<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 31, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____ Commission file number 33-99622
BUSSE BROADCASTING CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 38-2750516
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
141 East Michigan Avenue, Suite 300
Kalamazoo, Michigan 49007
(Address of principal executive offices)
(616) 388-8019
(Registrant's telephone number, including area code)
_________________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes No X
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
--------- ------
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
As of March 31, 1996, 107,700 shares of the Common Stock of Busse
Broadcasting Corporation were outstanding.
<PAGE>
BUSSE BROADCASTING CORPORATION
FORM 10-Q TABLE OF CONTENTS
PAGE
REFERENCE
---------
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
BUSSE BROADCASTING CORPORATION
Condensed Consolidated Balance Sheets as of March 31, 1996
(Unaudited) and December 31, 1995 (Audited) 3
Unaudited Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1996 and April 2, 1995 4
Unaudited Condensed Consolidated Statements of
Stockholders' Equity (Deficit) 5
Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and April 2, 1995 6
Notes to Unaudited Condensed Consolidated Financial Statements for the
Three Months Ended March 31, 1996 7
KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
Condensed Consolidated Balance Sheets as of March 31, 1996
(Unaudited) and December 31, 1995 (Audited) 19
Unaudited Condensed Consolidated Statements of Operations and
Stockholder's / Divisional Equity for the Three Months Ended
March 31, 1996 and April 2, 1995 20
Unaudited Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1996 and April 2, 1995 21
Notes to Unaudited Condensed Consolidated Financial Statements for the
Three Months Ended March 31, 1996 22
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 27
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS 33
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K 34
SIGNATURES 35
2
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Busse Broadcasting Corporation
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
UNAUDITED AUDITED
-------------- -----------------
<S> <C> <C>
ASSETS (NOTE 1 )
Current assets:
Cash and cash equivalents $ 6,239,441 $ 38,893,959
Receivables, net 3,967,482 4,589,784
Inventories 806,300 920,000
Other current assets 698,449 1,010,734
-------------- -----------------
Total current assets 11,711,672 45,414,477
Property, plant and equipment, net 17,456,872 17,877,590
Deferred charges and other assets 2,801,485 2,791,788
Intangible assets and excess reorganization value 55,915,109 56,896,391
------------- -----------------
Total assets $87,885,138 $122,980,246
-------------- -----------------
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY (NOTE 1)
Current liabilities:
Accounts payable and accrued expenses $ 4,660,446 $ 3,225,767
Current maturities of long-term debt (NOTE 3) 136,374 35,214,927
-------------- -----------------
Total current liabilities 4,796,820 38,440,694
Long-term debt (NOTE 3) 60,234,770 77,525,774
Other long-term liabilities 603,117 476,176
Stockholders' equity (NOTES 3 AND 6):
Series A cumulative convertible preferred
stock (non-voting)--$.01 par value,
65,524.41 shares issued and outstanding as
of March 31, 1996 17,330,660 --
Series A preferred stock dividends in arrears 1,046,631 --
Common stock (voting) - $.01 par value,
2,154,000 shares authorized, 107,700
shares issued and outstanding 1,077 1,077
Additional paid-in capital common stock 9,185,772 9,185,772
Accumulated deficit (NOTE 1) (5,313,709) (2,649,247)
-------------- -----------------
Total stockholders' equity 22,250,431 6,537,602
-------------- -----------------
Total liabilities and stockholders' equity $87,885,138 $122,980,246
-------------- -----------------
-------------- -----------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
Busse Broadcasting Corporation
Condensed Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------- -------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 APRIL 2, 1995
------------------- -------------------
<S> <C> <C>
Net revenue $ 6,070,495 $10,088,294
Operating costs and expenses, excluding depreciation and amortization 3,596,100 6,097,319
Depreciation 580,588 978,477
Amortization of intangibles and excess reorganization value 981,281 349,851
------------------- -------------------
Total operating costs and expenses 5,157,969 7,425,647
Corporate expenses 406,562 238,935
------------------- -------------------
Income from operations 505,964 2,423,712
Other income (expense):
Interest expense (2,203,243) (6,094,291)
Interest income 99,767 65,119
Gain on disposition of assets 15,600 2,857
Other income (expense) (10,919) 21,539
------------------- -------------------
Other expense (2,098,795) (6,004,776)
------------------- -------------------
Loss before reorganization item and income taxes (1,592,831) (3,581,064)
Reorganization item (NOTE 1):
Legal and professional fees -- (908,995)
------------------- -------------------
Loss before income taxes (1,592,831) (4,490,059)
Provision for current state income taxes (NOTE 4) (25,000) (50,000)
------------------- -------------------
Net loss $(1,617,831) $(4,540,059)
------------------- -------------------
------------------- -------------------
Per common share:
Loss before charges for Series A preferred stock dividends in arrears $ (15.02) $ (44.95)
Series A preferred stock dividends in arrears (9.72) --
------------------- -------------------
Net loss $ (24.74) $ (44.95)
------------------- -------------------
------------------- -------------------
Weighted average common shares outstanding 107,700 101,000
------------------- -------------------
------------------- -------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
<TABLE>
<CAPTION>
PRE-EFFECTIVE DIVIDENDS IN POST-EFFECTIVE DIVIDENDS IN
DATE SHARES AMOUNT ARREARS DATE SHARES AMOUNT ARREARS
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance January 2, 1994 30 $3,000,000 $2,859,000 -- $ -- $ --
Net loss -- -- -- -- -- --
Provisions for dividends in
arrears -- -- 450,000 -- -- --
----------------------------------------------------------------------------------
Balance January 1, 1995 30 3,000,000 3,309,000 -- -- --
Net income for the period from
January 2, 1995 through
May 2, 1995 -- -- -- -- -- --
Transactions pursuant to Plan of
Reorganization:
Cancellation of pre-effective
date preferred stock (30) (3,000,000) (3,309,000) -- -- --
Cancellation of pre-effective
date common stock -- -- -- -- -- --
Issuance of post-effective date
common stock and adoption of
fresh start reporting -- -- -- -- -- --
----------------------------------------------------------------------------------
Balance May 3, 1995 -- -- -- -- -- --
Net loss for the period from
May 3, 1995 through
December 31, 1995 -- -- -- -- -- --
Purchase and cancellation of
Company's stock -- -- -- -- --
----------------------------------------------------------------------------------
Balance December 31, 1995 -- -- -- -- -- --
Issuance of Series A preferred
stock in exchange for junior
subordinated pay-in-kind notes
on January 12, 1996 -- -- -- 65,524.41 17,330,660
Net loss for the period from
January 1, 1996 through
March 31, 1996 -- -- -- -- -- --
Provisions for dividends in
arrears -- -- -- -- -- 1,046,631
----------------------------------------------------------------------------------
Balance March 31, 1996 -- $ -- $ -- 65,524.41 $17,330,660 $1,046,631
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
<CAPTION>
COMMON STOCK
--------------------------------------------------------------------
PRE-EFFECTIVE DATE SHARES ADDITIONAL
POST-EFFECTIVE ------------------------- PAID-IN
DATE SHARES CLASS A CLASS B AMOUNTS AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 2, 1994 -- $1,000 100,000 $1,010 $1,008,990
Net loss -- -- -- -- --
Provisions for dividends in
arrears -- -- -- -- --
----------------------------------------------------------------------
Balance January 1, 1995 -- 1,000 100,000 1,010 1,008,990
Net income for the period from
January 2, 1995 through
May 2, 1995 -- -- -- -- --
Transactions pursuant to Plan of
Reorganization:
Cancellation of pre-effective
date preferred stock -- -- -- -- --
Cancellation of pre-effective
date common stock -- (1,000) (100,000) (1,010) (1,008,990)
Issuance of post-effective
common stock and adoption of
fresh start reporting 110,000 -- -- 1,100 9,201,800
----------------------------------------------------------------------
Balance May 3, 1995 110,000 -- -- 1,100 9,201,800
Net loss for the period from
May 3, 1995 through
December 31, 1995 -- -- -- -- --
Purchase and cancellation of
Company's stock (2,300) -- -- (23) (16,028)
----------------------------------------------------------------------
Balance December 31, 1995 107,700 -- -- 1,077 9,185,772
Issuance of Series A preferred
stock in exchange for junior
subordinated pay-in-kind notes
on January 12, 1996
Net loss for the period from
January 1, 1996 through
March 31, 1996 -- -- -- -- --
Provisions for dividends in -- -- -- -- --
arrears
----------------------------------------------------------------------
Balance March 31, 1996 107,700 -- -- $1,077 $9,185,772 --
----------------------------------------------------------------------
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT EQUITY (DEFICIT)
--------------------------------------
<S> <C> <C>
Balance January 2, 1994 $(130,182,521) $(129,172,521)
Net loss (14,024,860) (14,024,860)
Provisions for dividends in
arrears (450,000) (450,000)
--------------------------------------
Balance January 1, 1995 (144,657,381) (143,647,381)
Net income for the period from
January 2, 1995 through
May 2, 1995 146,541,281 146,541,281
Transactions pursuant to Plan of
Reorganization:
Cancellation of pre-effective
date preferred stock 6,309,000 6,309,000
Cancellation of pre-effective
date common stock 1,010,000 --
Issuance of post-effective
common stock and adoption of
fresh start reporting (9,202,900) --
--------------------------------------
Balance May 3, 1995 -- 9,202,900
Net loss for the period from
May 3, 1995 through
December 31, 1995 (2,649,247) (2,649,247)
Purchase and cancellation of
Company's stock -- (16,051)
--------------------------------------
Balance December 31, 1995 (2,649,247) 6,537,602
Issuance of Series A preferred
stock in exchange for junior
subordinated pay-in-kind notes
on January 12, 1996 17,330,660
Net loss for the period from
January 1, 1996 through
March 31, 1996 (1,617,831) (1,617,831)
Provisions for dividends in
arrears (1,046,631) --
--------------------------------------
Balance March 31, 1996 $(5,313,709) $22,250,431
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
Busse Broadcasting Corporation
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------- ------------------
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 APRIL 2, 1995
------------------- ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (1,617,831) $(4,540,059)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,561,869 1,328,328
Noncash interest expense 140,632 5,516,610
Amortization of deferred financing costs 146,312 23,662
Program payments over program amortization (9,208) (14,737)
Gain on disposition of property, plant and equipment (15,600) (2,857)
Increase in other long term liabilities 131,415 59,944
Change in current assets and liabilities:
Receivables 622,302 1,110,863
Inventories and other current assets 177,826 (724,510)
Accounts payable and accrued expenses 1,690,339 (448,711)
------------------- ------------------
Net cash provided by operating activities 2,828,056 2,308,533
INVESTING ACTIVITIES:
Capital expenditures (159,870) (185,863)
Proceeds from disposition of assets 15,600 4,088
(Increase) decrease in other assets (14,075) 212
------------------- ------------------
Net cash used in investing activities (158,345) (181,563)
FINANCING ACTIVITIES:
Payments on indebtedness (33,089) (30,722)
Redemption of indebtedness (35,146,439) --
Payment of deferred financing costs (144,701) --
------------------- ------------------
Net cash used in financing activities (35,324,229) (30,722)
------------------- ------------------
Net increase (decrease) in cash and cash equivalents (32,654,518) 2,096,248
Cash and cash equivalents at beginning of period 38,893,959 4,335,411
------------------- ------------------
Cash and cash equivalents at end of period $ 6,239,441 $ 6,431,659
------------------- ------------------
------------------- ------------------
Supplemental disclosure of cash flow information:
Interest paid during the period $ 99,107 $ 483,901
------------------- ------------------
------------------- ------------------
Income taxes paid during the period $ -- $ 50,000
------------------- ------------------
------------------- ------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements
Unaudited
March 31, 1996
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include Busse Broadcasting
Corporation and its wholly owned subsidiaries (collectively BBC or the
Company) engaged in the following businesses:
TELEVISION:
KOLN/KGIN-TV CBS Affiliate Lincoln/Grand Island, Nebraska
WEAU-TV NBC Affiliate Eau Claire/La Crosse, Wisconsin
WWMT-TV CBS Affiliate Kalamazoo/Grand Rapids, Michigan
(Sold June 1, 1995)
PRINTING:
Winnebago Color Press Menasha, Wisconsin
All intercompany accounts and transactions have been eliminated in
consolidation.
