21 Item 8. Financial Statements and Supplementary Data 26 Item 9. Changes in and Disagreements with Accountanu on Accounting and Financial Disclosure 70 PART III Item 10. Directors and Executive Officers of the Registrant 70 Item 11. Executive Compensation 71 Item 12. Security Ownership of Certain Beneficial Owners and Management 72 Item 13. Certain Relationships and Related Transactions 72 PART IV Item 14. Financial Statement Schedules 73 • Part I Item 1. Business Gillett Holdings, Inc., a Delaware corporation ("GHI" or the "Company"), is a privately held company the stock of which is one hundred percent owned by George N. Gillett, Jr. (the "Sole Stockholder"). GHI is organized as a holding company and operates through various subsidiaries. The Company is engaged in three businesses-communications, resorts and lean beef products. In the communications business, the Compan}• (i) owns and operates two network affiliated television stations, (ii) has a 79% equity ownership interest in a corporation which owns and operates a network affiliated television station and (iii) is an approximate 40% partner in a joint venture (the "Joint Venture") which owns and operates five network affiliated television stations and one independent television station and certain other related businesses. See additional discussion at "Joint Venture." In the resorts business, through Vail Associates, Inc. and its subsidiaries ("Vail Associates"), the Company operates the Vail Mountain and Beaver Creek Mountain resorts and has related real estate operations. In the lean beef business, through Packerland Packing Company, Inc. ("Packerland"), the Company operates one of the largest "lean beef' slaughtering and packing operations in the United States. For financial information concerning each of the Company industry segments, see Note 12 to the Company's consolidated financial statements. As used herein, unless the context otherwise requires, "GHI" or "Company" means Gillett Holdings, Inc. and its subsidiaries. The Company has defaulted on the payment of interest due on the Senior Subordinated Debentures on August 1, 1990 and February 1, 1991 and on the payment of interest due on the Subordinated Debentures on August 1 S, 1990 and February 15, 1991. In addition, the Company defaulted on the payment of interest due on the bank Credit Agreement on August 7, 1990 and the outstanding indebtedness under the bank Credit Agreement matured on August 10, 1990. As a result, the Company is presently in default under substantially all of its debentures and credit agreements and has been attempting to restructure its debt structure. On February 27, 1991, three creditors of Gillett Holdings, Inc. filed petitions in Federal Bankruptcy court in an attempt to force Gillett Holdings; Inc. into reorganization under Chapter 11 of the Bankruptcy code. The Company has been granted an extension through June 25, 1991, at which time it is contemplated that an Order for Relief under Chapter 11 of the Bankruptcy Code will be issued by the Federal Bankruptcy court. . Prior to the entry of the Order for Relief, the Company will continue to negotiate the terms of a debt restructuring in an effort to obtain agreements in principle vrith its principal creditors on or shortly after June 25, 1991. Although Company management believes that a restructuring will be accomplished, the ultimate outcome of this matter cannot presently be determined. On August 7, 1990, Gillett Broadcasting of Maryland, Inc., a wholly owned subsidiary of the Company, which owns and operates WMAR-TV, entered into an Asset Purchase Agreement (the "Agreement") to sell substantially all of the asseu of WMAR-TV in Baltimore, Maryland for $154.7 million in cash to Scripps Howard Broadcasting Company ("Scripps"). The transaction was to close on or before January 31, 1991. On February 8, 1991, Scripps terminated the Agreement. In response, the Company filed a lawsuit against Scripps in Federal District Court in Chicago. On April 2, 1991 the Company and Scripps entered into a Settlement Agreement (the "Settlement") providing for a reduced purchase price of $125 million in cash and a dismissal of the lawsuit upon the closing of the sale. On April 3, 1991, the Company filed a motion with the Federal Bankruptcy court seeking approval of the terms of the Settlement. This motion. was granted on April 26, 1991, and WMAR-TV was sold to Scripps on May 30, 1991 for $125 million, in cash. The Company will recognize a loss for financial reporting purposes in 1991 of approximately $26 million related to this transaction. Development Acquisitions and divestitures have played an important role in the Company's growth. The Company's acquisition strategy has been to improve the operations of the companies it acquires. through increased promotion of products and services and through cost controls. 3 • a Tennessee limited partnership, for $125 million in cash including working capital. The transaction was structured to enable the Company to obtain a tax certificate from the FCC under section 1071 of the Internal - Revenue Code of 1986, as amended ("the Code"). Under these provisions of the Code, the recipient of the certificate from the FCC in connection with the sale of a broadcast property is entitled to defer for federal . income tax purposes the recognition of gain on such sale if the proceeds of sale are being reinvested in qualifying communication property within two years of the end of the year of the sale. Consequently, if the Company does not purchase a qualifying communication property by December 31, 1991, it will be required to recognize a gain for tax purposes of approximately $109.7 million in connection with such sale in 1989. The Company has net operating loss carryforwards available at December 30, 1990 to offset this amount (see Note 9 to the consolidated financial statements). As a result of the Section 1071 sale treatment, the Company has recorded a deferred tax liability of $5,471,000 for state tax reporting purposes: This amount will be due with interest if the aforementioned reinvestment does not occur. The FCC issues such a tax certificate when, among other things, the broadcast property is sold to certain qualifying minority persons: Television Industry and Competition ' Revenues of the Stations are derived primarily from (1) national spot advertising, which consists of advertising time sold to national and regional advertisers; (2) local advertising, which consists of advertising time sold to local advertisers; and (3) network compensation payments, which are made by a network to a Station in consideration for its broadcasting of network commercial programs. The Stations are represented ' by national television sales representation firms in the sale of national spot advertising. Local advertising is sold by each Station's own sales stag: Advertising rates are related primarily to the population and number of television receivers located in the area served by a Station and to the audience's acceptance of a Station's programming, as reflected in surveys by independent rating services. Many national' spot and local advertising contracts are short-term, and revenues from such contracts are sensitive to changes in prevailing economic conditions. According to Television Bureau of Advertising surveys, television station advertising revenues from 1976 through 1986 for the industry grew at a compound annual growth rate of approximately 13%. These surveys indicate that'television station advertising growth rates for the industry began to slow considerably beginning in 1987 and from 1987 through 1990 television industry advertising revenues have grown at a compound annual growth rate of approximately 5%. Further, the surveys show the compounded annual growth rate in television advertising revenues for network affiliated stations from 1987 through 1990 was approximately 3%. 'The compounded annual growth rate. in television advertising. revenues for NBC network affiliated stations from 1987 through 1990 was approximately 2-3%. The two stations owned by the Company are affiliated with NBC. The slowdown in the growth of television industry advertising revenues from 1987 through 1990, and affiliated station advertising revenues, in particular, is due to several. factors,: These include a general decline in viewing shares garnered by over the air television stations, the existence of surplus advertising time in many ` television markets, and the slowdown in general economic growth, particularly in the retail sector of the economy. The inventory of available advertising time in many television markets has increased principally because of an increase in the number of ind_r _..dent television stations, the emergence of 15-second commercial spots offered as an alternative to the traditional 30-second commercial spots by both the networks and local television stations thereby increasing the commercial advertising capacity of television stations, and the commercial advertising inventory on local cable systems becoming a viable advertising medium as cable increased its Jevel of penetration in markets and established interconnecu among smaller cable systems in metropolitan areas to establish large enough viewing audiences to make cable a more efficient local advertising medium. S Commercial tiationai 'Iti' Homes Luca! Sign-on T Date of M1iarket in ADI Market Sign-oR Stations in Acq. or GHI Owned Stations Station(11 Nen?ork Sizel2) (21(51 Rank(2. 3) Shared2.'3.4) ~iarket(21 lnvstmt. y.h Baltimore, Mary- land(7) WMAR NBC 22 945,700 2 21% 5 10/86 Salinas, California KSBW ,NBC 110 213,200 1 21% S 1%87 San Luis Ob)spo, California KSBY NBC 112 207,600 1 19% 4 1/87 Investment in W"TVT Holdings, Inc. Tampa, Florida WTVT CBS 13 1,357,700 1(6) 22% 8 6/87 Investment in Joint Venture Network Al91sates Detroit, Michigan WJBK CBS 8 1,741,400 3 15%, 7 10/87 Cleveland, Ohio WJW CBS 11 1,460,100 2 19% 10 10!87 Atlanta, Georgia WAGA CBS 12, 1,431,900 1 21% 8 10.":37 San Diego, California KNSD NBC 24 932,000 3 17% 7 10/87 Milwaukee, Wisconsin WIT! CBS 28 781,300 1 23% 9 12/87 Indepepdent Boston, Massachusetts WSBK Ind. 6 2,141,400 4(6) 6% ll 10!87 (1) All of the stations operate on VHF channels (channels 2 through 13) except for. WSBK-TV and KNSD- TV which operate on UHF channels 38 and 39, respectively. (2) Source: Arbitron Ratings Company, November 1990 or A.C. Nielson Company, November 1990. (3) Based on management's review of published rating service information. The indicated data, as well as rating and share information, are important to the Company in that advertisers use such information in determining the cost effectiveness of advertising on a particular. station. (4) Percentage of viewing audience in market tuned to station, sign-on to sign-off, Sunday through Saturday. (S) ADI-Area of Dominant Influence. (6) Tied with another station in the market. (7) WMAR-TV was sold in May 1991. See Note 11 to the Company's consolidated financial statements. The following discussion summarizes briefly each of the television stations owned by GHI or owned by companies in which GHI has an equity investment. Data presented regarding television ratings and market share data are based on management's review of published industry data for November 1990. . GHI Owned Stations WMAR.-'`T'~', Baltimore, Maryland 'WMAR-TV, channel 2, a VHF station affiliated with NBC, commenced broadcasting in 1947. WMAR- TV ranks second among the five commercial stations serving the Baltimore, Maryland market. WMAR-TV has a 21 share (percentage of households viewing television) and a 6 rating sign-on to sign-off (percentage of all television households) while the leading station in the market, an ABC affiliate, has a 23 share and a 7 rating sign-on to sign-off. Baltimore is the 22nd largess U.S. television market, serving approximately 2.5 million people. WMAR-TV was sold in May 1991. 7 _ _ WSBK-TV, Boston, Massachusetts r WSBK-TV, channel 38, a UHF station, was the second independent station in Boston. Massachusetts. beginning operations in 1964. The Boston area is served by eleven commercial stations. WSBK-TV is tied for fourth in terms of sign-on to sign-off audience share with another independent station in the market with a 6 share and a 2 rating. Boston is the 6th largest U.S. television market, serving approximately 5.4 million people. • . Eight of the Stations are affiliated with national television networks-five with the CBS network and three with the NBC network. Network affiliation agreements generally require an affiliate to carry a significant amount of network provided programming, and the networks undertake to supply a certain amount of programming to the affiliate and to compensate the affiliate for broadcasting network provided programming. Although network compensation payments to the eight network-affiliated stations accounts for only 2% to 3% of the Stations' gross revenues, network affiliation is generally advantageous because it provides a station with competitive programming at lower cost than would otherwise be available. In addition, certain advertising time in these programs is made available to the local affiliate for its sale to local advertisers. An affiliated station's competitive position in its mazket is somewhat affected by the competitive strength of its : network, but network strength does not necessarily determine an individual station's audience or its financial performance. Local programming, particulazly local news coverage, community involvement and promotion, are important competitive factors. The Company anticipates that the Stations' network affiliations with the CBS and NBC networks will continue to be advantageous, and that the three major nations! networks, ABC, CBS and NBC, will remain highly competitive with each other. . Regulation and Legislation The FCC regulates the Company's television stations under the Communications Act of 1934; as amended (the "Communications Act"), which, together with FCC rules and policies thereunder, governs the issuance, renewal and assignment of licenses, technical operations and, to a limited extent, program, employment and commercial practices. Over the past several years, the extent of governmental regulation • ~ has been significantly reduced. a Television broadcast station licenses aze issued for a maximum term of five years and are renewable upon application for additional five year terms. Renewal applications are granted without hearing if the licensee's qualifications aze not materially challenged either by a third party or the FCC and if no competing applications for the same license are filed. In instances where one or more competing applications are filed at the same time as a renewal application, the standards for renewal are more stringent since the FCC musi compare an incumbent licensee's renewal application with the competing applications and choose among them. In making this comparison the FCC evaluates, among other things, the incumbent licensee's past record of public service programming. Despite the relatively short-term license period, the broadcast industry has been characterized by stability. The Company's stations renewal applications to date have been granted without hearing. Renewals for the following stations were granted in 1988: KSBY•TV, KSBW-TV AND KNSD-TV: The license for .WSBK=TV was renewed in 1989. The application for renewal of the license of WAGA-TV is to be filed in 1991. Applications for renewal of the licenses of WTVT-TV, WJW-TV, WJBK-TV and WITI-TV are due to be filed during 1992. The likelihood of challenges to the licenses of existing television stations has been severely diminished by new FCC rules that prohibit challengers from receiving any monetary consideration _ over and above their reasonable and prudent expenses in return for dismissal. Pursuant to the Commturications Act and pertinent rules and regulations of the FCC, the FCC's prior. consent must be obtained before any entity may acquire or operate existing broadcast television stations . ("FCC Consent"). Applications requesting FCC Consent must be filed with the FCC and are subject to public notice: The Communications Act permits any party in interest to file a petition to deny any such applications 9 (3) requires television licensees to demonstrate at renewal that they have met the educational and informational needs of children in their market. Congress further directed the FCC to promulgate regulations implementing the legislation by April, 1991. The Company's television stations are alread~~ in compliance with the limits on commercial content and program-length commercials and it believes that programs already on the air or in development will enable it to demonstrate that it has met the educational and informational needs of children in the respective markets: ` Resorts Vail Associates was acquired by GHI in 1985. Vail Associates is engaged in (i) operating one of the ' world's largest skiing facilities on Vail Mountain and Beaver Creek Mountain in Colorado, including conducting activities related to its ski areas such as operating restaurants and ski 'schools, and (ii) selling real . estate primarily in the Beaver Creek area. These. two resorts are recognized w~rl'dwide and were hest to the 1989. World Alpine Ski Championships (January 29 through February 12,..1989), the first time the United States has been chosen to host them since 1950: fail Mountain-Vail Mountain consists of 3,834 acres of skiable terrain located on approximately 12,500 acres and is the largest single ski mountain complex in the United States. With one gondola, 19 chairlifts and two puma lifts, Vail Mountain has an approximate capacity of 19,900 skiers per day. Vail Mountain's 27th season ran from November 22, 1989 through April 15, 1990, with limited skiing available from November 4, 1989 through November 21, 1989. Vail Mountain had an average of 10,470' skiers per day during the November.22 through April 1 S season. Total skiers increased 4.4% from the prior ski season. In connection with its. skiing operations, Vail Associates operates the world's largest ski schools and seven restaurant facilities located on Vail Mountain. Since 1985, Vail Mountain has gone through a substantial expansion and upgrade of facilities, which included the installation of seven high-speed detachable chairlifts, two fixed grip quad chairlifts, an expansion of its snowmaking capacity, a new recreational bobsled course and major restaurant upgrades. Vail has recently announced the opening of a new Far East. restaurant facility which will accommodate up to 1,000 guesu at the top of China_ Bowl. The facility has taken two years to complete and will be open for the 1991- 1992 ski season. Vail Mountain has expanded its skiable terrain during this period by approximately 1,850 :acres, to 3,834 skiable acres. Beaver Creek Mountain-In 1972, Vail Associates acquired 2,126 acres of land located approximately ten miles west of the town of, Vail on which it has developed ayear-round r......