The Company and its wholly-owned subsidiary filed voluntary petitions for a
joint plan of reorganization under Chapter 11 of the United States Bankruptcy
Code (the "Plan") on March 10, 1995. On April 20, 1995 the United States
Bankruptcy Court for the district of Delaware (the "Court") confirmed the
Plan, such Plan became effective May 3, 1995 (the "Effective Date") and the
respective Chapter 11 cases were closed by the Court on September 21, 1995.
The Plan provided for, among other things, the following as of the
Effective Date:
Creditors under the Bank Credit Agreement received, on a pro-rata
basis, immediately prior to the Effective Date $4,600,000 of cash,
(plus interest of $23,000) and on the Effective Date received on a
pro-rata basis, in exchange, on a dollar for dollar basis, for 100%
of the aggregate claims held against the Company, Senior Secured
Credit Agreement Notes (the "Credit Agreement") in the aggregate
principal amount of $10,400,000;
7
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
In exchange, on a dollar for dollar basis, for 100% of the
aggregate claims held against the Company, holders of the Zero
Coupon Senior Notes (for their aggregate claim as of May 2, 1995),
Working Capital Advances, Subordinated Note and Senior Subordinated
Debentures (for their aggregate claims as of March 9, 1995)
received, on a pro-rata basis, $109,993,000 principal amount of
7.38% Secured Senior Subordinated Pay-in-Kind Notes due December
31, 2014 (the "Senior PIK Notes") and new 7.38% Junior Subordinated
Pay-in-Kind Notes (the "Junior PIK Notes") due December 31, 2014 in
the aggregate principal amount of $97,021,000 and cash in the
aggregate amount of $14,806 in lieu of fractional securities;
Holders of the Zero Coupon Senior Notes also received on a pro-rata
basis 100% of the new common stock of the restructured Company. As
a result of the Plan, on May 3, 1995 98% of the new common stock
was held by a group of related investment funds, the "Greycliff
Funds." On June 16, 1995 the Company purchased and retired the
2,300 shares of common stock not controlled by the Greycliff Funds;
Holders of the Promissory Note, and general unsecured claims were
not impaired by the Plan and, all rights and claims under the
Preferred Stock, Class A and Class B Common Stock and a certain
Rights Agreement were extinguished;
The American Institute of Certified Public Accountants issued Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial
reporting when companies operate under and emerge from the protection of
Chapter 11. SOP 90-7 requires that if (a) the reorganization value of the
company, as defined, was less than the total of all post-petition liabilities
and pre-petition claims, and (b) the holders of voting shares immediately
before confirmation of the Plan received less than fifty percent of the
voting shares of the emerging entity, then Fresh Start Accounting must be
adopted. Since the Company met both of these conditions, it adopted Fresh
Start Accounting on the Effective Date. Fresh Start Accounting provides that
liabilities be recorded at their fair values, based upon market interest
rates at the Effective Date. In addition, assets are to be recorded based on
an allocation of the reorganization value of the Company, which approximates
fair market value, and any retained earnings or deficit balance is to be
eliminated as of the Effective Date.
8
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The reorganization value of the Company as of the Effective Date was based,
in part, on the valuation information supplied to the bankruptcy court and,
as discussed below and in Note 2, the net cash proceeds the Company expected
to receive in conjunction with the sale of WWMT-TV. The reorganization value
was allocated based on appraisals which were performed by independent,
third-party appraisers and were based on traditional valuation methods used
in the appraisal industry.
The Company determined the Fresh Start Accounting balances for its
liabilities as follows:
Liabilities and indebtedness not impaired by the Plan were recorded
at their historical balances;
Indebtedness retired or expected to be retired with the proceeds of
the WWMT-TV sale was valued for financial reporting purposes at
100% of aggregate principal amount at the date of issuance and
included $10,400,000 of Credit Agreement notes, $84,437,000 of
Senior PIK Notes and $1,180,000 of Junior PIK Notes;
Indebtedness which the Company reasonably expected to refinance in
the near future was valued for financial reporting purposes at 100%
of aggregate principal amount at the date of issuance and included
$25,556,000 of Senior PIK Notes and $40,000,000 of Junior PIK Notes;
Indebtedness which the Company did not anticipate refinancing on a
current basis was recorded for financial accounting purposes at its
discounted present value using a 17% discount rate which was
indicative of market interest rates for similar securities at the
Effective Date. Accordingly, $55,841,000 aggregate principal amount
of Junior PIK Notes (the "Discounted Junior PIK Notes") were
recorded at an initial balance of $9,390,000 as of May 3, 1995 and
accrued interest for financial reporting purposes at 17%.
9
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
As a result of the effectiveness of the Plan and the adoption of Fresh Start
Accounting, the results for the fiscal period ended March 31, 1996 are not
comparable to the Company's fiscal period ended April 2, 1995 and
accordingly, Pre-Effective Date and Post-Effective Date financial statements
are separated by a vertical line.
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in
the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments necessary to present fairly the Company's financial
position and results of operations for the unaudited interim periods. Results
for such interim periods are not necessarily indicative of the results for
the respective entire years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the audited financial statements and notes thereto of Busse Broadcasting
Corporation.
2. SALE OF WWMT-TV
On February 1, 1995 the Company formed a wholly-owned subsidiary, WWMT, Inc.
[renamed Busse Management Inc. ("BMI") on May 3, 1995 and further renamed
KOLN/KGIN, Inc. on October 20, 1995] , and subsequently contributed
substantially all of the assets and current liabilities of television
station WWMT-TV, Kalamazoo, Michigan, to the subsidiary. On
February 20, 1995 the Company and WWMT, Inc. entered into an agreement
with Granite Broadcasting Corporation ("Granite") to sell substantially
all of the assets of WWMT for $95,000,000 plus the net working capital
as defined therein and Granite's assumption of certain liabilities. The
sale was completed as of the opening of business on June 1, 1995.
In applying Fresh Start Accounting the Company accounted for its interest in
WWMT-TV as an investment held for sale pursuant to the guidance of EITF Issue
No. 87-11, "Allocation of Purchase Price to Assets to be Sold". The Company
valued the investment in WWMT-TV based on the expected sales proceeds, net of
selling costs, the incremental cash to be generated during the holding period
and interest charges relating to the debt to be retired with the net sale
proceeds.
10
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT
Debt is summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
------------------- ------------------
<S> <C> <C>
(a) Senior Secured Notes, net of unamortized
original issue discount of $2,367,898
and $2,454,185 at March 31, 1996 and
December 31, 1995, respectively $60,159,102 $ 60,072,815
7.38% Junior Subordinated Pay-in-Kind Notes -- 41,960,647
17% Discounted Junior Subordinated
Pay-in-Kind Notes -- 10,462,108
(b) Promissory Note 212,042 245,131
------------------- ------------------
Total debt 60,371,144 112,740,701
Less current maturities 136,374 35,214,927
------------------- ------------------
Long term debt $60,234,770 $ 77,525,774
------------------- ------------------
------------------- ------------------
</TABLE>
(a) Senior Secured Notes
On October 26, 1995 the Company issued $62,527,000 principal amount of 11
5/8% Senior Secured Notes due October 15, 2000 (the "New Notes" and together
with the Exchange Notes, as defined herein, the "Senior Notes") at a price of
95.96% of the aggregate principal amount thereof and received net proceeds of
$58,125,099 after payment of underwriting discounts and commissions of
$1,875,810.
11
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
A portion of the net proceeds from the issuance of the Senior Notes were used
by the Company on October 26, 1995 to redeem all of the outstanding 7.38%
Secured Senior Subordinated Pay-in-Kind Notes, at 100% of the principal
amount thereof plus accrued and unpaid interest thereon, for an aggregate
cost of $26,469,445. The remaining net proceeds of $31,655,654 were deposited
in an escrow account (the "Escrow Account") maintained by the trustee of the
Senior Notes and used by the Company on January 12, 1996 to effect, together
with cash of approximately $3,193,409 and the interest earned on the funds
deposited in the Escrow Account, the redemption of certain of the Junior
Subordinated Notes, without penalty or premium, at 100% of the principal
amount of the Junior Subordinated Notes to be redeemed for cash, plus accrued
interest thereon to the date of redemption, at a cost of $35,241,061. The
outstanding principal amount of the Junior Subordinated Notes immediately
prior to the redemption was $100,765,475. The balance of the Junior
Subordinated Notes not redeemed for cash ($17,330,660 book value) was
redeemed for 65,524.41 shares of the Company's Series A Preferred Stock, at a
rate of one share for each $1,000 aggregate principal amount of, and accrued
and unpaid interest on, such Junior Subordinated Notes. The redemption of the
Junior Subordinated Notes for cash or Series A Preferred Stock is
collectively referred to as the "Junior Subordinated Note Redemption."
Interest on the Senior Notes is payable semiannually in arrears on April 15
and October 15 of each year, commencing April 15, 1996. Interest is computed
on the basis of a 360-day year comprised of twelve 30-day months.
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all
existing and future senior indebtedness of the Company. The Senior Notes are
secured by all of the Company's equity interests in, and certain intercompany
indebtedness of, its subsidiaries, including the subsidiaries which hold the
FCC licenses of the Company's two television stations, certain agreements and
contract rights related to such television stations (including network
affiliation agreements), certain machinery, equipment and fixtures, certain
general intangibles, mortgages on substantially all of the owned and certain
of the leased real property of the Company and its subsidiaries, and proceeds
thereof. In addition, the Company's subsidiaries (collectively the
"Guarantors") have fully and unconditionally guaranteed the Senior Notes on a
joint and several and senior secured basis and each such guarantee ranks
senior in right of payment to all existing and future subordinated
indebtedness of such Guarantor and ranks pari passu with all existing and
future senior indebtedness of such Guarantor (see Note 5).
12
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
The Senior Notes may not, except in certain circumstances, be redeemed by the
Company before October 15, 1998. Thereafter, the Senior Notes will be subject
to redemption at the option of the Company, in whole or in part, at the
redemption prices of 106% and 103% (expressed as percentages of the face
amount of the Senior Notes), plus accrued and unpaid interest to the date of
redemption, if redeemed during the twelve-month period beginning on October
15 of 1998 and 1999, respectively.
The indenture relating the Senior Notes (the "Indenture") contains various
convenants and restrictions on the Company and its subsidiaries, including,
but not limited to, incurring additional indebtedness, issuing certain
disqualified capital stock, making dividend payments or certain other
restricted payments, consummating certain asset sales, incurring liens,
entering into certain transactions with affiliates, creating or acquiring
additional subsidiaries, merging or consolidating with any other person, or
selling, assigning, transferring, leasing, conveying or otherwise disposing
of all or substantially all of the assets of the Company or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends
or make loans or advances to the Company.
On March 14, 1996 the Company effected a registered exchange offer (the
"Exchange") and exchanged $1,000 in principal amount of its 11 5/8% Senior
Secured Notes due 2000 which were registered under the Securities Act of 1933
(the "Exchange Notes") for each $1,000 principal amount of the outstanding
New Notes. All of outstanding New Notes were exchanged for Exchange Notes.
The sole purpose of the Exchange was to fulfill the obligations of the
Company with respect to the registration of the New Notes. Pursuant to a
registration rights agreement entered into by the Company in connection with
the sale of the New Notes, the Company agreed to file with the Securities and
Exchange Commission a registration statement relating to the Exchange
pursuant to which the Exchange Notes would be issued. The Exchange Notes
contain substantially identical terms as the New Notes including principal
amount, interest rate, maturity, security and ranking. The Exchange Notes are
guaranteed by the Guarantors on the same basis that the New Notes were
guaranteed.
13
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
3. DEBT (CONTINUED)
(b) Promissory Note
On October 6, 1992, the Company issued a $672,000 promissory note (the Note)
to finance the acquisition of a 5-color press and accessory equipment. The
Note is secured solely by the assets purchased. The Note is payable on the
16th of each month through and including September 16, 1996 in equal monthly
installments of $12,525 inclusive of accrued interest at an annual rate of
7.59%. The outstanding principal as of September 16, 1996 will be payable in
12 equal monthly installments through and including September 16, 1997, the
final payment date, with the Company selecting between a variable or a fixed
interest rate option payable monthly in arrears.
4. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial
reporting purposes and income tax purposes. Significant components of the
Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
-------------- -----------------
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment basis differences $ 4,095,000 $ 4,208,000
Debt basis differences -- 18,852,000
-------------- -----------------
4,095,000 23,060,000
Deferred tax assets:
Federal net operating loss carryforwards 21,507,000 21,405,000
State net operating loss carryforwards 1,950,000 1,935,000
Other 94,000 124,000
-------------- -----------------
23,551,000 23,464,000
Valuation allowances (19,456,000) (404,000)
-------------- -----------------
4,095,000 23,060,000
-------------- -----------------
$ -- $ --
-------------- -----------------
-------------- -----------------
</TABLE>
14
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
4. INCOME TAXES (CONTINUED)
As of December 31, 1995 the Company had approximately $58.1 million of
federal net operating loss carryforwards ("NOL's"). As a result of the Plan
(see Note 1) the Company believes it is eligible for treatment under Section
382 (1) (5) of the Internal Revenue Code, as amended (the "Code"). This
treatment will allow the restructured Company to utilize, under certain
restrictions, its NOL's to offset taxable income incurred after the Effective
Date. Utilization of these NOL's are assumed in the Company's calculation of
Post-Effective Date deferred taxes.
If the Company is unable, or if it is undesirable, to obtain treatment under
Section 382(l)(5), the Company may be able (prior to filing its 1995 tax
return) to elect an alternative treatment under Section 382(l)(6) of the
Code. Under Section 382(l)(6), the Company may utilize its NOL's under
certain circumstances, including generally to offset any "built-in" or
"inherent" gains as of the Effective Date which are recognized within five
years thereafter. However, the Company's ability to utilize its NOL's against
its operating income under Section 382(l)(6) will likely be severely limited.
5. SUBSIDIARY GUARANTORS
The Senior Notes are fully and unconditionally guaranteed, on a joint and
several and senior secured basis, by all of the Company's direct and indirect
subsidiaries, each of which is wholly-owned.
15
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
5. SUBSIDIARY GUARANTORS (CONTINUED)
The following tables present summarized combined balance sheet and operating
statement information for (i) KOLN/KGIN, Inc. (ii) KOLN/KGIN License, Inc.
and (iii) WEAU License, Inc., or the respective prior operations as a
division of the Company. Separate financial statements of KOLN/KGIN, Inc.
immediately follow these Notes to condensed consolidated financial statements
of Busse Broadcasting Corporation. Separate financial statements and other
disclosures concerning KOLN/KGIN License, Inc. and WEAU License, Inc. have
not been presented because management has determined that such financial
statements would not be material to investors.
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
------------------------------------
<S> <C> <C>
ASSETS
Current assets $ 3,185,003 $ 3,129,038
Non-current assets 51,531,551 52,405,578
54,716,554 $55,534,616
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities $ 1,136,826 $ 1,116,223
Non-current liabilities 6,928,313 6,954,442
Stockholder's equity 46,651,415 47,463,951
Total liabilities and stockholder's equity $ 54,716,554 $55,534,616
<CAPTION>
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1996 APRIL 2, 1995
Net revenue $ 2,899,748 $ 2,417,788
Total operating costs and expenses 2,589,626 1,691,009
Income from operations 310,122 726,779
Net income (loss) (812,536) 409,051
</TABLE>
16
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
6. CAPITAL STOCK
On January 12, 1996 the Company amended its articles of incorporation to
revise its authorized shares of capital stock as discussed below.
COMMON STOCK
As of January 12, 1996 the authorized common capital stock of the Company
consists of 2,154,000 shares of Common Stock, of which 107,700 shares are
issued and outstanding as of the date thereof. Each share of Common Stock has
an equal and ratable right to receive dividends when and as declared by the
Board of Directors of the Company out of assets legally available therefor.
The declaration and payment of cash dividends on Common Stock are restricted
by the provisions of the Indenture and the Company's Long Term Incentive
Plan. In the event of a liquidation, dissolution or winding up of the
Company, the holders of Common Stock would be entitled to share ratably in
the assets available for distribution after payments to creditors and
liquidation preference payments to holders of the Series A Preferred Stock.
SERIES A PREFERRED STOCK
As of January 12, 1996 the authorized preferred capital stock of the Company
consists of 65,524.41 shares of Series A Preferred Stock, all of which are
issued and outstanding as of the date thereof. Dividends on the Series A
Preferred Stock accrue at an annual rate of $73.80 per share until such
shares are redeemed or converted, whether or not any funds are legally
available therefor. Such dividends are payable only upon the conversion of
the Series A Preferred Stock into Common Stock or the redemption thereof,
unless any Senior Notes are then outstanding or if such payment is then
prohibited by any other debt instruments of the Company or applicable law. In
the event that payment of any accrued dividends is not so permitted, such
dividends will remain an obligation of the Company and be payable at the
earliest date on which both (i) no Senior Notes remain outstanding and (ii)
such payment is not prohibited by the other debt instruments of the Company
or by applicable law.
17
<PAGE>
Busse Broadcasting Corporation
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
6. CAPITAL STOCK (CONTINUED)
In the event of any liquidation, dissolution or winding-up of the Company,
whether voluntary or involuntary, any holder of the Series A Preferred Stock
will, for each share of Series A Preferred Stock, be entitled to receive a
distribution of $1,000, plus any accrued and unpaid dividends, out of the
assets of the Company prior to any distribution of assets with respect to any
other shares of capital stock of the Company as a result of such liquidation,
distribution or winding-up of the Company.
Each share of Series A Preferred Stock may be converted at any time at the
option of the holder into fully paid, nonassessable shares of Common Stock at
the rate of 31.22958299 shares of Common Stock per share of Series A
Preferred Stock, except that, if the Series A Preferred Stock is called for
redemption, the conversion right will terminate at the close of business on
the date fixed for redemption. Provision will be made for adjustment of the
conversation rate, under certain conditions, in order to protect the
conversion rights against dilution.
The Series A Preferred Stock is redeemable at the option of the Company at
any time, in whole or in part, out of funds legally available therefor, at a
per share redemption price equal to the per share liquidation preference per
share ($1,000), plus in each case an amount equal to accrued and unpaid
dividends, if any, to (and including) the redemption date, whether or not
declared.
The holders of the Series A Preferred Stock have no voting rights except to
the extent required by the Delaware General Corporation Law and the Series A
Preferred Stock is entitled to no preemptive rights.
18
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, 1996 DECEMBER 31, 1995
UNAUDITED AUDITED
-------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 552,867 $ 380,938
Receivables, net 2,021,306 2,149,310
Program contract rights 278,856 425,230
Other current assets 9,974 27,560
-------------- ------------------
Total current assets 2,863,003 2,983,038
Property, plant and equipment, net 8,415,373 8,612,289
Due from Parent 242,484 166,729
Deferred charges and other assets 24,144 27,125
Intangible assets and excess reorganization value 36,931,157 37,580,767
-------------- ------------------
Total assets $48,476,161 $49,369,948
-------------- ------------------
-------------- ------------------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 649,851 $ 617,972
Program contracts payable 225,460 381,130
-------------- ------------------
Total current liabilities 875,311 999,102
Deferred income tax liabilities 2,040,000 2,064,000
Other long-term liabilities 5,967 10,442
Stockholder's equity:
Common stock (voting) - $.01 par value, 1,000
shares authorized, issued and outstanding 10 10
Additional paid-in capital 46,568,577 46,568,577
Accumulated deficit (1,013,704) (272,183)
-------------- ------------------
Total stockholder's equity 45,554,883 46,296,404
-------------- ------------------
Total liabilities and stockholder's equity $48,476,161 $49,369,948
-------------- ------------------
-------------- ------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
19
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Operations
and Stockholder's/Divisional Equity
Unaudited
<TABLE>
<CAPTION>
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------- ------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 APRIL 2, 1995
------------------- -----------------
<S> <C> <C>
Net revenue $ 2,723,748 $ 2,417,788
Operating costs and expenses, excluding depreciation
and amortization 1,344,698 1,217,244
Depreciation 266,110 351,000
Amortization of intangibles and excess reorganization
value 649,610 45,500
Corporate expenses 226,588 73,500
----------- -----------
Total operating costs and expenses 2,487,006 1,687,244
----------- -----------
Income from operations 236,742 730,544
Other income (expense):
Interest income 5,497 2,406
Gain on disposition of assets -- 2,798
Other expense (7,760) (7,170)
----------- -----------
Other expense (2,263) (1,966)
----------- -----------
Income before income taxes 234,479 728,578
(Provision) benefit for income taxes:
Current (1,000,000) (416,762)
Deferred 24,000 101,000
----------- ----------
(976,000) (315,762)
----------- ----------
Net income (loss) (741,521) 412,816
Stockholder's/divisional equity at begining of period 46,296,404 11,747,254
Net intercompany transactions -- (858,981)
----------- -----------
Stockholder's/divisional equity at end of the period $45,554,883 $11,301,089
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
20
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Condensed Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
POST-EFFECTIVE DATE PRE-EFFECTIVE DATE
------------------- ------------------
THREE MONTHS THREE MONTHS
ENDED ENDED
MARCH 31, 1996 APRIL 2, 1995
------------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (741,521) $ 412,816
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 915,720 396,500
Program payments over program amortization (11,002) (2,677)
Gain on disposition of assets -- (2,798)
Deferred income taxes (24,000) (101,000)
Change in current assets and liabilities:
Receivables 128,004 319,053
Other current assets 17,586 (16,226)
Accounts payable and accrued expenses 31,879 (34,183)
----------- ----------
Net cash provided by operating activities 316,666 971,485
INVESTING ACTIVITIES
Capital expenditures (69,194) (40,190)
Proceeds from disposition of assets -- 2,798
Decrease in other assets 212 211
----------- ----------
Net cash used in investing activities (68,982) (37,181)
FINANCING ACTIVITIES
Net intercompany transactions -- (858,981)
Increase in due from Parent (75,755) --
----------- ----------
Net cash used in financing activities (75,755) (858,981)
----------- ----------
Net increase in cash and cash equivalents 171,929 75,323
Cash and cash equivalents at beginning of period 380,938 61,493
----------- ----------
Cash and cash equivalents at end of period $ 552,867 $ 136,816
----------- ----------
----------- ----------
Supplemental information
Income taxes paid $1,000,000 $ 416,762
----------- ----------
----------- ----------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
21
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements
Unaudited
March 31, 1996
1. BASIS OF PRESENTATION
The financial statements present the financial position, results of
operations and stockholder's/divisional equity, and cash flows of
KOLN/KGIN-TV which was a division of Busse Broadcasting Corporation (the
Company or Parent) until October 20, 1995. KOLN/KGIN-TV had no separate legal
status or existence and was an operating division of the Company through that
date. KOLN/KGIN-TV is a CBS affiliate operating channels 10 and 11 in the
Lincoln - Hastings - Kearney, Nebraska television market.
As further discussed in Note 2, the assets and liabilities of KOLN/KGIN-TV
were contributed to KOLN/KGIN, Inc., a wholly owned subsidiary of Busse
Broadcasting Corporation, on October 20, 1995. Accordingly, the accompanying
financial statements reflect the operations of KOLN/KGIN-TV as a separate
legal entity since that date. The accompanying financial statements also
include, since October 20, 1995, the accounts of KOLN/KGIN License, Inc., a
wholly owned subsidiary of KOLN/KGIN, Inc. All intercompany accounts and
transactions have been eliminated in consolidation.
Divisional equity balances through October 20, 1995 include net intercompany
balances that result from various transactions between KOLN/KGIN-TV and the
Company. There are no terms of settlement or interest charges associated with
these balances. The balances are primarily the result of KOLN/KGIN-TV's
participation in the Company's central cash management program, wherein the
month-end cash balances in excess of certain levels are remitted to the
Company. Other transactions include the allocation of corporate expenses to
KOLN/KGIN-TV and the current income taxes that would have been due to the
Company. KOLN/KGIN-TV's receivable from the Company, which has been netted in
the divisional equity balance, totaled $28,014,148 at April 2, 1995 and
averaged $27,584,658 for the three months ended April 2, 1995. Subsequent to
October 20, 1995 these transactions have flowed through the due from Parent
account. There are no terms of settlement or interest related to these
balances which averaged $204,606 due from the Parent during the period from
December 31, 1995 through March 31, 1996.