~.tional .complex known as "Beaver Creek Resort." The ski area associated with the development is located on approximately 5,600 acres, of which approximately 830 acres is used as skiable terrain. Beaver Creek Ski Mountain is among the nation's 20 largest ski areas (based upon the annual number of skiers). Present capacity is approximately 7,500 skiers per day. During iu ninth season, from November 22, 1989 through April 1S, 1990, Beaver Creek operated ten chairlifts and had aa'average of 2,770 skiers per day: Total skiers increased 3% from the prior ski season. The Company continues to expand its facilities at Beaver Creek. During 1987 and 1988, the Company expanded its mountain restaurant facilities and added a private mountain cabin available for overnight stays. Over the last five years, the Company has added ahigh- speed detachable chairlift and two fined grip chairs, as well as an expansion and modernization of its snowmaking system. Beaver Creek has announced a new detachable lift and 100 acres of expanded terrain to be open for use in the 1991.1992 ski season. The ski area, as presently planned, calls for an ultimate operating capacity of approximately 12,500 skiers per day, 1 S chairlifts and three mountain restaurants. - The operation of a ski resort business is seasonal. Under normal weather conditions, each ski eras .,r,...s in late November and closes in mid-April each year: The average annual snowfall in the Vail/Beav~,~; Creek area ranges from 300 to 350 inches. Vail Mountain has snowmaking equipment covering 370 acres and ~~.tver Creek has equipment covering 300 acres. 11 facilities; and the reputation of the areas. Based upon a review of these .factors, management believes that ' Vail Associates is in a strong competitive position. The real estate industry is subject to market fluctuations due to many factors including changes in [he general economy, costs and availability of borrowed money and conditions in the construction and real estate industry generally. In addition, changes in legislation and governmental regulations, such as local and federal tax laws, land-use and zoning restrictions and environmental protection, could adversely affect real estate sales. With respect to the sale of real estate, Vail Associates has many competitors, not only in the Vail and Beaver Creek resort areas but also throughout the Colorado mountain country: and in the other major ski areas in the United States. Management believes that the size, historically consistent snow conditions, and existing amenities of the Vail and Beaver Creek resorts give Vail Associates a competitive advantage over many of its competitors. -..Regulation and Legislation ' Vail Associates has been granted the right to use 12,500 acres of federal land adjacent to the Town of ' Vail and 5,600 acres 'of federal land adjacent to its Beaver Creek property as the site for most of its ski lifts and trails and related activities under the terms of permits with the,Forest Service. The permits granted to the Company consist of (i) Term Special Use Permits which were granted for 30-year terms, but are terminable upon 30 days' written notice by the Forest Service if it determines that the public interest requires such termination and (ii) Special Use Permiu which are terminable at will by the Forest Service. No assurance can be given that the insolvency of the Company, the default by the Company under its indebtedness or the entry of an order for relief in a bankruptcy case would not be considered an .event contrary to the public interest which might result in the termination of the Tenn Special Use Permits and Special Use Permits. The Term Special Use Permits cover an aggregate of 160 acres and generally relate to land upon. which GHI has made improvements. The Term Special Use Permits expire in 1992 for Vail Mountain and 2010 for Beaver Creek. In November 1986, a new law was. enacted which provides that Term • Special Use Permits and Special Use Permits will be combined into a single permit which can be issued for _ up to 40 years. The Company is currently negotiating with the Forest Service to convert the existing permits to the new type of,permit. The Forest Service has the right to review and comment on the location,, design and construction of improvements in the permit area and on many operational matters (including lift ticket pricing structures}. Under the permits,: Vail Associates is required to pay a graduated fee to the Forest Service, which ranges from one to approximately six percent of gross receipts, with the rate rising with increased gross receipts and varying according to the dollar amount of gross fixed assets and the type of sales items. Included in the gross receipts ca]culation are sales or proceeds from, among other things, food, beverages, rental equipment and lift tickets, ski school lessons and merchandise. Vail Associates is currently involved in an appeal process with the Forest Service resulting from a dispute over fees paid to the Forest Service since 1985. Vail Associates is affected by federal, state and local regulations and laws designed to protect the environment. Compliance with such laws and regulations may involve additional cash outlays and require additional time in order to secure necessary governmental approvals. To date, the Company has been able to comply with such laws and regulations without an adverse effect on its operations and financial condition, although no assurance can be given that it will be able to continue to do so. , Beef Products Operations Packerland was acquired in March 1978. Originally a processor of all cattle breeds, since January 1979 r Packerland has concentrated exclusively on the purchase and slaughter of lean Holstein steers and lean cows ' 13 . Approximately 30% of the full time employees in the communications segment, are presently represen~ed ' by two national labor unions. No employees in the resorts segment are represented by a union. Packerland's employees in its Green Bay, Wisconsin facility are represented by four labor unions. The Company believes ' its relations with its employees and unions are satisfactory. Investments In Unconsolidated Companies ' ' . K'TVT Holdings, Inc. - On June 19, 1987, WTVT~ Holdings, Inc., an Illinois corporation ("b'TVT Holdings"), acquired substantially all of the assets of WTVT-TV in Tampa, Florida from Gaylord Broadcasting Company ~ ("Gaylord") for $3b5 million. WTVT Holdings is owned 79% by the Company and 2I% by Clarence V. McKee. Mr. McKee has 51% of the voting control of WTVT Holdings with the Company owning the remaining 49%. ' Mr. McKee served with the Office of General Counsel of the Federal Communications Commission (the "FCC")from 1973 to 1975 prior to serving as legal assistant to the then Commissioner of the FCC, Benjamin C. Hooks, from 1975 to 1977. Between 1977 and 1980, Mr. McKee was a partner in the law firm of Law, Murphy & McKee. In 1980, Mr. McKee became of counsel to Pepper & Corazzini, a Washington, D.C. based law firm specializing in communications law which the Company has retained for legal matters related to . communications law. Ivir. McKee is the President of WTVT Holdings and serves as a member of its board of directors. Mr. McKee was not formerly affiliated with either Gaylord or WTVT-TV. The authorized, issued and outstanding stock of WTVT Holdings consists of 1,000 shares, 210 shares of ' Class. A Common Stock owned by Mr. McKee and 790 shares of Class B Common Stock owned by a subsidiary of the Company ("WTVT Sub"). The Class A Common Stock and the Class B Common Stock are identical in all respects except that each outstanding share of Class A Common Stock is entitled to four votes while each outstanding share of Class B Common Stock is entitled to one. vote. Thus, Clarence V. McKee currently exercises voting control over WTVT Holdings. Mr. McKee paid $210 for his shares of Class A Common Stock and the Company paid $790 for its shares of Class B Common Stock. Pursuant to the terms of a Shareholder Agreement dated April 17, 1987 (the "Shareholder Agreement") by and between Mr. McKee and WTVT Sub;' WTVT Sub has the option to purchase the Class A Common ' shareholder's interest at any time during the three year period commencing on the date two years after the purchase of WTVT-TV, or earlier upon the death or disability of Mr. McKee, for a purchase price equal to the greater of the Class A Common shareholder's pro rata portion of the shareholder's equity of WTVT Holdings or $1 million. The Class A Common shareholder has the right to require WTVT Sub to purchase the Class A Common Stock during the same time period and at the same price. Pursuant to the WTVT Holdings note payable (see Note 3 to the WM Holdings financial statements) the parties are restricted from exercising their options to purchase or sell their shareholder interests until the note payable is paid. The Shareholder Agreement also provides, among other things, that the Class A and Class B Common shareholders have rights of first refusal in the event the' other shareholder should elect to sell its stock at any time. Joint Venture The Company in October and December, 1987 consummated a series of transactions with Storer Communications, Inc. ("Storer") providing for the formation of the Joint Venture. The Joint Venture was formed to own and operate six broadcast television stations (WSBK-TV in Boston, WJBK-TV in Detroit, WJW-TV in Cleveland, WAGA-TV in Atlanta, KNSD-TV (formerly KCST-TV) in San Diego and WITI-TV ' in Milwaukee) and certain other related businesses (collectively, the "Joint' Venture Stations"). _ On November 2, 1988 Storer distributed its interest in the Joint Venture to its parent company, which in turn distributed such interest to its shareholders (the "Storer Distributees") on a pro rata basis on that date. Prior to the restructuring transactions discussed below, the Joint Venture was comprised of (i) SCI Television, Inc., a Delaware corporation ("SCI"), the principal stockholders of which were the Storer 15 dividends through February S, 1990), SCI Common Stock equal to approximately S4o7c of the aggregate common equity of SCI and a SO% interest in the Partnership held by the Company. . g) SCI issued to the Storer Distributees 2,250,000 shares of its Class B Common Stock, equal to i S rc of the aggregate common equity of SCI, and Gillett Sub issued to the Storer Distributees warrants to purchase its preferred stock (the "Gillett Sub Warrants"). As consideration therefore, the Storer Distributees surrendered to SCI $168,146,000 aggregate principal amount of Floating Rate Junior Subordinated Extendable Reset Notes and Floating Rate Junior Subordinated Debentures issued by SCI (including accrued interest through February 5, 1990), approximately 584,150,000 aggregate liquidation ' value of SCI Preferred Stock (including accrued dividends through February 5, 1990), SCI Common Stock equaY to approximately 4b% of the aggregate common equity of SCh and a SO% interest in the Partnership held. by the Storer Distributees. The preferred stock of Gillett Sub that may be purchased under the Gillett Sub Warrants had. an aggregate 512.575 million liquidation preference as of February 5, 1990;.,w~hich will increase 15% pet: year from that date. The Gillett Sub Warrants or, if then issued. .such preferred stock will be required td be redeemed on the eighth anniversary of the issuance of the Gillett Sub Warrants. GNG. Co. (as described below) has entered into an agreement with the Storer ~ Distributees to deliver all of its assets in redemption of the Gillett Sub Warrants (or the preferred stock issued upon exercise of Gillett Sub Warrants).if Gillett Sub chooses to' deliver its own assets rather than cash in any such redemption.. SCI has no obligation with regard to the Gillett Sub Warrants. This redemption obligation is nonrecourse to GHI and its other subsidiaries. h) SCI sold for $1,500 to GNG Corporation, a Delaware Corporation ("GNG Co."), beneficially owned by George N. Gillett, Jr. but not by the Company, 150,000 shares of iu Class A Common Stock. The shares of Class A Common Stock represent 1% of the aggregate common equity of SCI and have 100% voting control of SCI, except that the holders of the Class B Common Stock (other.than holders of Class B Common Stock and their affiliates who also hold shares of Class A Common Stock) are entitled to .vote as a class for the election of two of seven directors of SCI, to approve any merger or consolidation of SCI with another entity and to approve the sale, of substantially all of the assets of SCI. i) The leases between the Partnership and the Joint Venture Stations were amended to permit the contribution of the Partnership to SCI and to defer certain of the rental payments, including certain amounts due in 1989, until the end of the term of such leases except for such payments required by the Partnership to enable it to pay interest and principal due under its credit agreement and to fund capital expenditures: j) In connection with the Restructuring Transactions, the management agreement, pursuant to which the . Company and. its affiliates provide management services to SCI and' GCI Partners, was amended (the "Amended Management Agreement") to remove the reservations of certain matters to the Board of Directors and stockholders of SCI and the termination provisions, except that (i) SCI and the Company each have the right to terminate the Amended Management Agreement in certain events involving a material breach of the Amended Management Agreement, (ii) SCI has the right to terminate the Amended. Management Agreement if certain acts of fraud, gross negligence or willful misconduct are committed by the Company or an affiliate, (iii) SCI and the Company each have the right to terminate . the Amended Management A~,. __...ent in certain events of bankruptcy of SCI or upon acceleration of certain of SCI's indebtedness, (iv) SCI has the right to terminate the Amended Management Agreement in certain events of bankruptcy of the Company and (v) SCI and, subject to the amended company credit - agreement, the Company each have the right to terminate the Amended Management Agreement for any reason during the three month period commencing on the second anniversary of the consummation of the Restructuring Transactions: In any case in which SCI has the right to terminate the Amended _ _ Management Agreement, the decision whether to terminate the Amended Management Agreement shall . be made by a majority of the Designated Directors of SCI (as defined hereafter). Because an involuntary bankruptcy petition was filed against the Company on February 27, 1991, SCI will have the right to terminate the Amended Management Agreement fora 180-day period following April 13, 1991 if such petition is not dismissed or stayed prior to such date. Pursuant to the Amended Management Agreement, barring termination, the Company will continue to be entitled to fees to cover employee compensation 17 Location. Ownenftip L_se R esorrs Vail, CO Owned Gondola base terminal, Vail Associ- a~es' corporate offices and commer- cial office space " Vail, CO Owned Employee', housing Vail, CO (80 acres) Term Special Use Permit Ski lifts " Vail, CO (12,420 acres) Special Use Permit Ski runs Beaver Creek. CO ; . (80 acres) Term Special Use Permit Ski~tifts ` Beaver Creek, CO (5;520 acres) Special_Use Permit Ski'runs ' BeejProducrs. Green Bay, WI Owned Slaughtering and fabricating plant, cold storage facilities and offices • Hospers, IA Owned Slaughtering plant and offices Gering, NE ~ Owned Slaughtering and fabricating plant and offices Chippewa Falls, WI Owned Cattle procurement facility The table above does not include properties owned by companies in which GHI has an' equity investment. Additionally, Vail Associates owns various real estate in the Vail and Beaver Creek areas which is held for the ski operations or sale. The title to various of Vail Associates' real and personal properties, including the Use Permits, is encumbered. In addieion, the Company owns an 18-hole golf course in the Beaver Creek area with clubhouse and various vacant lots in the Beaver Creek area. . Kill capacity and fabricating capacity at all of Packerland's facilities is approximately 944,000 head of cattle per year. The total aggregate utilization rate of Packerland's facilities is approximately 72%. See "Resorts--Vail Mountain; Beaver Creek Mountain" for a discussion of the capacity and utilization at the ski facilities. The Company believes all of its facilities are suitable and adequate for their intended uses. Item 3. Legal Proceedings The Company is a defendant in a number of lawsuits which have arisen in the normal course of business. While any litigation has an element of uncertainty, the management of the Company believes that the outcome of such suits will not have a materially adverse effect on its financial condition or operations. On February 27, 1991, three creditors of Gillett Holdings, Inc. filed petitions in Federal. Bankruptcy court in an attempt to force Gillett Holdings, Inc. into reorganization under Chapter 11 of the Bankruptcy code. The Company has bete granted an exttnsion through June 25, 1991, at which time it is contemplated ` that an Order for Relief under Chapter 11 of the Bankruptcy Code will be issued by the Federal Bankruptcy court. Prior to the entry of the Order for Relief, the Company will continue to negotiate the terms of a debt restructuring in an effort to obtain agreements in. principle with its principal creditors on or shortly after June 25, 1991. Although Company management believes chat a restructuring will be accomplished, the ultimate outcome of this matter cannot presently be determined. Item 4. Submission of Matters To a Vote of Security Holders The Sole Stockholder was elected the director of the Company in the only matter submitted to a vote of security holders in -1990. 19 As of December 30, December 31, January 1, Januan 3, December 18. 1940 1989 1989 1988. 198b , Balance, Sheet Data: Total assets $724,182 $777,766 5843,771. $985,796 5614,921 Long-term debt (excluding current maturi- ties) (see Note 4.to the December 30, 1990 ' ' consolidated financial statements)........ 4,446 824,633 901,511 913,301 534,340 Item>7. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company has made a significant number of acquisitions, investments and divestitures over the past several years, making comparisans of results of operations difficult. Below is a table which contains the number, of months the following properties have been included in, the Company's historical results of operations. For additional information concerning the historical investments and divestitures, see Notes 2 and 3 to the Company's consolidated financial statemenu. Fixs! Fiscal Fiscal Date Date 1990 1989 1988 Acquired Sold (number of montbsl Communications WSMV-TV 11/81, 6/89 - 5 12 WMAR-TV 10/86 5/91 1Z 12 12 KSBW-TV 1/87' - 12 12 12 KSBY-TV..... • 1/87- - 12 12 12 WTVT Holdings(a) b/87 - 12 12 12 Joint Venture(b) 10/87 - 12 12 12 Resorts 8185 - 12 12 12 Beef Products.... 