22
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The Company and KOLN/KGIN, Inc. (then named WWMT, Inc.) filed voluntary
petitions for a joint plan of reorganization under Chapter 11 of the United
States Bankruptcy Code (the "Plan") on March 10, 1995. On April 20, 1995 the
United States Bankruptcy Court (the "Court") for the district of Delaware
confirmed the Plan, such Plan became effective May 3, 1995 (the "Effective
Date") and the respective Chapter 11 cases were closed by the Court on
September 21, 1995.
The American Institute of Certified Public Accountants issued Statement of
Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"), which provides guidance for financial
reporting when companies operate under and emerge from the protection of
Chapter 11. SOP 90-7 requires that if (a) the reorganization value of the
company, as defined, was less than the total of all post-petition liabilities
and pre-petition claims, and (b) the holders of voting shares immediately
before confirmation of the Plan received less than fifty percent of the
voting shares of the emerging entity, then Fresh Start Accounting must be
adopted. Since the Company met both of these conditions, it adopted Fresh
Start Accounting on the Effective Date. Fresh Start Accounting provides that
liabilities be recorded at their fair values, based upon market interest
rates at the Effective Date. In addition, assets are to be recorded based on
an allocation of the reorganization value of the Company, which approximates
fair market value, and any retained earnings or deficit balance is to be
eliminated as of the Effective Date.
The reorganization value of KOLN/KGIN-TV as of the Effective Date was based,
in part, on the valuation information supplied to the bankruptcy court. The
reorganization value was allocated based on appraisals which were performed
by independent, third-party appraisers and were based on traditional
valuation methods used in the appraisal industry.
The Company determined the Fresh Start Accounting balances for KOLN/KGIN-TV's
liabilities were not impaired by the Plan and accordingly were recorded at
their historical balances.
As a result of the effectiveness of the Plan and the adoption of Fresh Start
Accounting, the results for the three months ended March 31, 1996 are not
comparable to the three months ended April 2, 1995 and accordingly,
Pre-Effective date and Post-Effective date financial statements are separated
by a vertical line.
23
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
1. BASIS OF PRESENTATION (CONTINUED)
The accompanying unaudited condensed consolidated financial statements in
conjunction with the related notes to the financial statements reflect, in
the opinion of the Company, all adjustments, consisting of only normal
recurring adjustments necessary to present fairly the Company's financial
position and results of operations for the unaudited interim periods. Results
for such interim periods are not necessarily indicative of the results for
the respective entire years.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission. It is suggested that
these condensed consolidated financial statements be read in conjunction with
the audited financial statements and notes thereto of KOLN/KGIN, Inc.
2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV
On February 1, 1995 the Company formed a wholly-owned subsidiary, WWMT, Inc.
(renamed Busse Management Inc. ("BMI") on May 3, 1995), and subsequently
contributed to the subsidiary substantially all of the assets and current
liabilities of television station WWMT-TV, Kalamazoo, Michigan, which were
sold June 1, 1995. The proceeds from the sale of WWMT-TV were transferred by
BMI to the Company in the form of a dividend or a note. The note receivable
of BMI (now KOLN/KGIN, Inc.) from the Company has been reflected as a
constructive dividend in the accompanying financial statements and
accordingly, no interest income from the Company has been recorded.
The subsidiary conducted immaterial incidental corporate activities from June
2, 1995 through October 19, 1995. On October 19, 1995 the name of the
subsidiary was changed from BMI to KOLN/KGIN, Inc.
On October 26, 1995 the Company issued $62,527,000 principal amount of 11
5/8% Senior Secured Notes due October 15, 2000 ("Senior Notes") at a price of
95.96% of the aggregate principal amount thereof.
24
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV (CONTINUED)
To facilitate the collateral arrangements required by the Senior Notes the
Company effected the following transactions on October 20, 1995:
1. The assets and liabilities relating to the operation of KOLN-TV and
KGIN-TV were conveyed to KOLN/KGIN, Inc.
2. KOLN/KGIN, Inc. transferred the FCC licenses relating to the operation of
KOLN-TV and KGIN-TV to its wholly-owned subsidiary KOLN/KGIN License,
Inc. in exchange for all of the capital stock of the subsidiary.
Interest on the Senior Notes is payable semiannually in arrears on April 15
and October 15 of each year, commencing April 15, 1996. Interest is computed
on the basis of 360-day year comprised of twelve 30-day months.
The Senior Notes are senior in right of payment to all existing and future
subordinated indebtedness of the Company and rank pari passu with all
existing and future senior indebtedness of the Company. The Senior Notes are
secured by all of the Company's equity interests in, and certain intercompany
indebtedness of, its subsidiaries, including the respective subsidiaries
which own KOLN/KGIN-TV and hold the FCC licenses of KOLN/KGIN-TV, certain
agreements and contract rights related to such television station (including
network affiliation agreements), certain machinery, equipment and fixtures,
certain general intangibles, mortgages on substantially all of the owned and
certain of the leased real property of the Company and its subsidiaries, and
proceeds thereof. In addition, the Company's subsidiaries (collectively the
"Guarantors") have fully and unconditionally guaranteed, on a joint and
several and senior secured basis, the Senior Notes and each such guarantee
ranks senior in right of payment to all existing and future subordinated
indebtedness of such Guarantor and ranks pari passu with all existing and
future senior indebtedness of such Guarantor.
25
<PAGE>
KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)
Notes to Condensed Consolidated Financial Statements (continued)
Unaudited
2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV (CONTINUED)
The indenture relating to the Senior Notes (the "Indenture") contains various
convenants and restrictions on the Company and its subsidiaries, including,
but not limited to, incurring additional indebtedness, issuing certain
disqualified capital stock, making dividend payments or certain other
restricted payments, consummating certain asset sales, incurring liens,
entering into certain transactions with affiliates, creating or acquiring
additional subsidiaries, merging or consolidating with any other person, or
selling, assigning, transferring, leasing, conveying or otherwise disposing
of all or substantially all of the assets of the Company or its subsidiaries.
The Indenture does not restrict the ability of a subsidiary to pay dividends
or make loans or advances to the Company.
26
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The following discussion and analysis of financial condition
and results of operations should be read in conjunction with the unaudited
Condensed Consolidated Financial Statements of the Company and notes thereto
included at Item 1, "Financial Statements," which provide additional
information regarding the Company's financial activities and condition. The
accompanying unaudited Condensed Consolidated Financial Statements, together
with the related notes to such financial statements, reflect, in the opinion
of the Company, all adjustments, consisting of only normal recurring
adjustments, necessary to present fairly the Company's financial position and
results of operations for the unaudited interim periods. Results of such
interim periods are not necessarily indicative of the results for the
respective entire fiscal years.
The Company's fiscal year is the 52/53 week period ending on
the Sunday nearest to December 31 of each year. The Company's first three
fiscal quarters are each comprised of 13 consecutive weeks. Unless otherwise
indicated, references herein to 1996 and/or 1995 refer to the three month
period ended March 31, 1996 or April 2, 1995, respectively.
The Company and its then existing wholly-owned subsidiary filed
voluntary petitions for a joint plan of reorganization under Chapter 11 of
the United States Bankruptcy Code (the "Plan") on March 10, 1995. The Plan
was effected and the Company emerged from Chapter 11 bankruptcy
reorganization (the "Restructuring") on May 3, 1995 (the "Effective Date").
The transactions comprising the Restructuring are summarized in Note 1 to
Notes to Condensed Consolidated Financial Statements (Unaudited) of the
Company for the three months ended March 31, 1996. The primary effects of
the Restructuring on results of operations and liquidity are summarized below.
The American Institute of Certified Public Accountants has
issued Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"), which provides
guidance for financial reporting when companies operate under the protection
of Chapter 11 and as they emerge from Chapter 11. SOP 90-7 requires that if
(i) the reorganization value of the company, as defined, was less than the
total of all post-petition liabilities and pre-petition claims and (ii)
holders of voting shares immediately before confirmation of the Plan received
less than 50% of the voting shares of the emerging entity, then Fresh Start
Accounting must be adopted. Because the Company met both of these
conditions, it adopted Fresh Start Accounting on the Effective Date. Fresh
Start Accounting provides that liabilities be recorded at their fair values,
based upon market interest rates at the Effective Date. In addition, assets
are to be recorded based on an allocation of the reorganization value of the
Company, which approximates fair market value, and any retained earnings or
deficit balance is to be eliminated as of the Effective Date.
27
<PAGE>
As of the Effective Date, the Company recognized the following
non-recurring income and expense items relating to the Restructuring:
(i) As a consequence of the adoption of Fresh Start Accounting, the
Company revalued its assets and liabilities to fair value based on the
estimated reorganization value of the Company as of the Effective Date.
Fresh Start Accounting required an increase in the Company's net assets of
$103,810,917 which was reported as a gain on restructuring transaction in the
Company's financial statements for the period ended May 2, 1995;
(ii) In accordance with SOP 90-7, the legal, professional and other
costs and expenses related to the Restructuring were charged to expense as
incurred. Accordingly, $2,660,510, $2,148,588 and $558,686 were reported as
an expense of the Restructuring in the Company's financial statements for the
period ended May 2, 1995 and the fiscal years ended January 1, 1995 and
January 2, 1994, respectively; and
(iii) For financial reporting purposes, an extraordinary gain from
forgiveness of debt of $46,479,605 was reported in the financial statements
for the period ended May 2, 1995. This gain represents the total amount of
debt eliminated for financial reporting purposes relating to the adoption of
Fresh Start Accounting.
RESULTS OF OPERATIONS
The unaudited Condensed Consolidated Financial Statements of the
Company for the three months ended March 31, 1996 (Post-Effective Date) are
not comparable to the unaudited Condensed Consolidated Financial Statements
for the three months ended April 2, 1995 (Pre-Effective Date) principally in
the following areas: (i) depreciation and amortization expense in the
Post-Effective Date financial statements reflects the restatement of assets
to estimated fair value as of the Effective Date, (ii) interest expense in
the Post-Effective Date financial statements reflects the new debt structure
of the Company and (iii) the Pre-Effective Date statement of operations
includes nonrecurring gains and expenses related to the Restructuring. In
addition, the Company sold television station WWMT on June 1, 1995.
Accordingly, results of operations for WWMT are included only in the three
months ended April 2, 1995.
The advertising revenues of the Company's television stations are
generally highest in the second and fourth quarters of each year, due in part
to increases in consumer advertising in the spring and retail advertising in
the period leading up to and including the holiday season. In addition,
advertising revenues are generally higher during election years due to
spending by political candidates, which spending typically is heaviest during
the fourth quarter. Operating expenses of the Company's television stations
are generally consistent throughout the fiscal year. Revenues and expenses
of the printing operations are generally not subject to significant seasonal
fluctuations.
28
<PAGE>
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1996 (POST-EFFECTIVE DATE) AND
APRIL 2, 1995 (PRE-EFFECTIVE DATE)
Net revenue declined $4,017,799, or 39.8%, to $6,070,495 from
$10,088,294 for the three months ended March 31, 1996 compared to the three
months ended April 2, 1995 with all of such decline attributable to the
exclusion of results from WWMT from the 1996 period. For KOLN/KGIN-TV and
WEAU-TV (collectively, the "Stations"), net revenue for the first quarter of
1996 increased $475,336, or 11.8%, to $4,511,640, from $4,036,304 for the
comparable period in 1995. Net political revenue for the Stations during the
three months ended March 31, 1996 increased by approximately $63,000 to
$99,000 from $36,000 between the fiscal periods reflecting issue orientated
advertising placed by political parties and political action committees and
advertising placed on behalf of candidates in connection with primary
elections associated with the biannual election cycle. WEAU-TV recorded
7.4% and 3.2% gains in net local and national time sales, respectively,
during the three month period ended March 31, 1996, due to increased demand
within that station's market and an increased share of the market's local
revenues. KOLN/KGIN-TV recorded year-to-year increases in net local and
national time sales of approximately 4.2% and 8.5%, respectively,
attributable to a general improvement of advertising demand within that
station's market. KOLN/KGIN-TV's share of the market's national revenue has
remained generally consistent with historical share levels. Network
compensation for the Stations increased approximately $165,000 to $342,000 in
the three months ended March 31, 1996 compared to $177,000 for the three
months ended April 2, 1995. Such increase reflects increased compensation
pursuant to new long-term affiliation agreements for each station which
became effective January 1, 1996.
Net revenue from Winnebago Color Press decreased $306,401, or
16.4% , to $1,558,855 for the three months ended March 31, 1996 from
$1,865,256 in the comparable 1995 period due to reduced demand and strong
price competition within this segment. The amount of net revenue generated
by the Company's commercial printing business is not expected to improve
during the second quarter of fiscal 1996 when compared to the similar period
of 1995.
Operating expenses, excluding depreciation and amortization
expenses, decreased $2,501,219, or 41.0%, to $3,596,100 for the three months
ended March 31, 1996 from $6,097,319 for the comparable 1995 period. Of such
decline, $2,339,312 is attributable to the exclusion of results for WWMT from
the 1996 period. Operating expenses, excluding depreciation and amortization
expenses, for the Stations increased $101,648, or 4.9%, to $2,167,231, from
$2,065,583 for the comparable period of 1995 reflecting, in part, modest
expansion of news services at KOLN/KGIN-TV. Operating expenses, excluding
depreciation and amortization expenses, for Winnebago Color Press decreased
$223,611, or 13.7%, to $1,408,869 from $1,632,480 with approximately $209,000
of the decrease attributable to a reduction in the cost of sales due to the
lower sales volume discussed above.
Depreciation and amortization expenses increased $233,541, or
17.6%, to $1,561,869 for the three months ended March 31, 1996 from
$1,328,328 for the 1995 period. This increase results primarily from changes
in asset carrying amounts, useful lives and
29
<PAGE>
amortization periods related to the adoption of Fresh Start Accounting,
offset, in part, by including depreciation and amortization expenses
associated with WWMT of $409,204 only in the 1995 period. Depreciation and
amortization expenses attributable to the Stations increased $764,066, or
107.9%, to $1,472,266 for the three months ended March 31, 1996 from $708,200
for the 1995 fiscal period reflecting the adoption of Fresh Start Accounting.
Corporate expenses increased $167,627, or 70.2%, to $406,562
during the three months ended March 31, 1996 from $238,935 for the three
months ended April 2, 1995. The 1996 period includes charges of $91,414
relating to the accrual of obligations under the Company's long term
incentive plan and $22,152 relating to certain litigation (see Part II, Item
1, "Legal Proceedings"); no comparable charges were recorded in the 1995
period.
Income from operations decreased $1,917,748, or 79.1%, to $505,964
for the three months ended March 31, 1996 from $2,423,712 for the comparable
period of 1995, with the sale of WWMT accounting for $1,438,218 of the
decrease. Income from operations attributable to the Stations declined
$390,378, or 30.9%, to $872,143 for the three months ended March 31, 1996
from $1,262,521 in the 1995 period as the Stations' increased net revenues
were offset by increased costs of operations, including depreciation and
amortization charges resulting from the adoption of Fresh Start Accounting.
Income from operations for printing declined $59,614, or 46.5%, to $68,712
from $128,326 in the comparable 1995 fiscal period due primarily to the lower
sales volume discussed above.
Interest expense decreased $3,891,048, or 63.9%, to $2,203,243 for
the three months ended March 31, 1996 from $6,094,291 for the comparable 1995
fiscal period reflecting the Company's Post-Effective Date capitalization and
the Junior Subordinated Note Redemption. See Note 3 to Notes to Condensed
Consolidated Financial Statements (Unaudited) included in Item 1, "Financial
Statements." In addition, pursuant to the Plan, the Company did not accrue
approximately $767,000 of interest on certain of its Pre-Effective Date
indebtedness for the period from March 9, 1995 through April 2, 1995.
Interest income increased $34,648, or 53.2%, to $99,767 for the
three months ended March 31, 1996 from $65,119 for the 1995 fiscal period
reflecting earnings on the funds in the Escrow Account prior to the Junior
Subordinated Note Redemption. See Note 3 to Notes to Condensed Consolidated
Financial Statements (Unaudited) included in Item 1, "Financial Statements."
The 1996 current income tax expense reflects current state tax
expense. The Company has analyzed its deferred tax assets and liabilities
and has concluded that no provision for deferred federal or state taxes is
required for the three months ended March 31, 1996.
30
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents at March 31, 1996 totaled
$6,239,441 compared to $38,893,959 at December 31, 1995. The primary changes
in the Company's cash position results from the Company's use of
approximately $35.2 million to effect the cash portion of the Junior
Subordinated Note Redemption which was completed on January 12, 1996. (See
Note 3 of Notes to Condensed Consolidated Financial Statements (Unaudited)
for the three months ended March 31, 1996.) Immediately following the Junior
Subordinated Note Redemption the Company had an available cash reserve of
$4,000,000.
The Company's primary source of liquidity is cash generated by
operations. There are no contractual restrictions on the ability of the
Company's subsidiaries to pay cash dividends or make loans or advances to the
Company. The Company's net cash provided by operations (including changes in
working capital) was $2,828,056 and $2,308,533 for the three months ended
March 31, 1996 and April 2, 1995, respectively. The increase in net cash
generated in 1996 is due primarily to the improved results of operations of
the Stations before giving effect to certain non-cash charges such as
depreciation and amortization and to changes in certain working capital
accounts.
The Company's cash interest requirements will increase significantly
during the 1996 fiscal year when compared to the 1995 fiscal year reflecting
the semi-annual cash interest payments of approximately $3,634,000 due with
respect to the Senior Notes, which were issued in October 1995. Interest on
a substantial portion of the indebtedness issued pursuant to the
Restructuring and subsequently redeemed, in connection with the sale of WWMT
and the issuance of the Senior Notes, was payable through the issuance of
additional securities.
In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. For the 1995
fiscal year capital expenditures totaled $1,154,500, of which $943,796
related to its existing broadcast operations and $137,572 related to the
Company's printing operations. The Company has budgeted up to $2,000,000 for
capital expenditures during 1996; approximately $1,000,000 has been allocated
for the Stations. The balance of the anticipated 1996 expenditures has been
allocated to Winnebago Color Press and includes $860,000 relating to the
acquisition of certain digital pre-press equipment.
The Company anticipates aggregate capital expenditures for fiscal years
1997 and 1998 will approximate $1,200,000 in each year. It is anticipated
that significant capital expenditures may be required in the future to
implement advanced television systems, ("ATV") including high definition
television, at the Stations. The Federal Communications Commission ("FCC") has
not yet determined the technical standards for ATV nor has it established a
specific timetable for implementation of ATV. The Company cannot presently
predict the cost of implementing ATV in each of the Stations.
Although there can be no assurance that the Company will generate
earnings in the future sufficient to cover its fixed charges, including the
debt service obligations with respect
31
<PAGE>
to the Senior Notes, management believes that the cash flow generated from
the Company's operations and available cash on hand should be sufficient to
fund its interest requirements, working capital needs, anticipated capital
expenditures and other operating expenses through the end of fiscal year
1998. The Company's high degree of leverage will have important
consequences, including the following: (i) the ability of the Company to
obtain additional financing for working capital, capital expenditures, debt
service requirements or other purposes may be impaired; (ii) a substantial
portion of the Company's operating cash flow will be required to be dedicated
to the payment of the Company's interest expense; (iii) the Company may be
more highly leveraged than companies with which it competes, which may place
it at a competitive disadvantage; and (iv) the Company may be more vulnerable
in the event of a downturn in its businesses. The Company's future operating
performance and ability to service or refinance the Senior Notes will be
subject to future economic conditions and to financial, business and other
factors, many of which are beyond the Company's control.
The Company does not currently have additional credit availability under
any agreements and the indenture governing the Senior Notes (the "Indenture")
limits the Company's ability to incur additional Indebtedness (as defined
therein). The limitation in the Indenture on the Company's ability to incur
additional Indebtedness, together with the highly leveraged nature of the
Company, could limit corporate and operating activities, including the
Company's ability to respond to market conditions, to provide for
unanticipated capital investments or to take advantage of business
opportunities.
INCOME TAXES
The Company estimated that its federal NOL carryover as of December 31,
1995 was approximately $58.1 million. This NOL carryover is expected to be
sufficient, under certain circumstances, to shelter taxable income (except
for any alternative minimum tax) for the foreseeable future, absent a
sale of any of the Company's significant assets or an "ownership change"
under section 382 of the United States Internal Revenue Code, as amended,
(the "Code"). If an "ownership change", as defined in the Code, occurs
within two years of the Effective Date, the Company's ability to utilize its
NOL carryover to offset operating income will likely be severely limited.
However, if such "ownership change" occurs, the Company may utilize its NOL
carryover, under certain circumstances, to offset any "built-in" or
"inherent" gains as of the Effective Date which are recognized within five
years thereafter. See Note 4 of Notes to Condensed Consolidated Financial
Statements (Unaudited) for the three months ended March 31, 1996.
RETENTION OF A FINANCIAL ADVISER BY CONTROLLING STOCKHOLDERS
The Company has been advised by its controlling stockholders that they
have engaged the investment banking firm of Morgan Stanley & Co. Incorporated
to act as a financial adviser in connection with the possible sale of the
Company. There can be no assurance as to whether any transaction will result
from such engagement or as to value, timing or structure of any such
transaction.
32
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In 1993, the FCC allotted VHF Channel 8 to Lincoln, Nebraska, and
modified the license of Citadel Communications, Ltd. ("Citadel"), the
licensee of station KCAN-TV in Albion, Nebraska, to allow for operation of
Channel 8 in Lincoln. The Company opposed and sought reconsideration of such
action, but on June 27, 1995 the FCC denied the Company's objections. On
July 20, 1995 the Company filed with the United States Court of Appeals for
the District of Columbia (the "Court of Appeals") a Notice of Appeal and
Petition for Review in respect of this matter. The grounds asserted as a
basis for reviewing the FCC's action in the appeal include, among others,
that the FCC violated its own procedures and precedents in authorizing the
move of Channel 8 from Albion to Lincoln, Nebraska, that the waiver of local
ownership rules which the FCC granted to Citadel was inconsistent with
precedent and public interest and that the FCC improperly disregarded the
loss of service to Albion that would result from Citadel's relocation. The
Court of Appeals heard oral arguments in this case on March 26, 1996 and the
Company is awaiting the decision of such court. Citadel has changed the
station call letters of Channel 8 to KLKN, commenced broadcast operations on
the Lincoln cable system on April 1, 1996 and is expected to commence full
over-the-air broadcast operations during the second quarter of 1996. The
Company cannot predict the outcome of this proceeding, nor can it predict the
impact of the introduction of Channel 8 in Lincoln, Nebraska upon the
Company's future operations.
33
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
EXHIBIT NUMBER DESCRIPTION OF EXHIBIT
- -------------- ----------------------
10.1 NBC Television Network Affiliation Agreement dated April 8,
1996 by and among National Broadcasting Company, Inc.,
Busse Broadcasting Corporation and WEAU License, Inc.
27 Financial Data Schedule for the Quarter ended
March 31, 1996
(b) Reports on Form 8-K
None.
34
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BUSSE BROADCASTING CORPORATION
Dated: May 15, 1996 By: /s/ James C. Ryan
-----------------------------------
James C. Ryan,
Chief Financial Officer
(chief accounting officer
and officer duly authorized
to sign on behalf of the
Registrant)
35
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------
10.1 NBC Television Network Affiliation Agreement dated
April 8, 1996 by and among National Broadcasting
Company, Inc., Busse Broadcasting Corporation and
WEAU License, Inc.
27 Financial Data Schedule for the Quarter ended
March 31, 1996
<PAGE>
30 Rockefeller Plaza A Division of
New York, NY 10112 National Broadcasting
212 664-4444 Company, Inc.