3/78. - 12 12 12 (a) On June 19, '1987, WTVT Holdings, acquired from Gaylord substantially ai] of the assets of WTVT-TV, a CBS affiliate, in Tampa; Florida for $365 million. The Company has a 79,% equity interest and a 49% voting interest in WTVT Holdings. As the Company does not have voting, control of WTVT Holdings, it does not constitute a subsidiary of the Company. The funds for the WTVT•TV acquisition were obtained by WTVT Holdings in a 5385 million short-term debt placement. The proceeds of a debt offering and bank financing by the Company on August 14, 1987 were loaned to WTVT Holdings to retire its short-term dtbt. (b) On October 29, 1987 and December I, 1987, the Company concluded two separate closings in a joint venture with Storer. The Joint Venture acquired the business and operations of siz television stations and certain rely{ed businesses owned by Storer, The 3oint Venture Stations are WSBK-TV (Boston), WJBK-TV (Detroit), WJW-TV (Cleveland), WAGA-TV (Atlanta), KNSD-TV (San Diego) and WITI- TV (Milwaukee), all of which are network affiliates except for WSBK-TV. The Company made an equity contnbution~_of approximately 5100 million to the Joint Venture on October 29, 1987, in return for its equity interest. The Company obtained the $100 million from available proceeds under its bank term loan, which had been reduced for an interim period by proceeds rrom the sale of broadcast properties. Effective February S, 1990, the Joint Venture entered into a series of restructuring transactions which significantly changed its capital structure and future debt service requirements. See Item 1 Business- - Joint Venture. Fiscal 1990 Versus 1989 The Company's net revenues decreased $5,680,000 (1%) while income from operations declined 55,629,000 (39%) in 1990 compared to 1989. Net cash provided by operating activities, as disclosed in the 21 losses from WTVT Holdings and the Joint Venture which ,totaled 529,187,000 for fiscal 198Q (~L'T~'T Holdings, 511.686,000;.the Joint Venture,.$17,501,000). The Joint Venture consists of two components the television stations are operated by corporate subsidiaries of the Joint Venture while the fixed assets are owned by a partnership (GCI Partners) owned by the Joint Venture which leases the assets to the operattng subsidiaries. As of December 31, 1989, the Company's investment in GCI Partners, as discussed in Note 3 io the Company's consolidated financial statements was reduced to zero as a result of the subsequent ' ~ restructuring of the Joint Venture. As the Company does not guarantee the debt of the Joint Venture it has not reduced its investment below zero. Net financial expense (interest expense less interest income) increased $4',604.000 in 1990 compared to 1989. This inciease is due to increases in the amortization of original issue discount offset by overall lower interest rates on the Company's floating rate bank debt and significantly less bank debt balances during 1990. Interest expense in 1990 and 1989 includes $45,191,000 and $40,116,000, respectively, of non-cash amounts . associated. with amortization of original issue discount. Fiscal 1989 Versus Fiscal 1988 The Company's net revenues increased $26,839,000 (4%) while income from operations increased 531,000 in 1989 compared to 1988. Net cash used in operating activities, as disclosed in the Company's consolidated statement of cash flows, increased by $13,999,000 to $21,446,000 in 1989. The $26,839,000 (4%) increase in net revenues for 1989 as compared to 1988, results from revenue improvements from operations in the Company's resorts and beef produce business segments. Resort revenues increased $14,551,000 (19%) (mountain operations increased $13,977,000. (22%) while non- recurring real estate transactions increased $574,000 (S%)). Revenues in the beef products segment increased $28;393,000 (5%) due to increased volumes. Revenues in the communications segment from ongoing operations decreased $1,829,000 (3%), largely due to decreases in local and national spot sales. Overall communications revenues decreased $16,105,000 (19%) primarily reflecting the sale of WSMV-TV. During 1989, operating costs and expenses excluding depreciation and amortization increased 526,873,000 (4%) compared to 1988. Resort operating .costs and expenses increased 52,837,000 (5%) resulting from an increase in mountain operations and a decline in non-recurring real estate transaction costs. Operating costs and expenses in the beef products segment increased $31,049,000 (S%) due to higher cattle prices and volumes. Operating expenses in the communications segment decreased $7,013,000 (14%) overall, primarily reflecting the sale of WSMV-TV, and increased $746,000 (2%) from ongoing operations due to increased programming costs. Depreciation of property, plant and equipment and amortization of intangible assets decreased ' $2,403,000 (13%) and $3,745,000 (28%), respectively, during 1989 compared to 1988 primarily due to the sale of WSMV-TV. Corporate expenses increased $6,083,000 (61%) due primarily to non-recurring expenses associated with the resort properties' hosting of~ the World Alpine Ski Championships, an ~ increase in the provision for deferred compensation and decreased management fees from the Joint Venture. ' Income from operations increased $31,000 to $14,367,000 for 1989 as compared to $14,336,000 for 1988. The resorts segment income from operations increased from $8,900,000 in 1988 to $18,123,000 in 1989 _ _primarily due to operating improvements and the shift in the components of resort revenue from non- recurring real estate to mountain operations. The loss from operations for the beef products segment totaled $539,000 in 1989 as compared to income of $1,885,000 in 1988 as a result of the factors discussed above. . Operating results for the beef products segment are influenced by prevayzy-aA,~ economic and market conditions such as consumer demand, cattle supply and cattle and meat prices. 'l:e corporate loss from operations increased from $1,579,000 in 1988 to $6,429,000 in 1989. Income from operations in the communications 23 - Prior to the entry of the Order for Relief, the Company will continue to negotiate the terms of a debt ' restructuring in an effort to obtain agreements in principle with its principal creditors on or shorty after June 25; 1991. Although Company management believes that a restructuring will be accompltslied. the ultimate outcome of this matter cannot presently be determined. On August 7, 1990, Gillett Broadcasting of Maryland, Inc., a wholly owned subsidiary of the Company - which owns and operates WMAR-TV, entered into an Asset Purchase Agreement (the "Agreement") to sell substantially all of the assets of WMAR-TV in Baltimore, Maryland for $154.7 million in cash to Scripps Howard Broadcasting Company ("Scripps"). The transaction was to close on or before January 31, 1991. On February 8, 1991, Scripps terminated the Agreement. In response, the Company,filed a lawsuit against Scripps in Federal District Court in Chicago. On April 2, 1991 the Company and Scripps entered into a Settlement Agreement (the "Settlement") providing-for a reduced purchase price of~$125 million in cash and a dismissal of the lawsuit upon the closing of the sale. On April 3, 1991, the Company filed a motion with the Federal Bankruptcy court seeking- approval of the terms of the Settlement. This motion was granted on Apri] 26. 1991, and WMAR-TV was sold to Scripps on May 30, 1991 for $125 million in cash. The Company will recognize a loss for financial reporting purposes in 1991 of approximately $26 million related to this transaction. Proceeds from the disposition of communications. properties have been used to repay debt and acquire other properties. Cash proceeds from the sale of WSMV-TV totaled approximately $125,000,000 including working capital during fiscal 1989 and were used to repay $75,500,000 due on July 2, 1989 under the Company's bank term loan with excess proceeds used to reduce amounts ,,'outstanding under the bank revolving credit facility. ' The Company has historically generated losses for both financial and tax;; reporting purposes, resulting in minimal or no provision for income taxes. On June 8, 1989, the Company ,sold the assets of WSMV-TV and realized a gain of S 109,656,000 for federal income tax purposes. This gain will be deferred for federal income tax purposes under Internal Revenue Code Section 1071 to the extent the proceeds are reinvested in qualifying broadcasting property by December 31, 1991. The Company has- utilized a portion of its financial reporting net operating losses to offset the provision and, in accordance with generally accepted accounting principles, has recorded an extraordinary item to reflect the tax benefit related to utilization of the net . operating loss carryforward. As a result of the Section 1071 sale treatment the Company has recorded a deferred tax liability of $5,471,000 for state tax reporting purposes. This amount will be due with interest if the aforementioned reinvestment does not occur. The Company anticipates that it will continue to generate net operating losses for both financial and tax reporting purposes. The Company believes that inflation during the past three years has had little effect on its performance and that any impact on costs has been largely offset by increased pricing. Capital Expenditures and Investments Capital expenditures in 1990 and 1989 (exclusive of acquisitions) amounted to $19,952,000 and - $19,606,000, respectively. The Company estimates that 1991 capital expenditures (exclusive of acquisitions) will be approximately $11,224,000. The expenditures will be comprised primarily of various broadcast, ski lifts, snowmaking, transportation and replacement equipment. 25 REPORT OF INDEPENDENT AUDITOR5 The Director ' Gillett Holdings, Inc. We have audited the accompanying consolidated balance sheets of Gillett Holdings, Inc. as of December 30, 1990 and December 31, 1989 and the related consolidated statements of operations and deficit and cash flows for each of the three years in the period ended December 30, 1990. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the consolidated financial statements of Vail Associates. . Inc.; awholly-owned subsidiary, which statements reflect total assets of $138,508,700 and $114,163,300 as of September 30, 1990 and 1989, respectively, and total revenues of $110,812,000, $91,106,500 and $76,555,800 for the years ended September 30, 1990, 1989 and 1988, respectively. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for Vail Associates, Inc., is based solely on the reports of the other auditors. ' We conducted our audits in accordance with generally accepted suditing~ standards. Those standards require that we plan and perform the. audit to obtain reasonable assurance about whether the, financial . statements are free of material misstatement. An audit includes examining; on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as dell as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports.of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Gillett Holdings, Inc. at - .December 30, 1990 and December 31, 1989, and the consolidated results.of its operations and its cash flows for each of the three years in the period ended December 30, 1990, in conformity with generally accepted accounting principles. As discussed in Note 11 to the consolidated financial statements, the Company defaulted on the payment of interest and principal under various debt agreements. On February 27, 1991, three creditors of the Company filed petitions in Federal Bankruptcy court in an attempt to force the Company into reorganization under Chapter 11 of the Bankruptcy code. Management of the Company is currently in the process of renegotiating its debt agreements, however, there can be no assurance that the Company will be able to renegotiate such agreements on favorable terms and that action will not be taken:against the Company. If the Company is not. successful in restructuring its debt, there is substantial doubt 'about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating . to the recoverability and classification of the recorded asset amounts and classification of liabilities should the Company be unable to restructure its debt and continue as a going concern. ERNST & YOUNG Milw2ukee, Wisconsin April 5, 1991 except for Note 11 as to which _ .the date is June 10, 1991 27 GILL~i 1 HOLDINGS, INC. CONSOLIDATED STATEMEi~"TS OF OPERATIONS AND _ ~ DEFICIT (In thousands, except per share data) For the years ended December 30, December 31, January t, 1990 1989 1989 NET REVENUES: Products-beef and other (Note 8) $ 626,077 $ 630,630 5 601,663 Broadcasting and resort _ 143,210 144.337 146,465 Net revenues 769,287 774,967 748,128 OPERATING COSTS AND EXPENSES: Cost of products sold (Note 8) 589,156 588,890 560,013 Operating expenses 132,004 130,298 132,302 Operating costs and expenses excluding depreciation and amortize- ' tion 721,160 719,188 692,315 Depreciation 16,096 15,575 17,978 Amortization of intangible assets 6;822 9,830 13.575 Total operating costs and expenses 744,078 744,593 723,868 Corporate expenses (Note 8) 16,471 16,007 9,924 Income from operations 8,738 14,367 14,336 OTHER INCOME (EXPENSE): Gain on sale of communications properties (Note 2) 108,443 - Equity in losses of unconsolidated companies (Nate 3) (5,448) (29,187) (91,363) Investment income 951 1,316 1,165 Interest expense (125,038) (120,799) (118,14$) Other _ (7,698) (4,968) (3,276) . (137,233) (45,195) (211,622) Loss before income taxes and extraordinary item . (128,495) (30,828) (197,286) Provision for income taxes (Note 9): Federal - (12,291) (134) State (1,136) (1,284) (198) Deferred state - (5,471) - (1,136) (19,046) (332) Loss before extraordinary item (129,631) (49,874) (197,618) Extraordinary item-recognition of tax benefit of net operating ;oss carryforwards 1,066 13,300 107 Net loss (128,565) (36,574) (197,511) DEFICIT: ~ ~ ' Beginning of year (288,246) (251,672) (54,161) End of year $(416,811) $(288,24b) $(251,672) LOSS PER COMMON SHARE: Loss before extraordinary item $(129,631) $ (49,874) 8(197,618) - , -Extraordinary item $ 1,066 $ 13,300 $ 107 Net loss $(128,565) $ (36,574) $(197,511} See accompanying notes. 29 a GILLn i i HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEME'~"TS December 30, 1990 and December 31, 1989 1. Summary of significant accounting policies Basis ojpresentation-The consolidated financial statements include the accounts of Gillett Holdings. Inc., and its wholly-owned subsidiaries (the "Company"). All significant intercompany accounts and transactions have been eliminated. The consolidated financial statements do not include any adjustmen[s relating to the recoverability and classification of the recorded asset amounts and classification of liabilities should the Company be unable to restructure its debt and continue as a going concern. Inventories-Inventories of beef products are primarily valued at the current market price, less freight, in accordance with general industry practice. Other inventories are valued at the lower of cost, determined on the first-in, first-out (FIFO) method, or market. The Company hedges its live cattle and purchase commitments from market price fluctuations by entering into contracts on commodity exchanges. The results of these hedging transactions become part of the cost of the related inventory items. Television program contract rights-The rights to broadcast non-network programs are stated at cost, less accumulated amortization. These costs, which are included as operating expenses, are amortized based upon the usage of the programs under methods which generally result in accelerated amortization for fot~ner network syndicated programs and feature films and straight-line amortization for first run programs. The cost of program rights expected to be used within one year is classified as a current asset. During fiscal 1990, 1989 and 1988 the Company recorded additional program contract rights of $10,107,000, $9,260,000 and X9,387,000 respectively, exclusive of acquisitions and dispositions. Property, plant, and equipment-Property, plant and equipment is carried at cost net of accumulated depreciation. Depreciation is calculated generally on the straight-line method based on the following useful lives: Ynrt Land improvements 5-30 Buildings and terminals 20-40 Machinery and equipment 3-20 Ski lifts.. 12 Ski trails Over period of Term Special Use Permits Automobiles and trucks 3-7 Capital IP~~~ Over period of lease The Term Special Use Permits allow the Company to operate ski lifts, trails, and related activities on United States Forest Service land and expire in 1992 for Vail and 2010 for Beaver Creek. A new 40 year permit is pending for both Vail and Beaver Creek. Deferred financing costs-Costs incurred with the issuance of debt securities are included in deferred charges and other asseu, net of accumulated amortization (see Note S). Amortization is charged to income over the respective original lives of the applicable issues and is included as an other expense. - Intangible assets'-The amounts allocated to goodwill represent the excess of the purchase price of assets acquired over the fair market value assigned to the net tangible and all other intangible assets at the date of acquisition. Goodwill and amounu allocated to broadcasting licenses and network affiliation agreements are being amortized on a straight-line basis over forty years. The cost of other intangible assets with 31 GILLS t i HOLDINGS, INC. NOTES TO CONSOLIDA t ~tI FINANCIAL STATEMEir'TS-Continued 3. Investment in/advances to unconsolidated companies (continued) . The Company's investment in and advances to WTVT Holdings is as follows (in thousands): December 30, December 31, 1990 1989 Outstanding balance under a revolving credit and term loan agreement $ 526,343 $479,028 Investment in WTVT Holdings common stock . 1 1 Other receivables 15,728 17,783 Cumulative equity in WTVT Holdings net losses (258,448) (182.660) $ 283,624 $ 314,152 Based on the terms of the revolving credit and term loan agreement, the events of default the Company currently has under its debt agreements (see Note 4) also are considered events of default under this agreement and thus the outstanding balance is callable by the Company. Summarized operating results for WTVT Holdings are as follows (in thousands): December 30, December 31, January 1, 1990 1989 1989 Net revenues $ 38,703 $ 38,318 $40,731 Loss from operations (2,454) (6,b79) (18,432) Net loss (75,788) (74,149) (76,1]0) The Company's equity in the earnings of WTVT Holdings is detailed as follows (in thousands): December 30, December 31, January 1, 1990 1989 1989 WTVT Holdings net loss for the year $(75,788) $(74,149) $(76,110) Interest income on advances to WTVT Holdings • . • . • • • 70,340 62,463 56,456 $ (5,448) $(11,686) $(19,654) During September 1990 WTVT Holdings borrowed $10,000,000 under a Loan Agreement with certain of the institutions that are parties to the bank Credit Agreement. WTVT Holdings defaulted on the payment of principal that was due under this agreement on September 30, 1990. Interest continued to be paid at the prime rate plus 1.5% (11%} through December 31, 1990 and at the default rate (13%) through January 31, 1991. On fiebruary 22, 1991 the agreement was amended to provide for monthly principal payments and interest (if the loan is not called by the banks in advance) with a final payment of unpaid principal on December 31, 1991. Interest accrues and is paid monthly at the prime rate plus 1.5%. On October 29, 1987, the Company invested $85,469,000 in cash and issued a 51,406,000 purchase note to SCI Television, Inc. (SCI) fora 55% equity interest and an effective 50% voting interest in SCI, and invested $15,000,000 in cash in GCI Partners (GCI) fora 50% interest in GCI (collectively, the "Joint Venture"). Tile Company obtained the funds for these investments from the sale of broadcast properties. The _ Company accounts for its investments utilizing the equity method. On October 29 and December 1, 1987, the Joint Venture consummated a series of transactions with Storer Communications, Inc. to acquire six broadcast stations and certain related businesses (collectively the Joint Venture Stations). The Joint Venture Stations are WSBK-TV (Boston), WJBK-TV (Detroit), WJW-TV (Cleveland), WAGA-TV (Atlanta), KNSD-TV (San Diego) and WITI-TV (Milwaukee). 33 GILL~i i~ HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued 4. Long-term debt (continued) (a) On June 19, 1987, the Company entered into a Credit Agreement providing a $195,000,000 term loan and a $35,000,000 revolving credit facility. On July 1, 1988, the Credit Agreement was amended increasing the revolving credit facility to $60,000,000. During the first quarter of 1989 and in conjunction with the then anticipated sale of WSMV-TV, the Company amended the Credit Agreement. The amended provisions increased the total commitment available under the revolving credit facility to . $75,000,000. The proceeds from the VVSMV-TV sale w•cre used to repay $75,500,000 of the term loan on June 8, 1989 with remaining proceeds used to reduce amounts outstanding under the revolving credit facility. In conjunction with the paydown, the Credit Agreement was amended to reduce the total commitment under the revolving credit facility to $60,000,000. On December 31, 1989 and April 16, 1990, the Company amended the Credit Agreement to increase the total commitment available under the revolving credit facility to $75,000,000 through April 1, 1990 and 568,000,000 through July 1, 1990, as well as provide for a final maturity date of July 1, 1990 for both borrowings. Prior to these amendments, the maturity date for both borrowings was December 29, 1991. The Credit Agreement was also amended on June 29, 1990 and July 31, 1990 resulting in maturity dates of August 7, 19x0 for interest accrued from 3uly 2, 1990 to July 30, 1990 and August 10, 1990 for total principal under bosh borrowings. interest on the term loan and revolving credit facility is, at the option of the Company, either pz;t~,e., certificate of deposit or eurodollar rate, plus a margin as defined in the Credit Agreement At December 30, 1990, borrowings of $130,000,000 outstanding under the Credit Agreement bear interest at an effective rate of 13.00% (prime rate option plus a 2% default margin). The Credit Agreement also provides for a one half of one percent per annum commitment fee on the daily unborrowed portion of the term loan and revolving credit facility. The Credit Agreement contains various covenants, including maintenance of certain ratios and restrictions on the Company's ability to incur additional indebtedness; merge, consolidate or sell substantially all of its assets; and distributions on capital stock. The Credit Agreement is secured by (i) a pledge of the stock of substantially all of the Company's subsidiaries, (ii) the promissory note executed pursuant to the WTVT Holdings loan agreement together with any collateral pledged to the Company in connection therewith, and (iii) the Class B common stock of WTVT Holdings owned by the Company (see Note 3). Such security also secures the Serial Zero Coupon Senior Notes. (b) On August 1, 1986 the Company issued $654,000,000 in face amount of debt securities (approximately $484,526,000 in net proceeds) consisting of 5254,000,000 principal amount of Senior Subordinated Debentures, 5300,000,000 in face amount of Serial Zero Coupon Senior Notes (Series A, B and C) and $100,000,000 principal amount of Increasing Rate Senior Notes. The debt proceeds were used to finance the acquisition of certain broadcast pr„r pies, to refinance approximately 5229,000,000 of existing debt and to provide for general working capital and the expenses of such issuance. The Increasing Rate Notes were redeemed by the. Company on February 1, 1987 with proceeds under a bank term loan. 'The Serial Zero Coupon Senior Notes and Senior Subordinated Debentures include amortization of original issue ' discount of 524,536,000, 521,864,000, and 519,483,000 far the years ended December 30, 1990, December 31, 1989 and January 1, 1989, respectively. They, ~,~.:o:rnts are included in interest expense in the statement of operations for the respective fiscal yeti-. °~°raz..~enior Subordinated Debentures are - - redeemable at the option of the Company beginning Augpsst 1, 1991 at 106.2% of the face amount, declining ratably to 100% of fact amount on August 1, 1997, i he Company is required to redeem on August 1, 1997, 5127,000,000 of the Senior Subordinated Debentures, less amounts redeemed through that date. Interest on the Senior Subordinated Debentures accrues at a rate of 128/a % and is paid semiannually on February 1. and August 1. The Company defaulted on the August 1, 1990 interest 35 GILL~~ ~ HOLDINGS, INC. ' NOTES TO CONSOLIDAi~ir FINANCIAL STATEI~YENTS-Continued 4. Long-term debt (continued) The bonds contain a mandatory redemption provision whereby the holders can require the trustee to redeem the bonds at any time. The Company has obtained irrevocable bank letters of credit in amounts sufficient to pay principal if the bonds were redeemed. Under the terms of the letters of credit agreements, the Company has 180 days to remarket the bonds. (3) Secured by related asseu. (4) The holder of the bonds can require that the bonds be redeemed at face value any time after December 1988 with 180 days' notice. On February l5, 1991 the holder of the bonds gave notice of intent to exercise its option to have the bonds redeemed on or before August 14, 1991. (e) The other obligations provide for various interest rates and maturities from 1991 to 1996. Scheduled maturities of long-term debt in the next five fiscal years are as follows: y~ Amouat e ~ (In tboaunds) 1991 $ 998,544 1992 2,167 1993 1,Q02 1994 167 199s 167 Thereafter s43 $l,oo2,s9o As discussed in Note 11, the bondholders have the ability to accelerate payment of the Serial Zero Coupon Senior Notes ($401,037,000), Senior Subordinated Debentures ($2s0,982,000), Subordinated Debentures ($170,000,000) and $40,600,000 of the Industrial Devtlopment Bonds. As a result, these amounts have been classified as long-term debt due within one year in the accompanying consolidated balance sheet at December 30, 1990. Upon acceleration, the face amount of the Senior Subordinated Debentures ($254,000,000) would be due and payable versus the discounted value ($250,982,000 at December 30, 1990.) As of December 30, 1990, the Company has incurred costs of $7,034,000 related to the proposed restructuring. The costs are included in other current assets and will be offset against the resulting gain or expensed at the time the restructuring .is completed. The Company has entered into interest rate exchanges on long-term debt aggregating $20,000,000 at December 30, 1990. The agreemenu provide for interest charged at fined rates ranging from 10.5% to 12%. 5. Supplementary balance sheet information (in thousands) The composition of receivables follows: December 30, December 31, 1990 1989 Trade $37,366 $38,78b Related parties 10,711 4,155 Officers and employees 1,139 1,393 _ _ Other 1.9s1 4,605; s 1,161 48,939 Less allowance for doubtful accounts (Note 8) (s,077) (369) $46,090 $48,570 3? GILL1r i i HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-.Continued 5. Supplementary balance sheet information (in thousands) (continued) The composition of accounts payable and accrued expenses follows: December 30, December 31, 1990 1989 Trade payables $ 21.204 $18.045 Accrued interest 60,782 27,526 Accrued salaries and wages 5,313 5,607 • Television program contracts currently payable 7,846 8,085 Deferred compensation (Note 6) 4,176 4,378 Otheraccruals 6,757 15,426 $106,078 $79,067 The composition of other long-term liabilities follows: lhcember 30, December 31. ' 1990 1989 Long-term television program contracts payable $ 511 $ 1,343 Deferred compensation (Note 6) 16,018 16,686 Other 9,799 8,855 $26,328 $26,884 6. Deferred compensation The Company has deferred compensation plans for key managemenE' personnel. The benefits for the most substantial plan, which are provided for as earned, aze based on profit formulas with a provision for discretionary benefits. In the event of death, disability, or retirement, 100% of the benefits are considered vested. Substantially all of the amounts earned as of December 30, 1990 are vested and will be paid quarterly over 5 to 8 years with interest at 8%. Deferred compensation expense charged to operations was $2,994,000, $4,968,000 and $4,208,000 for the years ended December 30, 1990, December 31, 1989 and January 1, 1989, respectively. 7. Pension and profit sharing 'The Company has a defined benefit pension plan covering certain television broadcasting employees and affiliates. In addition, the plan includes participants who were employees of certain communications companies which have been sold. The accrued benefits for those plan participants became vested as of the date of sale, with no additional benefits to be accrued. Benefits are earned based on years of service and the employee's average earnings. The Company funds minimum amounu required by ERISA. Effective August 31, 1989 the plan purchased a $4,866,000 group annuity contract for settlement of certain plan obligations. The Company has recognized a gain of $2,553,000 for the year ended December 31, 1989 related to the settlement. The gain has been included in other income (expense) in the accompanying statement of operations. 39 GILLx, i i HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-Continued 8. Related-party transactions (continued) year ended December 30, 1990 and $22,900,000. and $4.270,000, respectively, during the year ended December 31, 1989. Included in accounts receivable as of December 30, 1990 and December 31, 1989, respectively, is $5,594,000 and $2,550,000 related to these transactions due from this affiliate and $70.000 and $499,000 is included in accounts payable related to these transactions due to this affiliate. The Company has also recognized $3,000,000, $3,850,000 and $4,073,000 in management fees associated with the management of the Joint Venture for the years ended December 30, 1990, December 31, 1989 and January 1, 1989, respectively. During 1990, the Company assumed certain permanent insurance policies on the life of the sole shareholder from the sole shareholder. Concurrent with the assumption, the beneficiary on the policies was changed to the Company. During the year ended December 30, 1990 the, Company recognized expense of $3,291,000 which is reflected in corporate expenses in the accompanying statement of operations. Of this amount 1,061,000 represents payment to the sole shareholder for 1989 premiums paid by the sole shareholder and $2,033,000 represents 1990 premiums related to these policies that were paid by the Company (see Note 11). During the year ended December 30, 1990, certain officers and affiliated individuals purchased approximately $5,444,000 of cattle inventory at fair market value from the Company. The Company has an option to purchase all or any portion of the cattle from the individuals at an amount equal to the purchase price plus interest (prime plus 2-3% depending upon the date of the original purchase). In exchange for the option the Company agrees to incur all costs to care for and feed the cattle. Through December 30, 1990, $3,674,000 in cattle had been repurchased by the Company with the remaining 51,770,000 repurchased by April 5, 1991. Interest expense incurred by the Company was $111,000 in I990. During 1990, 1989 and 1988, the Company purchased cattle from an affiliate, Gillett Cattle Company, for $4,561,000, 52,337,000 and $336,000, respectively. Additionally, the Company purchased cattle in the first quarter of 1991 from this entity for 52,069,000. During the year ended December 30, 1990, the Company also made advances totaling $4,616,000 to this entity (see Note 11). 9. Income taxes A reconciliation of the income tax provision and the amount computed by applying the U.S. federal statutory income tax rate to loss before income taxes is as follows: . December 30, December 31, January 1, 1990 1989 1989 (In thousands) At U.S. federal income tax rate $(42,119) 5(10,482) 5(67,077) State income tax, net of federal. benefit 1,116 4,885 150 Taz benefits relating to FSC - (324) (255) Losses of unconsolidated companies 25,768 -25,211 51,513 Unused net operating loss 15,665 - 15,948 Officers life insurance 1,119 - - - Other (413) (244) 53 ~ . 5 1,136 519,046 5 332 On June 8, 1989, the Company sold the assets of WSMV-TV and realized a gain of $109,656,000 for federal income tax purposes. This gain will be deferred for income tax purposes under Internal Revenue Code 41 GILLETT HOLDINGS, INC. NOTES TO CONSOLIDAtc.D FINANCIAL STATEMENTS-Continued 10. Commitments and contingencies (continued) . contributions will be received and at this time management is unable to determine the amount, if any, that Vail may contribute in 1995. As of December 30, 1990, the Company's broadcasting subsidiaries have entered into agreements for future rights to broadcast non-network programs aggregating 529,876,000. 11. Subsequent events The Company has defaulted on the payment of interest due on the Senior Subordinated Debentures on August 1, 1990 and February 1, 1991 and on the payment of interest due on the Subordinated Debentures on August 15, 1990 and February 1S, 1991. In addition, the Company defaulted on the payment of interest due on the bank Credit Agreement on August 7, 1990 and the outstanding indebtedness under the bank Credit Agreement matured on August 10, 1990. As a result, the Company is presently in default under substantially all of its debentures and credit aa..»..enu and has bees attempting to restructure iu debt structure. On February 27, 1991, three creditors of Gillett Holdings, Inc. filed petitions in Federal Bankruptcy court in an attempt to force Gillett Holdings, Inc. into reorganization under Chapter 11 of the Bankruptcy code. On June 10, 1991, the Company was granted an extension through June 25, 1991, at which time it is contemplated that an Order for. Relief under Chapter 11 of the Bankruptcy code will be issued by the Federal Bankruptcy court. Prior to the entry of the Order for Relief, the Company will continue to negotiate the terms of a debt restructuring in an effort to obtain agreements in principle with its principal creditors on or shortly after June 25, 1991. Although Company management believes that a restructuring will be accomplished, the ultimate outcome of this matter cannot presently be determined. On August 7, 1990, Gillett Broadcasting of Maryland, Inc., a wholly owned subsidiary of the Company which owns and operates WMAR-TY, entered into an Asset Purchase Agreement (the "Agreement") to sell substantially all of the assets of WMAR-T'V in Baltimore, Maryland for 5154.7 million in cash to Scripps Howard Broadcasting Company ("Scripps"). The transaction was to close on or before January 31, 1991. On February 8, 1991, Scripps terminated the Agreement. In response, the Company filed a lawsuit against Scripps in Federal District Court in Chicago. On April 2, 1991 the Company and Scripps entered into a Settlement Agreement (the "Settlement") providing for a reduced purchase price of 5125 million in cash and a dismissal of the lawsuit upon the closing of the sale. On April 3, 1991, the Company filed a motion with the Federal Bankruptcy court seeking approval of the terms of the Settlement. This motion was granted on April 26, 1991, and WMAR-TV was sold W Scripps on May 30, 1991 for 5125 million in cash. The Company will recognize a loss for financial ..r ..::ng purposes in 1991 of approximately $26 million related to this transaction. During the second quarter of 1991, the Company made the decision to discontinue the life insurance policies that were assumed from the sole shareholder in an effort to preserve working capital. Accordingly, any cash surrender value related to these policies as of the cancellation date will be paid to the Company in 1991. At the time that the advances to the Gillett Cattle Company were made, it was anticipated that they would be repaid in full and that this entity would continue to supply cattle to the Company. In the second quarter of 1991, the Gillett Cattle Company began cutting back its operations in order to make previously _ " unanticipated amortization payments on its bank loans. In light of these ongoing sales activities, , it is not presently known how much, if any, of the advances f...... the Gillett Cattle Company will be repaid in the future. Accordingly, the Company hss provided sa allowance for doubtful accounts of 54,616,000 as of December 30, 1990 which is included in the accompanying consolidated statements of operations in other _ expense. 43 REPORT OF INDEPENDENT AUDTTORS . Board of Directors WTVT Holdings, Inc. We have audited the accompanying balance sheets of WTVT Holdings, Inc. as of December 30, 1990 and December 31, 1989, and the related statements of operations and deficit and cash flows for each of the three years in the period ended December 30, 1990, These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and. significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WTVT Holdings, Inc. at December 30, 1990 and December 31, 1989, and the results of its operations and its cash flows for each of the three years in the period ended December 30, 1990, in conformity with generally accepted accounting principles. As discussed in Note 4 to the financial statements, the Company's Loan Agreement with Gillett Holdings, Inc. is in default due to defaults in the Gillett Holdings, Inc. bank credit agreement. Gillett Holdings, Inc. is currently pursuing debt restructuring alternatives as discussed in Note 4. If Gillett Holdings, Inc. is not successful in restructuring its debt, there is substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments relating to the recoverability and -classification of the recorded asset amounts and classification of liabilities should the Company be unable to continue as a going concern. ERNST BC YOUNG Milwaukee, Wisconsin February 22, 1991 except for Note 4 as to which the date is June 10, 1991 45 WTVT HOLDINGS, INC. STATEMENTS OF OPERATIONS AND DEFICIT For cbe veers ended December 30, 1990 December 31. 