[NBC Logo] NBC
TV NETWORK
April 8, 1996
Busse Broadcasting Corporation
and
WEAU License, Inc.
1907 South Hastings Way
Eau Claire, Wisconsin 54701
RE: WEAU-TV (Eau Claire, Wisconsin)
-------------------------------
Gentlemen:
The following shall comprise the agreement between Busse Broadcasting
Corporation ("Busse"), as owner and operator of television broadcast station
WEAU-TV ("WEAU-TV") and WEAU License, Inc., licensee of WEAU-TV, for the
affiliation of WEAU-TV (Busse, WEAU License, Inc. and WEAU-TV collectively
herein called "Station") with the NBC Television Network (herein called "NBC")
and shall supersede and replace our prior agreement dated April 1, 1990, except
for the most recent amendment with respect to network non-duplication protection
under Federal Communications Commission ("FCC") Rules Section 76.92.
1. TERM. This Agreement shall be deemed effective as of 3:00 A.M., New
York City time on the 1st day of January, 1996 and, unless sooner terminated as
provided in this Agreement, it shall remain in effect for a period of ten (10)
years thereafter. It shall then be renewed on the same terms and conditions for
a further period of five (5) years and for successive further periods of five
(5) years each, unless and until either party shall, at least twelve (12) months
prior to the expiration of the then current term, give the other party written
notice that it does not desire to have this Agreement renewed for a further
period.
2. NBC PROGRAMMING.
(a) NBC shall deliver to Station for free, over-the-air television
broadcasting all programming which NBC makes available for broadcasting in the
community to which Station is presently licensed by the FCC, except as otherwise
expressly provided herein.
(b) NBC commits to supply sufficient programming throughout the term
of this Agreement for the hours presently programmed by it (the "Programmed Time
Periods") , which Programmed Time Periods are as follows (the specified times
are all local time in Station's community of license):
<PAGE>
Prime Time: Monday thru Saturday - 7:00-10:00 P.M.
Sunday - 6:00-10:00 P.M.
Late Night: Monday thru Thursday - 10:35 P.M.-1:05 A.M.
Friday - 10:35 P.M.-1:35 A.M.
Saturday - 10:30 P.M.-12:00 Midnight
News: Monday thru Friday - 6:00-6:30 A.M., 7:00-9:00 A.M.
and 5:30-6:00 P.M.
Saturday - 7:00-9:00 A.M. and 5:30-6:00 P.M.
Sunday - 7:00-9:00 A.M. and 5:30-6:00 P.M.
Daytime: Monday thru Friday - 11:00 A.M.-12:00 Noon
and 12:30-2:30 P.M.
Saturday - 9:00-11:30 A.M.
The selection, scheduling, substitution and withdrawal of any program
or portion thereof delivered to Station during the Programmed Time Periods shall
at all times remain within the sole discretion and control of NBC. The parties
acknowledge that local and network programming needs may change during the term
of this Agreement, and each party agrees throughout the term to negotiate in
good faith with the other party any proposed modification of the Programmed Time
Periods.
(c) In addition to the programming supplied pursuant to Paragraph
2(b) above, NBC shall offer Station throughout the term of this Agreement a
variety of sports, special events and overnight news programming for television
broadcast at times other than the Programmed Time Periods. Station shall have
the right of first refusal with respect to any such programming good for
seventy-two (72) hours as against any other television station located in
Station's community of license or any television program transmission service
furnishing a television signal to Station's community of license, including, but
not limited to, any community antennae television system, subscription
television service, multipoint distribution system and satellite transmission
service. Station shall notify NBC of its acceptance or rejection of NBC's offer
of such programming as promptly as possible. Station's acceptance of NBC's
offer shall constitute Station's agreement to broadcast such programming in
accordance with the terms of such offer and this Agreement. Notwithstanding any
other provision in this Agreement, no preexisting acceptance of NBC programming
shall be superseded or otherwise affected by this Agreement, and those
acceptances shall remain in full force and effect. With respect to NBC programs
outside the Programmed Time Periods (either offered or already contracted for
pursuant to this Agreement), nothing herein contained shall prevent or hinder
NBC from (i) substituting one or more sponsored or sustaining programs, in which
event NBC shall offer such substituted program or programs to Station in
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<PAGE>
accordance with the provisions of this Paragraph 2(c) , or (ii) canceling one
or more such NBC programs; provided, however, that NBC shall exercise all
reasonable efforts to give Station at least three (3) weeks prior written notice
of such substitution or cancellation. Station shall not be obligated to
broadcast, and NBC shall not be obligated to continue to deliver, subsequent to
the termination of this Agreement, any programs which NBC may have offered and
which Station may have accepted during the term hereof.
3. STATION CARRIAGE IN PROGRAMMED TIME PERIODS.
(a) Station agrees that, subject only to the preemption rights set
forth herein, including Station's unqualified right to preempt for Station's
live coverage of local news events, Station shall broadcast over Station's
facilities all NBC programming supplied to Station for broadcast in the
Programmed Time Periods on the dates and at the times the programs are scheduled
by NBC, except to the extent that Station is actually broadcasting programming
pursuant to (and within the specified limits of) a commitment contemplated by
Paragraph 3(b) below. As used herein, the "live coverage of local news events"
with respect to Station's preemption rights shall in no event refer to the
addition of scheduled local news programs as part of Station's regular
continuing program schedule.
(b) As an inducement for NBC to enter into this Agreement, Station
covenants, represents and warrants to NBC that during any Broadcast Year (as
hereinafter defined) during the term hereof, Station shall preempt no more than
five (5) hours in the aggregate of NBC programs during the Prime Time Programmed
Time Period for any reason other than for the live coverage of news events (the
"Prime Time Preemption Amount"). For the purposes of this Agreement, a
"Broadcast Year" shall mean a twelve (12) month period during the term hereof
which commences on any September 1 during the term hereof and which ends on
August 31 of the immediately following year. Station hereby confirms that its
rights and obligations under this Paragraph 3(b) are consistent with the
provisions of Paragraph 4(c) below.
(c) The Station hereby agrees to accept and clear all sports
programming offered to the Station by NBC outside the Programmed Time Periods
("NBC Sports Programming"), except for NBC sports programming which directly
conflicts with Station's coverage of sports events and special events of
particular local interest (collectively, such coverage of such sports events and
special events are referred to below as "Special Programs"). Station agrees not
to broadcast more than twenty-five (25) hours of Special Programs outside the
Programmed Time Periods in the aggregate during any Broadcast Year during the
term of this Agreement which would conflict with NBC Sports Programming outside
the Programmed Time Periods (the "Sports Preemption Amount").
-3-
<PAGE>
(d) Notwithstanding the foregoing provisions of subparagraphs (b) and
(c) above and without limiting the provisions thereof, Station agrees that in
any one month period during a Broadcast Year, Station's preemptions of NBC Prime
Time programs and NBC Sports Programming shall not exceed 25% of, respectively,
the Prime Time Preemption Amount and the Sports Preemption Amount, unless
otherwise consistent with Station's programming practice. In addition, Station
agrees that in no event shall Station preempt NBC programming for any
programming offered or syndicated by any other broadcast television network;
PROVIDED that such agreement by Station shall only be deemed in effect to the
extent consistent with applicable law.
(e) Station shall initially be obligated to broadcast only three (3)
hours of NBC Daytime Programming, Monday through Friday; PROVIDED, that Station
shall clear a fourth hour of NBC Daytime programming upon the expiration or
termination (without giving effect to any renewal term) of any of Station's
existing contractual commitments for non-NBC programming currently broadcast
Monday through Friday, during the hours of 9:00 A.M. - 4:00 P.M. (the "Fourth
Daytime Hour"). The Fourth Daytime Hour shall be cleared by Station during the
hours 9:00 A.M. - 4:00 P.M., Monday through Friday and shall, upon such
clearance by Station, become part of the Programmed Time Periods for purposes of
Paragraphs 2(a) and 2(b) hereof.
4. PREEMPTIONS.
(a) In the event that Station, for any reason, fails to broadcast or
advises NBC that it will not broadcast any NBC programming as provided herein,
then, in each case, Station, upon notice from NBC to Station, shall broadcast
such omitted programming and the commercial announcements contained therein (or
any replacement programming and the commercial announcements contained therein)
during a time period or periods which the parties shall promptly and mutually
agree upon and which shall, to the extent possible, be of a quality and rating
value comparable to that of the time period or periods at which such omitted
programming was not broadcast as provided herein. In the event that the parties
do not promptly agree upon a time period or periods as provided in the preceding
sentence, then, without limitation to any other rights of NBC under this
Agreement or otherwise, NBC shall have the right to license the broadcast rights
to the applicable omitted programming (or replacement programming) to another
television station located in Station's community of license.
(b) In the event that Station preempts or fails to clear or
broadcast any NBC programming as provided herein for any reason other than:
(i) the live coverage of local news events, (ii) as permitted by Paragraphs
3(b), 3(c) or 3(d) above, (iii) force majeure as provided for in Paragraph 12
below, or (iv) because: (A) the programming is delivered in a form which does
-4-
<PAGE>
not meet accepted standards of good engineering practice; (B) the programming
does not comply with the rules and regulations of the FCC; or (C) Station
reasonably believes that such programming would not meet prevailing contemporary
standards of good taste in its community of license, then, without limiting any
other rights of NBC under this Agreement or otherwise, upon NBC's request,
Station shall pay NBC, or NBC may deduct or offset from any amounts payable to
Station hereunder or under any other agreement between Station and NBC (or an
entity controlling, controlled by or under common control with NBC), an amount
equivalent to NBC's loss in net advertising revenues attributable to the failure
of Station to broadcast such program in Station's market as scheduled by NBC,
which amount shall be calculated in accordance with Exhibit A hereto. Without
limiting or affecting any other determination of a material breach hereunder,
any failure by Station to pay any amount due under this Paragraph 4(b) shall be
deemed a material breach of this Agreement. In the event of Station's material
breach of this Agreement, without limiting any other of NBC's rights of NBC
under this Agreement or otherwise, NBC shall have the option, exercisable in its
sole discretion upon thirty (30) days' written notice to Station, to either (x)
terminate Station's right to broadcast any one or more series or other NBC
programs, as NBC shall elect, and, to the extent and for the period(s) that NBC
elects, thereafter license the broadcast rights to such series or other NBC
program(s) to any other television station or stations located in Station's
community of license or (y) unless the breach is cured within such thirty (30)
day period, terminate this Agreement. Station acknowledges that NBC programming
previously broadcast by Station has been consistent with the standards set forth
in the foregoing clause (C); Station also agrees that Station's reasonable
belief that an NBC program does not meet such standards will be based on a
substantial difference in such program's style and content from NBC programs
previously broadcast by Station, unless the relevant standards in the Station's
community of license have changed.
(c) With respect to programs offered or already contracted for
pursuant to this Agreement, nothing herein contained shall be construed to
prevent or hinder Station from: (i) rejecting or refusing any NBC program which
Station reasonably believes to be unsatisfactory or unsuitable or contrary to
the public interest, or (ii) substituting a program which, in Station's opinion,
is of greater local or national importance; provided, however, that Station
shall give NBC written notice of each such rejection, refusal or substitution,
and the reason therefor, at least three (3) weeks in advance of the scheduled
broadcast, or as soon thereafter as possible (including an explanation of the
cause for any lesser notice). Station confirms that its determination that a
substitute program is of greater local or national importance shall be based on
Station's reasonable good faith judgment.
-5-
<PAGE>
5. STATION COMPENSATION. In further consideration of Station's
performance of its obligations under this Agreement NBC shall compensate Station
as follows:
(a) (i) NBC shall pay Station for Station's broadcast of each network
sponsored program or portion thereof (except those specified in Paragraph 5(b)
below) which is broadcast during the Live Time Period therefor the amount
resulting from multiplying the following:
(A) Station's Network Station Rate, which is $901; by
(B) The percentage set forth in the compensation matrix table
attached hereto as Exhibit B (the "Compensation Table") opposite
the applicable time period; by
(C) The fraction of an hour substantially occupied by such program or
portion thereof; by
(D) The fraction of the aggregate length of all Commercial
Availabilities during such program or portion thereof occupied by
Network Commercial Announcements.
As used herein, "Live Time Period" shall mean the time period or
periods as specified by NBC for the broadcast of a program by Station;
"Commercial Availability" shall mean a period of time made available by NBC
during a network sponsored program for one or more Network Commercial
Announcements; and "Network Commercial Announcement" shall mean a
commercial announcement broadcast over Station during a Commercial
Availability and paid for by or on behalf of one or more of NBC's network
advertisers, not including, however, announcements consisting of
billboards, credits, public service announcements, promotional
announcements and announcements required by law.
(ii) For each network sponsored program or portion thereof
(except those specified in Paragraph 5(b) below) which is broadcast by
Station during a time period other than the Live Time Period therefor, NBC
reserves the right, in its sole discretion, to withhold payment of
compensation for such program. If NBC does not withhold payment of
compensation for such program, NBC shall pay Station as if Station had
broadcast the program or portion thereof during such Live Time Period,
except that if the percentage set forth in the Compensation Table opposite
the time period during which Station broadcasts the program or portion
thereof is less than that set forth opposite such Live Time Period, NBC
shall pay Station on the basis of the time period during which Station
broadcasts the program or portion thereof.
-6-
<PAGE>
(b) NBC shall pay Station such amounts as NBC and Station shall agree
upon for all network sponsored programs broadcast by Station consisting of:
(i) Sports programs;
(ii) Special events programs, and
(iii) Programs for which NBC specifies a Live Time
Period which straddles any of the time period categories in the
Compensation Table.
(c) (i) On or about the fifteenth day of the last month of each
calendar quarter during the term hereof, subject to the timely receipt of
reports requested under Paragraph 10 below, NBC shall pay Station, by
electronic transfer or such other means as NBC shall determine, an estimate
of the amounts due hereunder for such calendar quarter. NBC shall make the
appropriate adjustment for the payment actually due for such calendar
quarter in the payment of the estimated amount due for the next calendar
quarter. NBC shall calculate the amounts due hereunder on a weekly basis
and shall report such amounts to Station within a reasonable period of time
after the close of each month during the term.
(ii) From the amounts otherwise payable to Station hereunder, NBC
shall deduct for each week during each calendar quarter of the term hereof
a sum equal to 217% of Station's Network Station Rate provided in
subparagraph 5(a)(i)(A) above (the "Waiver Percentage") . This deduction
shall be calculated on a weekly basis, with 4.2857 as the agreed number of
weeks per month, and shall be reported to Station with the reports due
under subparagraph 5(c)(i) above. NBC shall make other deductions from
the amounts otherwise payable to Station hereunder for additional services
made available by NBC and utilized by Station such as, but not limited to,
NBC News Channel.
(d)(i) Subject to the limitations set forth below, NBC reserves the
right as part of a general rate revision to reevaluate and change at any
time: (A) the percentages set forth in the Compensation Table, or (B) the
Waiver Percentage set forth in subparagraph 5(c)(ii) above, by giving
written notice to Station at least thirty (30) days prior to the effective
date of such change. Notwithstanding the foregoing, NBC agrees that: (X)
the Compensation Table attached hereto as Exhibit B shall be modified
during the term of this Agreement only as mutually agreed to by NBC and
Station or as may be recommended by the NBC Affiliate Board; and (Y) NBC
may increase the Waiver Percentage only by reason of an increase in NBC's
technical costs of delivering programming to the NBC Television Network;
PROVIDED that any
-7-
<PAGE>
such increase in the Waiver Percentage shall be subject to review by the
NBC Affiliate Board.
(ii) Notwithstanding anything contained in subparagraph 5(d)(i)
to the contrary, the parties acknowledge that the payment of compensation
to Station hereunder is in consideration of certain commitments by Station,
including commitments regarding Station's local news program schedule and
promotion of NBC programming as respectively set forth in Exhibits C and D
attached hereto, which Exhibits are incorporated herein by this reference.
In the event that Station (A) materially reduces its local news program
schedule as set forth in Exhibit C or (B) does not fulfill such commitments
as are set forth in Exhibit D in all years during the term of this
Agreement, NBC reserves the right to decrease Station's Network Station
Rate by notifying Station in writing at least ninety (90) days prior to the
effective date of such change.
6. ADDITIONAL CONSIDERATION. In consideration of Station entering into
this Agreement and its performance of each of its obligations under this
Agreement as set forth herein, NBC agrees to pay to Station the additional
amounts (the "Additional Payments") set forth on Exhibit E hereto, subject to
the provisions thereof.
7. LOCAL COMMERCIAL ANNOUNCEMENTS. Subject to the following sentence,
NBC agrees that during each quarter during the term of this Agreement, the
average weekly number of minutes available for Station's local commercial
announcements in and adjacent to regularly scheduled NBC programming in each
daypart (with pro-rated adjustments for national sports programming, special
news coverage or other special events) shall not be less than ninety-five
percent (95%) of the average weekly number of minutes for the applicable daypart
during the 1993-94 Broadcast Year as set forth in Exhibit F attached hereto
(except if the reduction is due to a change in applicable government
regulations). In the event of a reduction in the average weekly number of
minutes available for Station's local commercial announcements in and adjacent
to regularly scheduled NBC programming which causes NBC not to be in compliance
with the foregoing provision, NBC agrees to offset the effects of such reduction
by providing Station with a comparable economic benefit, which benefit may take
the form of local coverage of NBC promotional announcements, an increase in the
amount of Station's preemptions permitted under Paragraphs 3(b), 3(c) or 3(d)
hereof, or other form of benefit. The foregoing provisions of this Paragraph 7
are not intended to facilitate any disproportionate change by NBC in the
allocation of the number of minutes available for Station's local commercial
announcements in and adjacent to regularly scheduled NBC programming among
different time periods in any daypart, if such change is solely for NBC's
economic benefit.
-8-
<PAGE>
8. DELIVERY. NBC shall transmit the programming hereunder by satellite
and shall notify Station as to both the satellite and transponder being used for
such transmission, and the programming shall be deemed delivered to Station when
transmitted to the satellite. Where, in the opinion of NBC, it is impractical
or undesirable to furnish a program over satellite facilities, NBC may deliver
the program to Station in any other manner, including but not limited to, in the
form of motion picture film, video tape or other recorded version, postage
prepaid, in sufficient time for Station to broadcast the program at the time
scheduled. Such recordings shall be used only for a single television broadcast
over Station, and Station shall comply with all NBC instructions concerning the
disposition to be made of each such recording received by Station hereunder.
9. CONDITIONS OF STATION'S BROADCAST. Station's broadcast of NBC
programming shall be subject to the following terms and conditions:
(a) Station shall not make any deletions from, or additions or
modifications to, any NBC program furnished to Station hereunder or any
commercial, NBC identification, program promotional or production credit
announcements or other interstitial material contained therein, nor broadcast
any commercial or other announcements (except emergency bulletins) during any
such program, without NBC's prior written authorization. Station may, however,
delete announcements promoting any NBC program which is not to be broadcast by
Station, provided that such deletion shall be permitted only in the event and to
the extent that Station substitutes for any such deleted promotional
announcements other announcements promoting NBC programs to be broadcast by
Station; PROVIDED that Station shall be permitted to substitute for any such
deleted promotional announcements, local public service announcements or
promotion announcements for Station's local programming.
(b) For purposes of identification of Station with the NBC programs,
and until written notice to the contrary is given by NBC, Station may
superimpose on various Entertainment programs, where designated by NBC, a single
line of type, not to exceed fifty (50) video lines in height and situated in the
lower eighth raster of the video screen, which single line shall include (and be
limited to) Station's call letters, community of license or home market, channel
number, and the NBC logo. No other addition to any Entertainment program is
contemplated by this consent, and the authorization contained herein
specifically excludes and prohibits any addition whatsoever to News and Sports
programs, except identification of Station as provided in the preceding sentence
as required by the FCC.
(c) The placement and duration of station-break periods provided for
locally originated announcements between NBC programs or segments thereof shall
be designated by NBC. Station
-9-
<PAGE>
shall broadcast each NBC program delivered to Station hereunder from the
commencement of network origination until the commencement of the terminal
station break.
(d) In the event of the confirmation by NBC of any violation by
Station of any of the provisions of this Paragraph 9, NBC may, in its reasonable
discretion, withhold an amount of compensation otherwise due Station under
Paragraph 5 above which is appropriate in view of the nature of the specific
violation, it being understood that the amount withheld for any violation shall
not exceed the total compensation due Station for the week in which such
violation occurs. Nothing contained in this Paragraph 9(d) shall limit the
rights of Station under Paragraph 4(c) above.
10. STATION REPORTS. Station shall submit to NBC in writing, upon
forms provided by NBC, such reports as NBC may request covering the broadcast by
Station of programs furnished to Station hereunder.
11. MUSIC PERFORMANCE RIGHTS. All programs delivered to Station
pursuant to this Agreement shall be furnished with all music performance rights
necessary for broadcast by Station included. Station shall have no
responsibility for obtaining such rights from ASCAP, BMI or other music
licensing societies insofar as the programs delivered by NBC to Station for
broadcasting are concerned. As used in this paragraph, "programs" shall
include, but shall not be limited to, program and promotional material and
commercial and public service announcements furnished by NBC. Station shall be
responsible for all music license requirements for any commercial and public
service announcements or other material inserted by Station within or adjacent
to the programs as permitted under the terms of this Agreement, except for cut-
ins produced by or on behalf of NBC and inserted by Station at NBC's direction.
12. FORCE MAJEURE. Neither Station nor NBC shall incur any liability
hereunder because of NBC's failure to deliver, or the failure of Station to
broadcast, any or all programs due to failure of facilities, labor disputes,
government regulations or causes beyond the reasonable control of the party so
failing to deliver or to broadcast. Without limiting the generality of the
foregoing, NBC's failure to deliver a program for any of the following reasons
shall be deemed to be for causes beyond NBC's reasonable control: cancellation
of a program because of the death, illness or refusal to appear or perform of a
star or principal performer thereon, or because of such person's failure to
conduct himself or herself with due regard to social conventions and public
morals and decency, or because of such person's commission of any act or
involvement in any situation or occurrence tending to degrade him or her in
society, or bringing him or her into public disrepute, contempt, scandal or
ridicule,
-10-
<PAGE>
or tending to shock, insult or offend the community, or tending to reflect
unfavorably upon NBC or the program sponsor.
13. INDEMNIFICATION. NBC shall indemnify, defend and hold Station, its
parent, subsidiary and affiliated companies, and their respective directors,
officers and employees, harmless from and against all claims, damages,
liabilities, costs and expenses (including reasonable attorneys' fees) arising
out of the use by Station, in accordance with this Agreement, of any program or
other material as furnished by NBC hereunder, provided that Station promptly
notifies NBC of any claim or litigation to which this indemnity shall apply, and
that Station cooperates fully with NBC in the defense or settlement of such
claim or litigation. Similarly, Station shall indemnify, defend and hold NBC,
its parent, subsidiary and affiliated companies, and their respective directors,
officers and employees, harmless with respect to material added to or deleted
from any program by Station, except for cut-ins produced by or on behalf of NBC
and inserted by Station at NBC's direction. These indemnities shall not apply
to litigation expenses, including attorneys' fees, which the indemnified party
elects to incur on its own behalf. Except as otherwise provided herein, neither
Station nor NBC shall have any rights against the other for claims by third
persons, or for the non-operation of facilities or the non-furnishing of
programs for broadcasting, if such non-operation or non-furnishing is due to
failure of equipment, actions or claims by any third person, labor disputes, or
any cause beyond such party's reasonable control.
14. STATION'S RIGHT OF FIRST NEGOTIATION. Throughout the term of this
Agreement, NBC shall give Station prompt notice of any determination by NBC to
engage in new over-the-air broadcast ventures within Station's community of
license (whether or not involving the transmission of television programs, but
excluding any acquisition of an ownership interest in any broadcast television
station) (a "Broadcast Venture"). NBC shall negotiate exclusively with Station
in good faith, for a period of time following such notice to Station as shall be
determined by NBC to be appropriate to the circumstances and as shall be
specified in such notice, with respect to Station's participation on a financial
and/or operational basis in any such Broadcast Venture within Station's
community of license before NBC may enter into any such negotiations with a
Third Party (as defined below) within such community of license. "Third Party"
shall mean any person or entity other than an NBC Party; "NBC Party" shall mean
any of NBC, National Broadcasting Company, Inc. or their respective parent,
subsidiary, affiliated, related or successor entities.