1989 January 1, 1989 Net revenue $ 38,703,420 $ 38,317,989 $ 40.731,48? Broadcasting expenses: Technical and programming 12,342,652 12;088,690 11,930.300 Selling, general, and administrative 7,888,779 8,296,786 6.2.3.303 Broadcasting expenses, excluding depreciation and amor- tization 20,198,431 20,385,476 18,853,603 Depreciation 3,463,886 3,731,853 6,102,754 Amortization of intangible assets (Note 1) 17,495,032 20,879,388 34,207,087 Total operating costs and expenses 41,157,349 44,996,717 59,163,444 Loss from operations (2,453,929) (6,678,728) (I8,431,962) Other expense: Interest expense (70,677,377) (61,990,951) (56,240,651) Loss on disposal of fixed assets (Notes 1 and 7) (680,635) (4,073,481) (19,987) Other (1,976,964) (1,405,899) (1,416,739) Other expense (73,334,976) (67,470,331) (57,677,377) Net loss (75,788,905) (74,149,089) (76,109,339) Deficit: Beginning of year (182,659,466) (108,510,407) (32,401,068) End of year $(258,448,371) $(182,659,466) $(108,510,407) Net loss per Class A and B common share $ (75,789) $ (74,149) $ (76,109) See accompanying notes. 47 W"TVT HOLDINGS, INC. Notes to Financial Statemenu ' December 30, 1990 and December 31, 1989 1. Summary of significant accounting policies Organization-WTVT Holdings, Inc. (the Company) was formed March 4, 1987 for the purpose of acquiring on June 19, 1987 substantially alt of the assets of WTVT-TY, a CBS affiliate located in Tampa, Florida. Basis of presentation-The financial statements do not include any adjustments relating to the recoverability and classification of the recorded asset amounts and classification of liabilities should the Company be unable to continue as a going concern. Television program contract rights-The rights to broadcast non-network programs are stated at cost, less accumulated amortization. These costs, which are included as programming expenses, are amortized based upon the usage of programs under methods which generally result in accelerated amortization for . former network syndicated programs and feature films and straight-line amortization for first run programs. The cost of program rights expected to be used within one year is classified as a current asset. During fiscal 1990, 1989 ands 1988, the Company recorded additional program contract rights of $1,512,000, $3,935,000 and $4,557,000, respectively. Property, plant, and equipment-Property, plant, and equipment is carried at cost, net of accumulated depreciation. Depreciation is calculated generally on the straight-line method based on the following useful lives: Yeah Land improvements 30 Buildings and building improvements 2-30 Machinery and equipment 10-20 Automobiles and trucks S Furniture and fixtures 10 The Company capitalized interest costs of approximately $472,000 and $215,000 in fiscal 1989 and 1988, respectively, in connection with the construction of new station facilities. The Company occupied the new "facility in August 1989 and recognized losses of approximately $605,000 and $4,073,000 on the sale, disposal or abandonment of various fixed assets not moved to. the new facility for the years ended December 30, 1990 and December 31, 1989, respectively. ' ' Deferred financing costs-Costs incurred with the issuance of debt securities are included in deferred charges and other assets, net of accumulated amortization. Amortizatiar, is charged to income over the respective original lives of the applicable Gillett Holdings, Inc. (GHI) debt issues, and is included as an other expense (see Note 7). Inrangible assers-Goodwill represents the excess of the purchase price of assets acquired over the fair market value assigned to the net tangible and all other intangible asseu at the date of acquisition. Goodwill and amounts allocated to the broadcasting license and network affiliation agreement are being amortized on a straight-line basis over forty years. The cost of other intangible assets with dettrminable lives is charged to operations based on their respective economic lives, under methods which generally result in accelerated amortization. Accumulated amortization at December 30, 1990 and December 31, 1989 was 584,285,000 and $66,790,000, respectively. Effective January 2, 1989, the Company changed its estimates of the .economic lives of certain of its - intangible asseu. These changes were made to better reflect the periods during which these intangible assets will benefit the Company. The change had the effect of reducing amortization expense and net loss in 1989 by $4,800,000. Cash and cash equivalents-The Company considers all highly liquid debt instrurnenu purchased with a maturity of three months or less to be cash equivalenu. 49 WTVT HOLDINGS, INC. Notes to Financial Statements-Continued 3. Notes Payable On September 6, 1990, the Company entered into a loan agreement with several banks, which provided for maximum borrowings of $10,000,000. These notes were scheduled to mature September 30, 1990 and bear interest at the corporate base rate (9.5% at December 30, 1990) plus I.S% per annum: These notes are secured by substantially all assets of the Company. On February 22, 1991, the Company entered into an amendment to the loan agreement which provides the notes continue to be payable on demand, or, if no demand has been made, the Company shall pa}• aggregate principal installments of $100,000 on February 22, 1991 and $900,000 on the last day of each calendar month thereafter, commencing on February 28, 1991, and with a final payment of ail unpaid principal ($900,000) on December 31, 1991. Interest at 1.5% over the corporate base rate is payable monthl}•. In the event of default, interest is payable at 3.S% over the corporate rate. This dcfault rate was charged from January 1, 1991 through January 31, 1991. 4. Long-term debt Long-term debt is summarized as follows (in thousands): December 30. December 31, 1990 1989 Term Loan(a) $333,203 $301,378 12.75% Zero Coupon Loan(b) 174,590 154,291 Revolving Loan(c) 18,550 23,359 526,343 479,028 Less current portion 526,343 - $ - $479,028 On June 19, 1987, the Company entered into a Term Loan and Revolving Credit Agreement (Loan Agreement) with GIiI (an a~liate, see Note 7) which provided the Term Loan, Zero Coupon Loan, and Revolving Loan. (a} On August 14, 1987, the Company issued the Term Loan for 5260,000,000, which bears interest at a rate equal to 12.5% per annum, increasing by .S% on each June 30 and December 31 during the term, commencing December 31, 1987. The effective rate at December 30, 1990 was 1S.S%. To the extent any cash interest owing under the Term Loan and Revolving Loan [see (c) below exceeds the operating cash flows of the Company, as defined in the Loan Agreement, it will be deferred by adding such deferred amount to the principal amount outstanding on,the Term Loan. During fiscal 1990, 1989 and 1988, respectively, approximately $31,825,000, $23,558,000 and $13,137,000 of defeised interest was added to principal. The principal balance is payable on August 14, 1992. In accordance with generally accepted accounting principles, the Company has recorded interest expense on the $260,000,000 Term Loan at 15%, the effective rau over the term of the loan. As a result, approximately $8,264,000 and $8,912,000 of accrued interest is included in due to affiliate at December 30, 1990 and December 31, 1984, respectively. (b) On August 14, 1987, the Company issued $213,350,000 in principal amount ($115,000,000 in _ _ net proceeds) of Ztro Coupon Loans. Amortization of original issue discount of $20,299,000, $17,939,000 and $15,772,000 for fiscal 1990, 1989 and 1988, respectively, is included in interest expense in the statement of operations. The principal balance is payablc on August 14, 1992. (c) The Company entered into the Revolving Loan carrying the same interest rate as the Term Loan described above. The principal balance is payable on August 14, 1992. S1 WTV'T HOLDINGS, INC. Notes to Financial Statements-Concluded Data relating to the pension plan is as follows: December 30, December 31, Jaeurry 1. 1990 1989 1989 Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested bene- fits of $326,870, $244,887 and $113,347, respectively . $ 383.722 $ 279.084 $ 124,085 Projected benefit obligation for services rendered to date $ 748,984 $ 523.336 253,401 Plan assets at fair value, primarily money market accounts. 433,087 198.164 - Plan assets less than projected benefit obligation (315,897) (325,172) (253,401) Unrecognized net loss from past experience different from ` that assumed and effects of changes in assumptions 36,720 42,655 - Unrecognized net transition asset at January 1, 1988 being recognized over 15 years (17,599) (19,066) (20,533) Accrued pension cost 5(296,77b) $(301,583) $(273,934) Net periodic pension cost includes the following compo- nents: Service cost-benefits earned during the period $ 204,785 $ 206,093 $ 160,898 Interest cost on projected benefit obligation.......... 45,587 26,194 7,638 Actual return on plan assets (19,805) (ill) - Net amortization and deferral (6,752) (6,474) (1,467) Net periodic pension cost $ 223,715 $ 225,696 $ 167,069 The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation and net pension cost were 9% and 6.5%, respectively, in all years presented. The expected long-term rate of return on assets was 9% in all years presented. The Company also has a retirement savings plan covering substantially all employees. Employees may contribute from 2% to 10% of their base pay, up to a maximum of $7,979 in 1990. The Company will match 50% of the first 6% of base pay an employee contributes. Such Company contributions vest over afive-year period. Total Company expense relating to the savings plan was $113,000, $103,000 and $104,000 in fiscal 1990, 1989 and 1988, respectively. 7, Affiliate transactions The Class B common stock of the Company is held by GHI and provides 49% voting control and a 79% equity interest in the Company. In addition to the Loan Agreement described in Note 4, GHI has charged the Company approximately ' $12,443,000 in connection with the financing costs incurred when obtaining funds loaned to the Company under the Loan Agreement. The payable is noninterest-bearing and is being amortized over the lives of the related GHI debt issues. Approximately $1,406,000, 51,406,000 and $1,218,000 were amortized in fiscal 1990, 1989 and 1988, respectively, through additions to the Revolving Loan. GHI, which is basically self-insured, has also charged the Company medical and other insurance premiums totalling 5401,000, 5346,000 and $311,000 in fiscal 1990, 1989 and 1988,.respectively . During fiscal 1990, the Company sold certain equipment to related parties for approximately 5285,000 and incurred a loss on the sale of such equipment of approximately 5605,000 (see Note 1). 53 SCI TELEVISION, INC. CONSOLIDA i r.11 BALANCE SHEETS December 31, 1990 and 1989 (In thousands, except share and per share amounts) ASSETS 1990 1989 Current assets: Cash $ 3,544 $ 7,943 Restricted deposits (Note 2) - 15.000 Receivables (Note 2) 54,579 53,514 Television program contract rights 36,452 39,421 Prepaid expenses 3,300 1,406 Total current assets 97,875 117,284 Property, plant and equipment (Note 2) 86,362 92,781 Television program contract rights 28,780 48,740 Intangible assets (Note 2) 853,697 877,409 Deferred charges and other assets (Note 2) 23,229. 34,090 $1,089,943 $1,170,304 LIABILITIES AND COMMON.STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable and accrued expenses (Note 2) $ 32,952 $ 45,685 Television program contracts payable 30,428 29,193 Current portion of long-term debt (Note 3) 162,764 809 Total current liabilities 226,144 75,689 Noncurrent television program contracts payable 23,242 37,418 Long-term debt (Note 3) 1,054,011 1,387,777 Deferred credits and other noncurrent liabilities (Note 3) 17,392 7,144 Commitments and contingencies (Note 4) Cumulative redeemable exchangeable preferred stock (Note 7) - 165,931 Common stockholders' equity (deficit) (Note 9): Common stock, $.O1 par value, 100,000 shares authorized, 98,750 shares issued and outstanding in 1989, cancelled in 1990 - i Class A common stock, $.O1 par value, 200,000 shares authorized, 150,000 shares issued and outstanding in 1990 2 - Class B common stock, $.O1 par value, 15,000,000 shares authorized, 14,880,000 shares issued and outstanding in 1990 148 - Additional paid in capital 300,119 49,374 Less note receivable on issued common stock (Note 8) - (1,406) Excess of purchase price over the historical carryover basis in assets (Note 1) . (196,476) (196,476) Deficit (334,639) (355,148) _ Total common stockholders' equity (deficit) (230,846) (503,635) - $1,089,943 $1,170;304 See accompanying notes to consolidated financial statements. SS SCI TELEVISION, INC. CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT) For the years ended December 31, 1990 and 1989 and 1988 (In thottsands) Excess Note purchase Total Glass A Clara B Addltiona! receivable price over stockholders' Common common common paid in cotnmoa historical equity stock stock stock capital stock basis Deficit (deficit) Balance at December 31, 1987......... $ 1 $ 49,374 $(1,406) $(196,476) $ (22,268) $(170,775) Accrued preferred dividend for re- deemable preferred stock - - - - - (19,614} (19,614) Net loss - - - - - - (133,670) (133,670) Balance at December 31, 1988......... 1 - - 49,374 (1,406) (196,476) (175,552) (324,059) Accrued preferred dividend for re- deemable preferred stock - - - - - - (23,010) (23,010) Net loss - - - - - (156,586) (156,586) Balance at December 31, 1989......... 1 - - 49,374 (1,406) (196,476) (355,148) (503,655) Accrued preferred dividend for re- deemable preferred stock - - - - - - (2,367) (2,367) Restructuring trans- actions, February S, 1990.......... (1) 2 148 250,745 ?:,406 - - 252,300 Net income - - - - - - 22,876 22,876 Balance at December 31, 1990......... $ 2 $148 $300,119 5 - 5(196,476) $(334,639) $(230,846) See accompanying notes to consolidatt~ financial statemenu. 57 SCI TELEVISION, INC. CONSOLIDATED STATEMElti"TS OF CASH FLOWS For the years ended December 31, 1990, 1989 and 1988 (In thousands) . 1990 1989 1988 Supplemental disclosures of cash flow information: Cash paid for interest included as a use of cash in operating activities (including capital lease interest) $ 84.317 574.166 589.544 Supplemental schedule of noncash investing and financing activities: Preferred stock dividends issued and accrued $ 2,368 $23,010 $19.614 Purchase of film program contract rights $ 27,033 538,723 $22.365 Purchase of assets under capital leases prior to contribution of partnership interests in GCI Partners • $ - $ 4,835 $ 6,689 Restructuring Transactions: Surrender of Junior Securities $168,14b $ - 5 - Writeoff of deferred restructuring costs (14,076) - - Issuance of Gillett Sub warrants (40,000) - - Gain on restructuring $114,070 $ - $ - Exchange of Old Securities for New Notes • • • . - • • $513,222 $ - $ - Contribution of partnership interests in GCI Partners (Note 10) $44,084 $ - $ - Cancellation of preferred stock $168,299 $ - $ - Issuance of Class B Common Stock $ 148 $ - $ - Cancellation of Note Receivable $ 1,406 $ - $ - Note issued for restructuring costs $ $ 5,000 $ - (a)Relates to capital expenditures incurred by GCI Partners, which are included in the consolidated financial statements of the Company after the Restructuring date (ace Note 1). See accompanying notes to consolidated financial statements. 59 SCI TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-COI~"TINUED Summary of Significant Accounting Policies (continued) Depreciation is computed on the straight-line method for financial accounting purposes using lives of 26 to 30 years for buildings, 11 to 19 years for land improvements, 14 to 17 years for towers, 4 to 8 years for broadcast equipment, 8 to 12 years for office furniture and fixtures, 4 to 8 years for automobiles and other assets and 7 years for leasehold improvements. For tax accounting purposes the Leases are accoun[ed for as operating leases. Deferred Financing Costs. Costs incurred with the issuance of debt are included in deferred charges and other assets net of accumulated amortization. Amortization is charged to income over the respective lives of the applicable issues and is included as other expenses. Accumulated amortization at December 31, 1990 and 1989 was $12,760,000 and $8,236,000, respectively. Intangible Assets Goodwill represents the excess of purchase price of assets acquired over the fair market value assigned to the net tangible and all other intangible assets at the date of acquisition. Goodwill and amounts allocated to broadcasting licenses and network affiliation ab. __...ents are being amortized on a straight-line basis over forty years. Accumulated amortization at December 31, 1990 and 1989 was 574,706,000 and $50,995,000, respectively. Income Taxes The Company's policy is to provide for the tax effects of revenue and expense transactions included in the determination of financial statement income. Where such transactions are included in the determination of taxable income in different periods (timing differences are principally due to accounting methods used for leases), the related tax effects would be classified as deferred. Because the Company has a financial reporting net operating loss carryforward, deferred income taxes have not been provided. The Company files a consolidated federal income tax return. Income (Loss) Per Common Share. Income (loss) per common share for the years ended December 31, 1990, 1989 and 1988 is calculated based on the total number of Class A and Class B Common shares issued in connection with the Restructuring and outstanding at December 31, 1990. The 1989 and 1988 calculations of loss per common share have been restated accordingly. Reclassifications. Certain reclassifications have been made to prior year financial statements to conform to current year presentation. 2. Supplemental Balance Sheet Information Restricted deposits of $15,000,000 at December 31, 1989 consisted of cash deposits related to broadcast programming commitments. The deposits were returned in 1990. The composition of receivables at December 31, 1990 ar«~ 1989 was as follows (in thousands): 1490 1989 Trade receivables $54,182 $52,502 Officer and employee receivables S6 6S Other receivables 1,668 2,136 55,906 54,703 Less: Allowance for doubtful accounts (1,327) (1,189) $54,579 $53,514 61 SCI TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED 3. Long-term Debt Long-term debt at December 31, 1990 and 1989 was as follows (in thousands): 1990 1989 Bank Debt $ 645,000 $ 559,000 New Senior Notes 298,022 - New Senior Subordinated Notes 95,409 - New Zero Interest Notes . 145,078 - Restructuring Service Note 5,641 5,000 Old Senior Notes 9,201 276,736 . Old Senior Subordinated Debentures 16,093 110,044 Old Subordinated Debentures 1,567 144,0(10 Junior Reset Notes - 96,960 Junior Subordinated Debentures - 69,065 Capital Lease Obligations - 126,912 Other Notes Payable 764 809 1,216,775 1,388,586 Less current portion 162,764 809 $1,054,011 $1,387,777 Scheduled principal payments are as follows (in thousands): 1991 $ 162,764 1992 22,641 1993 25,000 1994 441,000 1995 402,612 Thereafter 162,738 $1,216,755 A principal payment of $162,000,000 currently due on June 30, 1991 (plus any amount then outstanding under the working capital facility discussed below), is expected to be ultimately funded by the sale of certain television station assets. Since the Company currently anticipates that it will be unable to consummate such a sale by June 30, 1991, it is in the process of negotiating an extension of the due date for such principal payment with the banks. Other debt service payments, including interest payable in cash, are expected to be paid from cash flow from operations, until maturity of the Amended Company and Partnership Credit Agreements (together referred to as "the Amended Bank Credit Agreements") in 1994. Following is a summary of certain provisions under the various debt aa......ents and indentures: (a) Bank Debr-The Amended Company Credit Agreement provides for a maximum aggregate principal amount of $572,000,000 which consisu of a $454,000,000 term loan facility, a $105,000,000 revolving _ loan facility and a $13,000,000 working capital facility. Under the Amended Company Credit Agreement - a principal payment under the term loan of $137,000,000 is due on June 30, ,1991 (referred to as "the First Amortization Date"). Thereafter, .variable quarterly principal payments ranging in total from $7,200,000 to $21,000,000 per year are due, with the balance payable at maturity on September 30, 1994. In addition, the Amended Company Credit Agreement requires that excess cash flow, as dtfined, be applied on an annual basis to reduce outstanding balances in inverse order of maturity (none in 1990). 63 SCI TELEVISION, INC. NOTES TO CONSOLIDAte.~ FINANCIAL STATEMENTS--CONTINUED 3. Long-term Debt (continued) • (c) New Senior Notes-Upon completion of the Restructuring Transactions. 97.1% of the Old Senior Notes were exchanged for the New Senior Notes due April I5, 1995. The New Senior Notes bear interest at 10% through October l4, 1992 and 13% thereafter to maturity. Interest on the New Senior Notes may be paid through issuance of Secondary Securities through October 14, 1994. Thereafter to maturity. interest will be payable in cash. (d) Old Senior Subordinated Debentures-These debentures mature October 15, 1997. Interest at Ib~/z% is payable in cash on a semiannual basis. At December 31, 1989, accrued interest of $10,044.000 on the portion of the Old Senior Subordinated Debentures exchanged in the Restructuring Transactions is included in outstanding principal of the Old Senior Subordinated Debentures. (e) New Senior Subordinated Notes-Upon completion of the Restructuring Transaction, 83.9% of the Old Senior Subordinated Debentures were exchanged for the New Senior Subordinated Notes due October 15, 1995. The New Senior Subordinated Notes bear no interest through April 14, 1993 and bear interest at 12% thereafter to maturity. Interest on the New Senior Subordinated Notes may be paid through issuance of Secondary Securities. • (f) Old Subordinated Debentures-These debentures mature October IS, 1999. Interest at 17th% is payable semiannually and may be paid through issuance of Secondary Securities. (g) New Zero Interest Notes-Upon completion of the Restructuring Transactions, 99.1% of the Old Subordinated Debentures were exchanged for the New Zero Interest Notes. The New Zero Interest Notes are noninterest bearing to maturity and are redeemable at the Company's option at various percentages of face amount ranging from SO% to I00% during various periods prior to maturity on January 1, 1997. (h) Junior Reset Notes and Junior Subordinated Debentures (together, "the Junior Securities')-These Securities were originally issued to Storer, with interest payable in Secondary Securities at variable rates, adjusted quarterly. In connection with the Restructuring, the Junior Securities were surrendered and, accordingly, no amounts were outstanding after February S, 1990. (i) Restructuring Service Note-This note matures November 1, 1992. It was issued to an investment banking firm for financial advisory services in connection with • the Restructuring. Interest at 11 % is payable semiannually through issuance of additional notes. (j) Capita/ Lease ObllgatiOns-AS discussed m Note 1, the capital lease obligations were eliminated in consolidation at December 31, 1990. It is intended that each Broadcast Subsidiary will acquire the Leased asseu from the Partnership and the Broadcast Subsidiaries will assume the Partnership's related indebtedness. • The New Notes were issued at the accreted values of the Old Securities exchanged. In accordance with generally accepted accounting principles, interest expense on the New Senior Notes and the New Senior Subordinated Notes was recorded at 12.4% and 5.2%, respectively, which represent the effective interest rates over the terms of these notes. The excess of interest calculated at the effective interest rate over interest at the rate stipulated in these notes (510,776,000 at December 31, 1990 and none at December 31, 1989) is included in deferred credits and other noncurrent liabilities in the consolidated balance sheet at December 31, 1990. The Company's debt instruments include various ratios and covenants, including restrictions on the Company's ability to incur additional indebtedness; consolidate, merge or sell substantially all of its assets; and distribute dividends. The salt of stock of the Company held by affiliates of GNI would be an event of default under the Amended Company Credit Agreement. 65 SCI TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED 5. Income Taxes (continued) prior year is restated, the year the new statement is first applied. Management is studying the new statement, but has not made a determination of the method expected to be utilized or the date of adoption and cannot reasonably estimate .the impact that adoption will have on the financial statements. 6. Benefit Plans Substantially all full time employees of the Company not participating in union sponsored plans who meet eligibility requirements are included in a defined benefit pension plan (the "Plan"). Under the provisions of the Plan, benefits are earned based on years of service and the employees average earnings during the highest three consecutive calendar years of employment. Data relating to the pension plan is as follows (in thousands): is9o t~ tees Actuarial present value of benefit obligations: Accumulated benefit obligation, including vested benefits of $19,992, $17,553 and $14,227 $20,435 $17,894 $15,466 Projected benefit obligation for services rendered to date $28,240 $24,953 $23,215 Plan assets at fair value, primarily listed stocks and U.S. bonds (22;427) (22,102) (19,925) Projected benefit obligation in excess of plan assets 5,813 2,851 3,290 Unrecognized net transition obligation at January 1, 1988 being rec- ognized over 1S years (1,220) (1,322) (1,424) Unrecognized prior service cost (140) (1 S 1) - Unrecognized net gain (loss) (2,517) 141 (445) Accrued pension liability recognized in consolidated balance sheet $ 1,936 $ 1,519 $ 1,421 Net pension cost includes the following components (in thousands): Service cost-benefits earned during the period $ 1,295 $ 1,177 $ 1,182 Interest cost on projected benefit obligation 2,250 1,996 1,828 Actual loss (return) on plan assets 287 (1,463) (1,691) Amortization of prior service cost......... 11 11 - Amortization of transition obligation at adoption 102 102 102 Unrecognized loss subject to amortization (2,290) (345) - Net periodic pension cost $ 1,655 $ 1,478 $ 1,421 The weighted average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligation and net pension cost are 9% and S%, respectively. The expected .long-term rate of return on assets is 9010. The Company funds minimum amounts required by ERISA. The Company contributes to a pension and welfare plan sponsored by the American Federation of Television and Radio Artists (AFTR.A) for the benefit of certain employees of television stations WJBK-TV and WJW-TV. Contributions to the AFTRA pension and welfare plan amounted to $199,100, $193,400 and $187,169 for 1990, 1989 and 1988, respectively. - The Company also has deferred compensation agreements for certain Company employees, which provide for benefits based on profit formulas. Benefits generally vest over five years and are payable over five years after vesting. Deferred compensation expense was $1,000,000 in 1990, 1989 and 1988, respectively. 67 r, SCI TELEVISION, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONCLUDED 10. Coatributioa of Partnership Interests Following is a summary of the assets and liabilities of the Partnership at the Restructuring Date which were contributed to the Company (in thousands): Lease receivables $125,633 Other assets 9.138 Accounts payable and accrued liabilities (1,687) Long-term debt... (89,000) Partners equity $ 44.084 The lease receivables were eliminated against the capital lease obligations of the Company at December 31, 1990. Long-term debt consists of borrowings under the Amended Partnership Credit Agreement and is included with Bank Debt in Note 3 at December 31, 1990. 69 Michael 5 Shannon joined the Company in 1985 having primary responsibility for acquis~tton analysis and strategic planning. In April 1986, Mr. Shannon became President of Vail Associates. Prior to jotntng the Company, Mr. Shannon served as south and southwest regional director of lending for The First National Bank of Chicago's communications companies lending division. David F. Backer joined Packerland in 1975 as controller and in 1979 became an Executive Vice President. Prior to that, Mr. Sacker was with Arthur Young & Compan}•. Item 11. Executive Compensation Cash Compensation The following table sets forth the aggregate cash compensation paid or accrued with respect to the fiscal year ended December 30,' 1990 to the executive officers of the Company as a group. Deferred Compensation Paid (including , interest) (inc}uded is Number in Total Cash Tots} Cash Name of Individual Group Compensation Compensation} All executive afficers as'a group 7 persons $5,939,000 $1,653,000 . Employment Agreements • The Company has employment agreements with Messrs. Ramon, Haugen, Shannon and Selwyn. The agreements provide for a term of two to three years and, generally, aze terminable by the Company (i) on 90 days prior written notice with or without cause, (ii) an 15 days prior written notice if the employee is substantially unable to perform his duties thereunder for 180 days in any calendar yeaz and (iii) automatically upon the death of the employee. If the employment agreement is terminated without cause, the employee is entitled to compensation for the remainder of the term of the agreement provided the employee does not violate the non-compete provisions of the agreement. The non-compete provisions provide, generally, that (i) while employed by the Company, (ii) during the term of the agreement if an employee is dismissed without cause and (iii) for one year after termination if the employee is dismissed with cause or due to disability, the employee will not compete with the Company. The employment agreements also provide for annual compensation increases, participation in all discretionary bonus and deferred compensation plans generally available to management employees and various fringe benefits. Compensation paid pursuant to the employment agreements is included ire the cash compensation table about. Discretionary Bonus Plan ' The Company has a bonus plan under which certain members of management may receive annual bonuses. Such bonuses are discretionary. Bonuses allocable to fiscal 1990 aze included in the cash compensation table above. Deferred Incentive Compensation Plans The Company has Deferred Incentive Compensation Plans for key management personnel as selected by the Director. The benefits for the most substantial plan, which are provided for as earned, are based on profit formulas with a provision for discretionary benefits. Substantially all amounts earned as of December 30, 1990 are vested and will be paid quarterly over 5 to 8 years with interest at 8%. • Executive Insurance Coverage The Company provides life insurance and disability plan coverage for various management officers, including each of the officers named in the executive officer table above. The policy applicable to executive officers excluding Messr. Gillett, pays 5250,000 or $1 million to the insured's beneficiary upon his death and approximately 60%'0 of the insured's income to the insured upon his fatal disability. Messr. Gillett's policies 71 . k.• PART IV Item 14. Financial Statement Schedules. (a) Index to Financial Statements and Financial Statement Schedules. (i) See "Item 8. Financial Statements and Supplementary Data" for the index to the Financial Statements. (ii) List of Financial Statement Schedules. . GILL~~t i HOLDINGS, INC. (Consolidated) Page Report of independent auditors with respect to the consolidated financial statement schedules as of December 30, 1990 and December 31, 1989 and for each of the three years in the period ended December 30,1990 S-1 Related party receivable balances for each of the three years in the period ended December 30,1990 S-2 Property, plant and equipment for each of the three years in the period ended December 30, 1990 S-3 Accumulated depreciation of property, plant and equipment for each of the three years in the period ended December 30,1990 S-4 Valuation and qualifying accounts for each of the three years in the period ended December 30,1990 S-5 WTVT HOLDINGS. INC. Report of independent auditors with respect to the financial statement schedules as of De- cember 30, 1990 and December 31, 1989 and for each of the three years in the period ended December 30,1990 S-6 Property, plant and equipment for each of the three years in the period ended December 30, 1990 S-7 Accumulated depreciation of property, plant and equipment for each of the three years in the period ended December 30, 1990 S-8 Valuation and qualifying accounts for each of the three years in the period ended December 30,1990 S-9 Supplementary income statement information for each of the three years in the period ended December 30, 1990 5-10 SCI TELEVISION, INC. (Consolidated) Report of independent auditors with respect to the consolidated financial statement schedules as of December 31, 1990 and 1989 and. for each of the three years in the period ended December - 31,1990 S-11 Related party receivable balances for each of the three years in the period ended December 31,1990 S-12 Indebtedness to related parties-not current for each of the three years in the period ended December 31, 1990 S-13 Property, plant and equipment for each of the three years in the period ended December 31, 1990 S-14 - . _ Accumulated depreciation of property, plant and equipment for each of the three years in the period ended December 31,1990 S-15 Valuation and qualifying accounu for each of the three years in the period ended December 31,1990 S-16 Supplementary income statement information for each of the three years in the period ended December 31,1990 S•17 73 REPORT OF INDEPENDENT AUDITORS The Director Gillett Holdings, Inc. In connection with our audits of the consolidated financial statements of Gillett Holdings, Inc., as of December 30, 1990 and December 31, 1989, and for each of the three years in the period ended December 30, 1990, we have also audited the consolidated schedules included in this Annual Report as listed in Item 14(a)(ii) of the Annual Report. We did not audit the consolidated financial statements .of Vail Associates, Inc., awholly-owned subsidiary, which statements reflect total assets of $138,508,700 and $114,163,300 as of September 30, 1990 and 1989, respectively, and total revenues of $110,812,000, 591,106,500, $76,555,800 for the years ended September 30, 1990, 1989 and 1988, respectively. We have been furnished with the reports of other auditors with respect to their audits of Schedules V and VI of Vail Associates, Inc. In our opinion, based on our audits and the reports of other auditors, the consolidated schedules referred to above present fairly, in all material respects, the information required to be stated therein. The consolidated schedules do not include any adjustments relating to the recoverability and classification of the recorded asset amounts and classification of liabilities shou]d the Company be unabie to restructure its debt and continue as a going concern. . ERNST dt YOUNG Milwaukee, Wisconsin April S, 1991 S-1 SCHEDIr'LE GILLETT HOLDINGS, INC. PROPERTY, PLANT AND EQUIPMENT For the Years Ended December 30, 1990, December 31, 1989 and January 1, 1989 Qn thousands) Balance at Additions Retirements Disposals Balance Beginning Additions, through or Sala through Other at end Classi8catiotu Of Year at Cost Acquisitions at Cost Dispositions (11 of fear 1990 La.~d and land improve- menu $ 23,438 $ 1,779 $ - $ $ - $ 370 $ 25.587 Buildings, terminals and improvements......... 59,008 5,210 - - - 4,516 68,734 Machinery and equip- ment 103,209 4,662 - (473) - 6,219 113,617 Automobiles and trucks 5,010 280 - (156) - 289 5,423 Furniture and fixtures 10,722 530 - (39) - 295 11.508 Construction in progress.. 9,607 7,491 - (579) - (11,838) 4,681 $210,994 $19,952 $ - $ (1,247) $ - $ (149) $229,550 1989 Land and land improve- ments $ 22,898 $ 130 $ - $ - $ (338) $ 748 $ 23,438 Buildings, terminals and improvements......... 60,602 2,089 - (30) (3,925) 272 59,008 Machinery and equip- ment 107,654 6,241 - (1,662) (13,540) 4,516 103,209 Automobiles and trucks 5,400 423 - (325) (640} 152 S,OlO Furniture and fixtures 10,908 1,116 - (237) (1,932) 867 10,722 Construction in progress 6,708 9,607 - - - (6,708) 9,607 $214,170 $19,606 $ - $ (2,254) $(20,375) $ (153) $210,994 1988 Land and land improve- ments $ 22,101 $ 262 $ - $ - $ - $ 535 $ 22,898 Buildings, terminals and improvements......... 58,779 1,118 - (2) 707 60,602 Machinery and equip- ment 102,941 3,292 - (1,651) - 3,072 107,654 Automobiles and trucks 4,526 1,038 - (312) - 148 5,400 Furniture and fixtures 9,700 1,082 - (57) - 183 10;908 Construction in progress.. 1,151 6,561 (16) - (988) 6,708 $199,198 $13,353 $ - $ (2,038) $ - $ 3,65? $214,170 - (1) The other column consists of the cost of transfers of Property, Plant and Equipment between the Company's subsidiaries and divisions and the accounts of those entities as well as other miscellaneous items. S-3 , SCHEDULE VIII GII.Le. ~ , HOLDINGS, INC. VALUATION' AND QUALIFYING ACCOUNTS For the Yearn ended December 30, 1990, December 31, 1989 and January i, 1989 Qn thousands) Balasoe at Additions Baisnce at be8iaaia8 C3ar4ed to coats G3arBed to other Deductions end of Dneriptioa of year and a=pemea aceonats il) l2) year 1990 Allowance for doubtful accounts 5 369 5539 5 - 5447 5461 1989 Allowance for doubtful accounts S S40 5433 5 - $604 $369 1988 Allowance for doubtfiil accounts 5 439 5341 5 - 5240 5540 (1) Write-offs of doubtful accounts charged against the allowance, net of current period recoveries. (2) Deductions also include 5245,000 of allowance removed due to divestitures in 1989. S-S SCHED[, LE VVTVT HOLDINGS, INC, PROPERTY, PLANT AND EQUIPME?r"T For the Years ended December 30, 1990, December 31, 1989 and January 1, 1989 Balance at Retirements Beginning Additions at or Sales at Balance at End Classifiations of Year Cost Cost Other(1) of ti'esr 1990 Land and land improvements $10,428,151 $ 144,138 $ - $ 71,249 $10,643,538 Buildings 9,363,039 342,692 - 8.642 9,714,373 Machinery and equipment 29,438,123 575,005 (1,459,913) - 28.553,815 Automobiles and trucks 1,021,681 240,313 (33,3621 - 1,22R,632 Furniture and fixtures • • . • . • • • • 1,'735,623 217,062 - - 1,952.685 Construction in progress 79,891 32,500 - (79,891) 32,500 $52,066,508 $ 1,552,310 $(1,493,275) $ - $52,125,543 1989 Land and land improvements.• • • • • • $10,981,948 $ - $ (805,178) $ 251,381 $10,428,151 Buildings 4,271,902 471,716 (3,613,900) 8,233,321 9,363,039 Machinery and equipment 29,448,784 4,236,709 (3,493,772) (753,598) 29,438,123 Automobiles and trucks 977,928 61,953 (46,931) 28,731 1,021,681 Furniture and fixtures 1,360,930 590,601 (761,071) 545,163 1,735,623 Construction in progress.......... 3,679,151 6,773,649 - (10,372,909) 79,891 e50,720,643 $12,134,628 ~!.:~20,852) $(2,067,911) $52,066,508 1988 Land and land improvements...... $ 7,401,921 $ - $ - $ 3,580,027 $10,981,948 Buildings 2,868,665 15,773 - 1,387,464 4,271,902 Machinery and equipment 19,187,922 1,374,5.18 (279,728) 9,166,072 29,448,784 Automobiles and trucks b07,931 132,229 - 237,768 977,928 Furniture and fixtures 889,334 59,827 - 411,769 1,360,930 Construction in progress.......... 255,064 3,424,087 - - 3,679,151 $31,210,837 $ 5,006,434 $ (279,728) $14,783,100 $50,720,643 (1) The other column consists of adjustments pursuant to a ~-4cf~s°:u appraisal of assets and transfers from construction in progress. S-7 SCHEDULE VIII WTVT HOLDINGS, INC. VALUATION AND QUALIFYING ACCOUNTS For the Yesrs ended December 30, 1990, December 31, 1989 and 3anuary 1, 1989 Balance at Charged to Balance at Beginning Costs and Deductions End of Description of Period Ezperues (1) Period 1990 Allowance for doubtful accounts $164,165 $169,313 $ 2,347 $331,131 1989 Allowance for doubtful accounts $157,603 $144,500 $137,938 $1 b4,165 1988 Allowance for doubtful accounts $ 67,200 $120,000 $ 29,597 $157,603 (1) Write-offs of doubtful accounts charged against the allowance. a S-9 REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders SCI Television, Inc. In connection with our audits of the consolidated financial statements of SCI Television, Inc. as of December 31, 1990 and 1989 and for each of the three years in the period ended December 31, 1990, we have also audited the consolidated schedules included herein as listed in Item 14 of the Annual Report. In our opinion, the consolidated schedules referred to above present fairly, in all material respects, the information required to be stated therein. ERNST Bt YOUNG Denver, Colorado March 29, 1991 S-11 ' SCHEDULE IV SCI TELEVISION, INC. INDEBTEDNESS TO RELATED PARTIES-NOT CURREI`T (In thousands) Balance at Additions Balance at beginning through end tiame of party of period AcQuisitions Additions Deductions of period For the year ended December 31, 1990 STOKER: ~ ' Junior Reset Notes 5 91,525 $ - S 91,525 $ - Interest payable on Junior Reset Notes 5,435 - 1,142 b,577 - ' Junior Subordinated Debentures 64,525 - - 64,525 - Interest payable on Junior Subordinated De- bentures 4,540 - ~ 979 5,519 - GCI PARTNERS Capital lease obligations 126,912 - - 126,912 For the year ended December 31, 1989 . STOKER: Junior Reset Notes $ 83,353 5- 58,172 5 - 591,525 Interest payable on Junior Reset Notes .1,997 - 3,438 - 5,435 Junior Subordinated Debentures • • . 57,584 - 6,941 - 64,525 Interest payable on Junior Subordinated De- bentures 1,803 - 2,737 - 4,540 GCI PARTNERS Capital lease obligations excluding accrued in- terest of 57,376 at December 31, 1989...... 123,489 - 9,835 b,412 126,912 For the year ended December 31, 1988 STOKER: Installment Notes $440,000 5- 5 - $440,000 5 - Junior Reset Notes 75,000 - 8,353 - 83,353 Interest payable on Junior Reset Notes 1,567 - 1,997 1,Sb7 1,997 Junior Subordinated Debentures 50,000 - 7,584 - 57,584 Interest payable on Junior Subordinated De- bentures 1,378 - 1,803 1,378 1,803 GCI PARTNERS Capital lease obligations including current por- _ _ lion of 811,749 126,651 - 6,689 9,851 123,489 5-13 ' SCHEDULE VI SCI TELEVISION, INC. ACCUMULATED DEPRECIATION AND AMORTIZATIOti OF PROPERTY, PLANT AND EQUIPMENT (in thousands) Balance at Additions Retirements Balance Beginning Charged or Sales at End Classifications of Period ' 7o Earnings at Cost of Period For the year ended December 31, 1990 Capital Lease Assets: Land, buildings and land improvements $ 2,840 $ 1,361 $ - $ 4,201 Towers 821 406 - 1,227 Other broadcast and ENG equipment 19,434 9,909 - 29,343 Office furniture and fixtures 1,138 687 - 1,825 Automobiles .1,105 724 - 1,829 25,338 13,087 38,425 Owned Assets: Leasehold improvements 74 34 - 108 325,412 313,121 $ - $38,533 For the year ended December 31, 1989 Capital Lease Assets: Land, buildings and land improvements $ 1,504 $ 1,33b $ - $ 2,840 Towers 431 390 - 821 Other broadcast and ENG equipment 9,974 9,460 - 19,434 Office furniture and futures 542 596 1,138 Automobiles 524 581 - 1,105 ` 12,975 12,363 - 25,338 Owned Assets: Leasehold improvements 70 4 - 74 $13,045 $12,367 $ - 325,412 For the year ended December 31, 1988 Capital Lease Asseu: Land, buildings and land improvements $ 187 $ 1,317 $ - $ 1,504 Towers 40 391 - 431 Other broadcast and ENG equipment 1,188 8,786 - 9,974 Office furniture and fixtures 57 485 - 542 Automobiles 57 467 - 524 - 1,529 11,446 - 12,975 Owned Assets: Leasehold improvements 15 119 (64) 70 $ 1,544 $11,565 $ (64) 313,045 S-15 SCHEDULE SCI TELEVISION, INC. SUPPLEMENTARY INCOME STATEMENT INFORti1ATION (in thousands) Charged to Costs Item and Expenses For the year ended December 31, 1990 Amortization of intangible assets $23.71 1 Maintenance and repairs 5 1,202 For the year ended December 31, 1989 Amortization of intangible assets $23,711 Maintenance and repairs $ 1,227 For the year ended December 31, 1988 Amortization of intangible assets $23,452 Maintenance and repairs $ 1,146 S•17 1 EXHIBIT 3B GILLETT HOLDINGS, INC. i TABLE OF CONTENTS CONDENSED FINANCIAL STATEMENTS (unaudited) Condensed Consolidated Financial Statements Notes to Condensed Consolidated Financial Statements MANAGEMENT~B DI$CIISSION AND ANALYSIS OF FINANCIAL CONDITION AND RESIILTS OF OPERATIONS Nine Months Ended September 29, 199,1 versus Nine Months Ended September 30, 1990 Three Months Ended September 29, 1991 versus Three Months Ended September 30, 1990, Results of Operations Liquidity and Capital Resources Capital Expenditures and Investments I GILLETT HOLDINGS, INC.. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) SEPTEMBER 29, DECEMBER 30, ASSETS 1991 1990 (Unaudited) Current assets: Cash and cash equivalents (Notes 2,9) $143,458 $ 4,600 ' Receivables 44,439 46,090 Inventories (Note 3) 13,947 15,991 Other current assets (Note 1) ~ 5,715 19,991 Total current assets 207,559 86,672 Property, plant, and equipment, net ~ 127,737 159,191 Deferred charges and other assets 42,779 46,851 Investment in/advances to unconsolidated company (Note 4) ~ 278,161 283,624 Intangible assets 33,381 147,844 $689,617 $7.24,182 LIABILITIES AND STOCKHOLDER'S DEFICIT Current liabilities: Accounts payable and accrued expenses (Note 1) ~ $105,076 5106,078 Income taxes payable (Note 6) 417 265 Long-term debt due within one year (Notes 1,5) 1,008,608 998,544 Total current liabilities 1,114,101 1,104,887 . Long-term debt (Notes 1,5) 1,869 4,046 Other long.-term liabilities ~ 24,867 26,328 Deferred income taxes (Note 6) ~ 5,471 5,471 Commitments and contingencies (Notes 4,5,8) Stockholder's deficit: , common stock-$1 par value, 1,000 shares authorized, issued and.outstandinq ~ 1 1 Additional paid-in~capital 260 260 Deficit (456,952) (416,811) Total stockholder's deficit (456,691) (416,550) 5689,617 $724,182 See accompanying notes. GILLETT HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT, (In thousands, except per share data) (Unaudited) FOR THE THREE MONTHS ENDED SEPTEMBER 29, SEPTEMBER 30, 1991 1990 Net revenues: Products - beef and other $140,987 $143,043 Broadcasting and resort 13,058 22,861 Net revenues 154,045 165,904 Operating costs and expenses: Cost of products sold 132,029 138,764 Operating expenses 22,927 28,947 Operating costs and expenses excluding depreciation and amortization 154,956 ~ 167,711 Depreciation 3,271 4,053 Amortization of intangible assets 251 1,624 Total operating costs and expenses 158,478 173,388 Corporate expenses 929 2,674 Loss from operations (5,362) (10,158) Other income (expense): Equity in losses of unconsolidated company (1,108) (1,756) Investment income 2,048 178 Interest expense (Note 1) (1,407) (31,248) Other (1,226) (1,293) (1,693) (34,119) Reorganization items: (Note 1) Legal and professional fees (2,248) - Senior subordinated debt - additional discount amortized - - Loss before income taxes (9,303) (44,277) Provision for income taxes .(Note 6) (23) (42) Net loss (9,326) (44,319) Deficit: Beginning of period (447,626) (322,826) End of period ($456,952) ($367,145) - ===s==== Loss per common share ($9,326) ($44,319) See accompanying notes. GILLETT HOLDINGS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) September 29, 1991 and September 30, 1990 1. Basis of presentation The accompanying unaudited condensed consolidated financial statements include Gillett Holdings, Inc., and its wholly-owned subsidiaries ("the Company"). All significant intercompany accounts and transactions have been eliminated. These statements reflect, in the opinion of the Company, all adjustments necessary to present fairly its financial position, results of .operations and. its cash flows for the unaudited interim periods. Results for such interim periods are not necessarily indicative of the results for the entire year. As discussed in Note 5, the Company has defaulted on the payment of interest due on the Senior Subordinated Debentures on August 1, 1990 and February 1, 1991 and on the payment of interest due on the Subordinated Debentures on August 15, 1990 and February 15, 1991. In addition, the Company defaulted on the payment of interest due on the bank Credit Agreement on August 7, 1990 and the outstanding indebtedness under the bank Credit Agreement matured on August 10,- 1990. As a result, the .Company is .presently in default under substantiallx all of its debentures and credit agreements and has been attempting to restructure its debt structure. On February 27, 1991, three creditors of Gillett Holdings; Inc. filed petitions in Federal Bankruptcy court in an attempt to force Gillett Holdings, Inc. into reorganization under Chapter 11 of the Bankruptcy code. On June 25, 1991, an Order for Relief under Chapter 11 of the Bankruptcy code was issued by the Federal Bankruptcy court in Denver, Colorado. This Order for Relief was entered for only Gillett Holdings, Inc. and not any of its wholly-owned subsidiaries, WTVT Holdings (see Note 4) or the Joint Venture (see Note 4). Subsequent to the entry of the Order for Relief, the Company continues to negotiate the terms of a debt restructuring in an effort to obtain agreements in principle with its principal creditors. Although Company management believes that a restructuring will be accomplished, the ultimate outcome of this matter cannot presently be determined. The consolidated financial statements do not include any adjustments relating to the recoverability of the recorded asset amounts and classification of liabilities should the Company be unable to restructure its debt and continue as a going concern. The consolidated financial statements do, however, include the following adjustments related to the entry of the Order for Relief as discussed above: A. As of the date of the petition discussed above (February 27, 1991) the Company discontinued accruing interest and amortizing original issue discount under the Credit Agreement, the Serial Zero Coupon .Senior Notes, the _ _ Senior Subordinated Debentures and the Subordinated Debentures. Had the Company continued accruing interest and amortizing original issue discount on this debt, interest expense for the nine months ended September 29, 1991, and for the three months ended September 29, 1991, would have been $76,370,000 and $32,564,000, respectively, higher than the amounts included in the accompanying condensed consolidated .statement of operations. The Company also charged to operations the previously,unamortized original issue discount related to the Senior Subordinated Debentures ($2,978,000) as of February 27, 1991. The Company did not discontinue 2. summary of significant accounting policies Inventories - Inventories of beef products are primarilX valued at the current market price, less freight, in accordance with general industry .practice. Other inventories are valued at the lower of cost, determined on the first-in, first-out (FIFO) method, or market. The Company hedges its live cattle and purchase commitments from market price fluctuations by entering into contracts on commodity exchanges. The results of these hedging transactions become part of the cost of ,the .related inventory items. Television Drogram contract rights - The rights to broadcast non- network programs are stated at cost, less accumulated amortization. These costs, which are included as. operating expenses, are amortized based upon the usage of the programs under methods which generally result in accelerated amortization for former network syndicated programs and feature films and straight-line amortization for first run programs. The cost of program rights expected to be used within one year is classified as a current asset. Property. plant. and equipment - Property, ,plant and equipment is carried at cost net of accumulated depreciation. Depreciation is calculated generally on the straight-line method based on the following useful lives: Years Land improvements 5-30 Buildings and terminals........ 20-40 Machinery and equipment........ 3-20 Ski lifts 12 Ski trails Over period of Term Special Use Permits Automobiles and trucks......... 3-7 Capital leases Over period of lease The Term Special .Use Permits allow the Company to operate ski lifts, trails, and related activities on United States Forest Service land and expire in 1992~for Vail and 2010 for Beaver Creek. A new 40 year permit is pending for both Vail and Beaver Creek. Deferred financinct costs - Costs incurred with the issuance of debt securities are included in deferred charges and other assets, net of accumulated amortization., Amortization is charged to income over the respective original lives of the applicable issues and is included as an other expense. Intangible assets - The amounts allocated to goodwill represent the excess of the purchase price of assets acquired over the fair _ market value assigned to the net tangible and all other intangible assets at the date of acquisition. Goodwill and amounts allocated to broadcasting licenses and network affiliation agreements are being amortized on a straight-line basis over forty years. The cost of other intangible assets with determinable lives is charged to operations based on their respective economic lives, under methods which generally result in accelerated amortization. Cash and cash equivalents - The Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. The Company's equity in the earnings of WTVT Holdings is detailed as follows (in thousands): For the Nine Months ~'nded September 29, September 30, 1991 1990 WTVT Holdings net loss $ (60,725) $ (55,549) Interest income on advances 58,772 52.246 $ (1,953) $ (x,303) During September 1990 WTVT Holdings borrowed $10,000,000 under a Loan Agreement with certain of the institutions that are parties to the bank Credit Agreement. WTVT Holdings defaulted on the payment of principal that was due under this agreement on September 30, 3.990. Interest continued to be paid at the prime rate plus 1.5% {11~) through December 31, 1990 and at the default rate (130) through January.31, 1991. On February 22, 1991 the agreement was amended to provide for monthly principal payments and interest (if the loan is not called by the banks in advance) with ~ final payment of unpaid principal on~December 31, 1991. Interest ::Yccrues and is paid monthly at the prime rate plus 1.5$ (9.5og as of September 29, 1991) on the outstanding borrowings ($3,600,000 as of September 29, 1991). On October 29, 1987, the Company invested .$85,469,000 in cash and issued a $1,406,000 purchase note to SCI Television, Inc. ("SCI") for a 55% equity interest and an effective 50~ voting interest in SCI, and invested $T5,000,000 in cash in GCI Partners ("GCI") for a 50~ interest in GCI (collectively, the "Joint Venture"). The Joint Venture owns six broadcast stations and certain related businesses (collectively, the "Joint Venture Stations"), which are WSBK-TV, (Boston), WJBK-TV (Detroit), WJW-TV (Cleveland}, WAGA-TV (Atlanta), KNSD-TV (San Diego), and WITI-TV (Milwaukee). On February 5, 1990, SCI entered into a series of restructuring transactions which significantly changed its capital structure and future debt service requirements. One of these restructuring transact:ions included the contribution to SCI of the Company's 50% interest in GCI. Accordingly, under the equity method of accounting, since the cumulative net losses of SCI and GCI on a combined basis related to the Company's ownership interest exceed the aggregate initial investment in these entities, the net investment 1n the Joint Venture has been previously written down to zero and the $1,406,000 purchase note to SCI has been previously recognized as income as an offset to the equity in losses of unconsolidated companies.. As a result of the restructuring transactions on February 5, 1990, the Company's preferred stock in SCI was canceled and the Company's common equity interest in SCI was reduced to 40%.~ In addition a - wholly-owned subsidiary of GHI, whose only asset is the 40v interest in SCI, issued warrants to another investor in SCI: These warrants allow the. holder to purchase, for a nominal price, preferred stock of this subsidiary which had a $12.575 million liquidation preference as of February 5, 1990 and which will increase 15$ per year. These warrants, or the preferred stock if then issued, are required to be redeemed in eight years. This redemption obligation is nonrecourse to GHI and its other subsidiaries. Based on the deficits of SCI, no value has been assigned to these warrants in the accompanying consolidated balance sheet. its assets; .and distributions on capital stock. The Credit Agreement is secured by (i) a pledge of the stock of substantially all of the Company's subsidiaries, (ii) the promissory note executed pursuant to the WTVT Holdings loan agreement together with any collateral pledged to the Company in connection therewith, and (iii) the Class B common stock-of WTVT Holdings owned by the Company (see Note 4). Such security also secures the Serial Zero Coupon Senior Notes. (b) On August 1, 1986, the Company issued $654,000,000 in face amount of debt securities (approximately $484,526,000 in net proceeds) consisting of $254,000,000 principal amount of Senior Subordinated Debentures, $300,000,000 in face amount of Serial Zero Coupon Senior Notes (Series A, B and C) and $100,000,000 principal amount of Increasing Rate Senior Notes. The Increasing Rate Notes were redeemed by the Company on February 1, 1987 with proceeds under a bank term loan. The Serial Zero Coupon Senior Notes and the Senior Subordinated Debentures include amortization of original issue discount of $4,028,000 - and $18,165,000 for the periods December 31, 1990 through February 27, 1991 (see Note 1) and January 1, 1990 through September 30, 1990, respectively. These amounts are included in interest expense in the statement of operations for the respective interim periods. Interest on the Senior . Subordinated Debentures accrues at a rate of 12.625% and is due semiannually on February 1 and August 1. The Company defaulted. on the August 1, 1990 and February 1, 1991~interest payments of $16,034,000 on the Senior Subordinated Debentures. Through February 27, 1991 (see .Note 1) the Company had accrued additional interest on the defaulted interest payments at the default rate of 13.625%. The indentures relating to the above debt securities restrict the Company's right to pay dividends, incur additional indebtedness and to merge, consolidate or sell substantially all its assets. (c) on August 14, 1987, the Company issued $420,000,000 in face amount of debt securities (approximately $286,885,000 in net proceeds) consisting of $170,000,000 principal amount of Subordinated Debentures, and $250,000,000 in, face amount of Serial Zero Coupon Senior Notes (Series D and E). The debt proceeds were loaned to WTVT Holdings to retire debt incurred to finance the acquisition of WTVT-TV on June 19, 1987. The Serial Zero Coupon Senior Notes include amortization of original issue discount of $3,513,000 and $15,250,000 for the periods December 31, 1990 through February 27, 1991 (see Note 1) and January 1, 1990 through September 30, 1990, - respectively. These amounts are included in interest expense in the statement of operations for the respective interim periods. Interest on the Subordinated Debentures accrues at a rate of 13.875% and is due semiannually on February 15 and August 15. The Company defaulted on the August 15, 1990 and February 15, 199.1 interest payments of $11,794,000 on the Subordinated Debentures. Through February 27, 1991, (see Note 1) the Company had accrued additional interest on the defaulted -interest payment at the default rate of 13.875%. The indentures relating to the above debt securities contain covenants similar to those described in (b) above. As a result of the defaults discussed above{ the Company is presently in default under substantially all of its debentures and credit agreements. Accordingly, all amounts outstanding under the Serial Zero Coupon Senior Notes, Senior Subordinated Debentures, Subordinated Debentures and $38,500,000 of the Industrial Development Bonds have been classified as long-term debt due within one year in the accompanying consolidated balance sheets at September 29; 1991 and December 30, 1990. The Company has entered into interest rate exchanges on long-term debt aggregating $20,000,000 at September 29, 1991. The agreements expire at various dates through January 1992 with interest charged at fixed rates ranging from 10.5% to 12%. 6. Zncome taxes Nominal federal and state income taxes have been provided for the interim period ended September 29, 1991 as the Company anticipates a net taxable loss for the entire fiscal year. On June 8, 1989, the Company sold the assets of WSMV-TV and realized a gain of $109,656,000 for federal income tax purposes. This gain will be deferred for federal income tax purposes under Internal Revenue Code Section 1071 to the extent that the proceeds are reinvested in qualifying broadcast property by December 31, 1991. As a result of the Section 1071 sale treatment for state tax reporting purposes, $5,471,000 has been classified as a deferred tax liability in the accompanying balance sheets. This amount will be due with interest if the aforementioned reinvestment does not occur. As of December 30, 1990, the Company has net operating loss carryforwards for federal income tax and financial statement reporting purposes of $228,536,000 and $82,213,000, respectively. Also, the Company has general business credit carryforwards for both federal income tax and financial reporting purposes of $1,450,000. Tax loss carryforwards of $6,956,000 and the first $92,000 of the investment tax credit carryforwards expire in 2000 and 1998, respectively. In addition, WTVT Holdings, an unconsolidated company for financial reporting purposes, had net operating loss carryforwards for federal income tax and financial statement reporting purposes as of December 30, 1990 of $313,069,000 and $257,573,000, respectively. 7. Related-party transactions The Company engages in purchases and sales of certain inventory products and transportation services with, an affiliate. As of September 29, 1991, approximately $11,617,000 related to these transactions is due from this affiliate. The Company has also recognized $2,250,000 in management fees associated with the management of the Joint Venture. for the nine months ended September 29, 1991, and September 30, 1990, respectively. During the third and fourth quarters of 1990, certain officers and affiliated individuals purchased approximately $.5,444,000 of cattle inventory at fair market value from the Company. The Company had an option to purchase all or any portion of the cattle from the individuals at an amount equal to the purchase price plus interest (prime plus 2-3% depending upon the date of the original purchase). In exchange for the option, the Company agreed to incur all costs or before January 31, 1991. On February 8, 1991, Scripps terminated the Agreement. In response, the Company filed a lawsuit against Scripps in Federal District Court in Chicago. On April 2, 1991 the Company and Scripps entered into a Settlement Agreement '(the "Settlement") providing for a reduced purchase price of $125 million in cash and a dismissal of the lawsuit upon the closing of the sale. On April 3, 1991, the Company filed a motion with the Federal Bankruptcy court seeking approval of the terms of the Settlement. This motion was granted on April 25, 1991, and WMAR-TV . was sold to Scripps on May 30, 1991 for $125 million in cash. The net sales proceeds from these transactions have been deposited into two separate escrow accounts. The escrow account at Wilmington Trust Company had a balance of $118,904,000 at September 29, 1991, and the escrow account at the United Bank of Denver had a balance of $3,602,000 at September 29, 1991. The United Bank of Denver escrow account was established to pay certain holdback items related to the sale of WMAR-TV, and additional disbursements from this account are anticipated pursuant to the order approving settlement with Scripps that was signed on April 25, 1991, and subsequent orders. The Company has recognized a loss for financial reporting purposes in the second quarter of 1991 of $24,811,000 related to this transaction. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 29, 1991 VERSUS , NINE MONTHS ENDED SEFTEMBER 30, 1990 The results for the nine months ended September 29, 1991 contain only five months of operating results for WMAR-TV which was sold May 30, 1991. The Company's net revenues decreased.$27,7.17,000 (5%) while income from operations increased $7,827,000 (38%) in the nine months ended September 29, 1991 compared to the nine months ended September 30, 1990. Net cash provided by operating activities, as disclosed in the Company's, condensed consolidated statement of cash flows, increased by $15,469,000 to $30,953,000 for the nine months ended September 29, 1991 compared to the nine months ended September 30, 1990. The $27,717,000 (5%) decrease in net revenues for the nine months ended September 29, 1991, as. compared to the nine months ended September 30, 1990, results primarily from revenue declines in the Company's communications business segment. Revenues in the communications segment from ongoing operations decreased $365,000 (3%), due to slight decreases in local and national spot sales. Overall communications revenues decreased .$17,027,000 (39%) primarily reflecting the sale of WMAR-TV and the decreases in local and national spot sales at WMAR-TV prior to the sale, which resulted from the effect of the Persian Gulf war on advertising expenditures. Resort revenues decreased $5,979,000 (6%) due to certain non-recurring real estate transactions which decreased $14,395,000 offset by a continued growth in mountain operations which increased $8,416,000. Revenues in the beef products segment decreased $4,711,000 (1%) due to reduced cattle volumes processed. During the nine months ended September 29, 1991, operating costs and expenses excluding depreciation and amortization decreased $30,493,000 (6%) compared to the nine months ended September 30, 1990. Operating expenses in the communications segment decreased $10,044,000 (33%) overall, primarily reflecting the sale of WMAR-TV and increased $9,000 from ongoing operations due to slight increases in programming costs. Resort operating costs and expenses decreased $7,577,000 (12%) primarily resulting from the decrease in non-recurring real estate transactions of $11,659,000 offset by the growth in mountain operations of $4,082,000. Operating costs and expenses in the beef products segment decreased $12,872,000 (3~) due to the implementation of overall cost control - measures and reduced cattle volumes processed. Depreciation of property, plant and equipment decreased $863,000 (7%) during the nine months ended September 29, 1991 compared to the' nine months ended September 30, 1990 due to .the sale of WMAR- TV. Amortization of intangible assets decreased $1,719,000 (35%), during the nine months ended September 29, 1991 compared to the nine months ended September 30, 1990 due primarily to the sale of WMAR-TV and certain intangible assets in the communications segment being fully amortized. September 30, 1990 includes $7,541,000 and $33,415,000, respectively, of non-cash amounts associated with amortization of original issue discount. THREE MONTHS ENDED SEPTEMBER 29, 1991 VERSUS THREE MONTHS ENDED SEPTEMBER 30, 1990 The results for the three months ended September 29, 1991 contain no months of operating results for WMAR-TV as it was sold May 30, 1991. The Company's net revenues decreased $11,859,000 (7%) while loss from operations decreased $4,796,000 (47%) in the three months ended September 29, 1991 compared to the three months ended September 30, 1990. The $11,859,000 (7$) decrease in net revenues for the three months ended September 29, 1991, as compared to the three months ended September 30, 1990, results primarily from revenue declines in the. Company's communications and beef products business segments. Revenues in the communications segment from ongoing operations decreased $181,000 (4%) due to decreases in both local and national spot sales. Overall communication revenues decreased $9,800,000 (710) primarily reflecting the sale of WMAR-TV. Resort revenues decreased $2,000. Revenues in the beef products segment decreased $2,057,000 (1~) due to reduced cattle volumes processed. During the three months ended September 29, 1991, operating costs and expenses excluding depreciation and amortization decreased $12,755,000 (8%) compared to the three months ended September 30, 1990. Operating expenses in the communications segment decreased $7,769,000 (73%) overall, primarily reflecting the sale of WMAR-TV and ,decreased $35,000 (1%) from ongoing operations. Resort operating costs and expenses increased $659,000 (6%) resulting from an increase in mountain operations offset by.a decrease in non- recurring real estate transaction costs. Operating costs and expenses in the beef products segment decreased $5,645,000 (4%) due to the implementation of overall cost control measures and reduced cattle volumes processed. . Depreciation of property, plant and equipment decreased $782,000 (19%) during the three months ended September 29, 1991 compared to the three months ended September 30, 1990 resulting from the sale of WMAR-TV. Amortization of intangible assets decreased $1,373,000 (85%), during the three months ended September 29, 1991 compared to the three months ended September 30, 1990 due primarily to certain intangible assets in the communications segment being fully amortized and the sale of WMAR-TV. Corporate expenses decreased $1,745,000 (65%) due to the implementation of various cost control measures. Loss from operations decreased $4,796,000 to $5,362,000 in the three months ended September 29, 1991 compared to the three mortrs ended September 30, 1990. Loss from operations in the communications segment decreased from $545,000 in 1990 to $20,000 flow from operations, increased indebtedness, and sales of properties. The Company has defaulted on the payment of interest due on the Senior Subordinated Debentures on August 1, 1990 and February 1, 1991 and on the payment of interest due on the Subordinated Debentures on August 15, 1990 and February 15, 1991 In addition, the Company defaulted on the payment of interest due on the bank Credit Agreement on August 7, 1990 and the outstanding indebtedness under the bank Credit Agreement matured on August 10, 1990. As a result, the Company is presently in default under substantially all of its debentures and credit agreements and has been attempting to restructure its debt structure. On February 27, 1991, three creditors of Gillett Holdings, Inc. filed petitions in Federal Bankruptcy court in an attempt to force Gillett Holdings, Inc. into reorganization under Chapter 11 of the Bankruptc;_F code. On June 25, 1991, an Order for Relief under Chapter 11 of the Bankruptcy code was issued by the Federal Bankruptcy court. Subsequent to the . entry of the Order for Relief, the Company continues to negotiate the terms of a debt restructuring in an effort to obtain agreements_ in principle with its principal creditors. Although Company management believes that a restructuring will be accomplished, the ultimate outcome of this matter cannot presently be determined. On August 7, 1990, Gillett Broadcasting of Maryland, Inc., a wholly owned subsidiary of the Company which, at that time, owned and operated WMAR-TV, entered into an Asset Purchase Agreement (the "Agreement") to sell substantially all of the assets of WMAR-TV in Baltimore, Maryland for $154.7 million in cash to Scripps Howard Broadcasting Company ("Scripps"). The transaction was to close on or before January 31, 1991. On February 8, 1991, Scripps tee°~:~:~::~.ted the Agreement. In. response, the Company filed a lawsuit a~F~~:~n Scripps in Federal District Court in Chicago. On April 2, 1991, the Company and Scripps entered into a Settlement Agreement (the "Settlement") providing for a reduced purchase price of 5125 million in cash and a dismissal of the lawsuit upon the closing of the sale. On April 3, 1991, the Company filed a motion with the Federal Bankruptcy court seeking approval of the terms of the Settlement. This motion was granted on April 26, 1991, and WMAR-TV was sold to Scripps on May 30, 1991 for $125 million in cash. The Company has recognized a loss for financial reporting purposes in the se:r:ond quarter of 1991 of $24,811,000 related to this transa{:~iion. The Company has historically generated losses for both financial and tax reporting purposes, resulting in minimal or no provision for income taxes. On June 8, 1989, the Company sold the assets of WSMV-TV and realized a gain of $109,656,000 far federal income tax purposes. This gain will be. deferred for federal income .tax purposes under Internal Revenue Code Section 1071 to the extent the proceeds are reinvested in qualifying broadcasting property by December 31, 1991. As a result of the Section 1071 sale treatment the Company has recorded a deferred tax liability of $5,471,000 for state tax reporting purposes. This amount will 'be due with interest if the aforementioned reinvestment does not occur. The Company anticipates that it will continue to generate net operating losses for both financial and tax reporting purposes. $YHIBIT 4 MANAGEMENT AND MANAGE~iT COMPE~TBATIO~T Exhibit 4 shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed in accordance with Bankruptcy Rule 3017(a). E%HIBIT 5 DIRECTORS OF THE REORGANIZED COMPANY Exhibit 5 shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed in accordance with Bankruptcy Rule 3017(a). EXHIBIT 6 CHAPTER 7 LIOIIIDATION ANALYSIS OF THE nFBTOR Exhibit 6 shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed in accordance with Bankruptcy Rule 3017(a). E%HIBIT 7 LETTER OF TRANSMITTAL Exhibit 7 shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed in accordance with Bankruptcy Rule 3017(a). • ESHIBIT 8 NEW T8% SHARING AGREEMENT I~OR THE REORGANIZED COMPANY AND THE REORGANIZED COMPANY SIIBSIDIARIES Exhibit 8 shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017 and shall be mailed . in accordance with Bankruptcy Rule 3017(a). E%HIBIT 9 NEW TA% SHARING AGREEMENT FOR GHTV AND THE Gaiv SIIBSIDIARIES Exhibit 9 shall be filed with the Court not less than ten days prior to the hearing on the Debtor's Disclosure Statement to be conducted pursuant to Bankruptcy Rule 3017, and shall be mailed in accordance with Bankruptcy Rule 3017(a).