15. CHANGE IN OPERATIONS. Station represents and warrants that it holds a
valid license granted by the FCC to operate the Station as a television
broadcast station; such representation and warranty shall constitute a
continuing representation and
-11-
<PAGE>
warranty by Station. In the event that Station's transmitter location, power,
frequency, programming format or hours of operation are materially changed at
any time so that Station is of less value to NBC as a broadcaster of NBC
programming than at the date of this Agreement, then NBC shall have the right to
terminate this Agreement upon thirty (30) days prior written notice to Station.
16. ASSIGNMENT.
(a) This Agreement shall not be assigned without the prior written
consent of NBC, and any permitted assignment shall not relieve Station of its
obligations hereunder. Any purported assignment by Station without such consent
shall be null and void and not enforceable against NBC.
(b) Station agrees to include as a condition of any proposed
assignment, sale or transfer of ownership or control of Station (including,
without limitation, any assignment or transfer referred to in Paragraph 16(c)
below other than a "short-form" assignment) a contractually binding provision
that the assignee or transferee shall assume and become bound by this Agreement
for (i) the remainder of the then-current term of this Agreement or (ii) three
(3) years from the date of said assignment or transfer, whichever period is
greater. Station acknowledges that any such assignment, sale or transfer which
does not so provide for such assumption and for NBC's right to extend the term
of this Agreement will cause NBC irreparable injury for which damages are not an
adequate remedy. Therefore, Station agrees that NBC shall be entitled to seek
an injunction or similar relief from any court of competent jurisdiction
restraining Station from committing any violation of this Paragraph 16(b).
(c) Station agrees that if any application is made to the FCC
pertaining to an assignment or a transfer of control of Station's license, or
any interest therein, Station shall immediately notify NBC in writing of the
filing of such application. Except as to "short form" assignments or transfers
of control made pursuant to Section 73.3540(f) of the current FCC Rules, NBC
shall have the right to terminate this Agreement in the event of any assignment
or transfer. Station agrees that promptly following Station's notice to NBC,
Station (i) except in the case of "short form" assignments or transfers of
control, shall arrange for a meeting between NBC and the proposed assignee or
transferee to review the financial and operating plans of the proposed assignee
or transferee, and (ii) shall procure and deliver to NBC, in form satisfactory
to NBC, the agreement of the proposed assignee or transferee that, upon
consummation of the assignment or transfer of control of the Station's license,
the assignee or transferee will assume and perform this Agreement in its
entirety without limitation of any kind. If Station complies with its
obligations set forth in the preceding sentence and NBC
-12-
<PAGE>
does not terminate this Agreement upon written notice to Station within the
thirty (30) day period following the later of the meeting with the proposed
assignee or transferee or the delivery to NBC of a satisfactory assumption
agreement, NBC shall be deemed to have consented to the assignment or transfer
of control.
(d) NBC agrees that in the event of a sale or transfer of all or
substantially all of the assets or business of NBC (whether structured as a sale
or transfer of equity or assets of NBC), NBC agrees to assign this Agreement to
the purchaser or transferee and to cause such purchaser or transferee to assume
NBC's obligations hereunder; provided that the foregoing agreement shall not
apply in the event that this Agreement becomes an obligation of such purchaser
or transferee by operation of law. Upon such assignment and assumption, NBC
shall have no liability to Station under this Agreement with respect to
obligations arising after the effective date of such assignment and assumption.
17. UNAUTHORIZED COPYING AND TRANSMISSION. Station shall not authorize,
cause, or permit, without NBC's consent, any program or other material furnished
to Station hereunder to be recorded, duplicated, rebroadcast or otherwise
transmitted or used for any purpose other than broadcasting by Station as
provided herein. Notwithstanding the foregoing, Station shall not be restricted
in the exercise of its signal carriage rights pursuant to any applicable rule
or regulation of the FCC with respect to retransmission of its broadcast signal
by any cable system or multichannel video program distributor ("MVPD"), as
defined in Section 76.64(d) of the FCC Rules, which (a) is located within the
Area of Dominant Influence ("ADI"), as defined by Arbitron, in which Station is
located, or (b) was actually carrying Station's signal as of April 1, 1993, or
(c) with respect to cable systems, serving an area in which Station is
"significantly viewed" (as determined by the FCC) as of April 1, 1993; provided,
however, that any such exercise pursuant to FCC Rules with respect to NBC
programs shall not be deemed to constitute a license by NBC; and PROVIDED,
FURTHER, that at such time as NBC adopts a term in substitution for the term
"ADI" by reason of any similar action by the FCC or other appropriate authority,
such substitute term shall replace the references to "ADI" herein. NBC reserves
the right to restrict such signal carriage with respect to NBC programming in
the event of a change in applicable law, rule or regulation.
18. LIMITATIONS ON RETRANSMISSION CONSENT. In consideration of the grant
by NBC to Station of the non-duplication protection provided in the most recent
amendment to this Agreement, Station hereby agrees as follows:
(a) Station shall not grant consent to the retransmission of its
broadcast signal by any cable television
-13-
<PAGE>
system, or except as provided in Paragraph 18(b) below, to any other MVPD whose
carriage of broadcast signals requires retransmission consent, if such cable
system or MVPD is located outside the ADI to which Station is assigned, unless
Station's signal was actually carried by such cable system or MVPD as of
April 1, 1993, or, with respect to such cable system, is "significantly viewed"
(as determined by the FCC) as of April 1, 1993; provided, however, that at each
renewal of this Agreement, in the event Station can demonstrate to NBC that it
is "significantly viewed" (as determined by the FCC) in areas in addition to
those in which it was "significantly viewed" as of April 1,1993 ("Additional
Viewing Areas"), NBC agrees that it will negotiate in good faith with Station
regarding a possible extension of Station's grant of the right to retransmit its
broadcast signal to cable systems in the Additional Viewing Areas.
(b) Station shall not grant consent to the retransmission of its
broadcast signal by any MVPD that provides such signal to any home satellite
dish user, unless such user is located within Station's own ADI or is an
"unserved household" as defined in Section 119(d) or any successor provision of
Title 17 of the United States Code.
19. REMEDIES FOR UNAUTHORIZED COPYING AND TRANSMISSION. If Station
violates any of the provisions set forth in Paragraphs 17 and 18 above, NBC may,
in addition to any other of its rights or remedies at law or in equity under
this Agreement or any amendment thereto, terminate this Agreement by written
notice to Station given at least ninety (90) days prior to the effective date of
such termination.
20. "BRANDING" PLAN. NBC agrees to work with the Station to "brand" the
Station as an "NBC Station" in the Station's market through cooperative efforts
in areas such as on-air promotion, unified graphic design, use of the NBC
peacock logo and NBC identification. In connection with such efforts, NBC will
make available to the Station the expertise of the NBC Advertising and Promotion
department and appropriate access to NBC research. Station agrees to work with
NBC to establish a mutually acceptable Branding Plan that preserves the
Station's image as the local news leader in Station's Market while incorporating
the use of the NBC Peacock logo in Station's identification.
21. HDTV CONVERSION. Station acknowledges that its obligations hereunder
shall extend to any additional spectrum allocated to Station or any of its
affiliated entities and utilized for advanced or high definition television
transmissions on a simulcast basis with Station's current NTSC channel. Without
limiting the generality of any other provision hereof, in the event that Station
or any of its affiliated entities transmits an advanced/high definition
television ("ATV") signal
-14-
<PAGE>
in Station's community of license, Station agrees that, to the extent that NBC
provides an ATV feed containing NBC programming otherwise provided to Station
hereunder, Station shall transmit or cause the transmission of NBC programming
contained in such ATV feed in a manner consistent with Station's clearance
obligations hereunder. It is the parties intention that such NBC programming
contained in such feed shall be transmitted on the ATV channel allocated to
Station (or an affiliated entity) on a "paired" basis with Station's current
NTSC channel; notwithstanding the foregoing, Station agrees that, in any event,
NBC programming in an ATV feed shall be transmitted on the ATV channel which
transmits the preponderance of Station's locally produced programming (including
news) and syndicated programming that is transmitted on Station's NTSC channel
and is also available in an ATV format. To the extent that Station is not
transmitting an ATV signal, NBC shall be permitted to offer NBC programming
in an ATV format to any licensee transmitting an ATV signal in Station's
community of license without complying with the provisions of Paragraphs 2(b),
2(c) or 14 hereof. The foregoing commitments are conditioned upon the
promulgation of FCC regulations authorizing ATV transmissions (the "ATV Rules")
which are not inconsistent with such commitments as they relate to ATV
transmission; in the event that the foregoing commitments are prohibited by or
are otherwise inconsistent with the ATV Rules, the parties agree to negotiate in
good faith as to mutually acceptable substitute or modified provisions which
provide for the ATV transmission of NBC programming within station's community
of license.
22. APPLICABLE LAW. The obligations of Station and NBC under this
Agreement are subject to all applicable federal, state, and local laws, rules
and regulations (including, but not limited to, the Communications Act of 1934,
as amended, and the rules and regulations of the FCC), and this Agreement and
all matters or issues collateral thereto shall be governed by the law of the
State of New York applicable to contracts negotiated, executed and performed
entirely therein (without regard to principles of conflicts of laws).
23. WAIVER. A waiver by either of the parties hereto of a breach of any
provision of this Agreement shall not be deemed to constitute a waiver of any
preceding or subsequent breach of the same provision or any other provision
hereof.
24. NOTICES. Any notices hereunder shall be in writing and shall be given
by personal delivery, overnight courier service, or registered or certified
mail, addressed to the respective addresses set forth on the first page of this
Agreement or at such other address or addresses as may be specified in writing
by the party to whom the notice is given. Such notices shall be deemed given
when personally delivered, delivered to an overnight courier service or mailed,
except that notice of change of address shall be effective only from the date of
its receipt.
-15-
<PAGE>
25. CAPTIONS. The captions of the paragraphs in this Agreement are for
convenience only and shall not in any way affect the interpretation hereof.
26. ENTIRE AGREEMENT. The foregoing constitutes the entire agreement
between Station and NBC with respect to the subject matter hereof, all prior
understandings being merged herein, except for the most recent amendment with
respect to network non-duplication protection under FCC Rules Section 76.92.
This Agreement may not be changed, modified, renewed, extended or discharged,
except as specifically provided herein or by an agreement in writing signed by
the parties hereto.
27. CONFIDENTIALITY. The parties agree to use their best efforts to
preserve the confidentiality of this Agreement and of the terms and conditions
set forth herein, and the exhibits annexed hereto, to the fullest extent
permissible by law. The parties recognize that Section 73.3613 of the FCC's
Rules and Regulations requires the filing with the FCC of television network
affiliation agreements by each affiliate, but are unaware of any requirement for
the filing of exhibits annexed to such affiliation agreements. In the event
that the FCC should request either party to file said exhibits, that party shall
give prompt notice to the other, and shall submit said exhibits to the FCC with
a request that said exhibits be withheld from public inspection pursuant to
Section 0.459 of the FCC's Rules and Regulations on the grounds that said
exhibits contain confidential commercial or financial information that would
customarily be guarded from competitors and not be released to the public.
28. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signature to each such counterpart
were upon the same instrument.
-16-
<PAGE>
If the foregoing is in accordance with your understanding, please
indicate your acceptance on the copy of this Agreement enclosed for that purpose
and return that copy to NBC.
Very truly yours,
NATIONAL BROADCASTING COMPANY, INC.
By: /s/ John F. Damiano
--------------------------------
John F. Damiano, Senior V.P. -
Affiliate Relations
AGREED:
BUSSE BROADCASTING CORPORATION
By: /s/ James C. Ryan
-----------------------
James C. Ryan, Treasurer
WEAU LICENSE, INC.
By: /s/ James C. Ryan
-------------------------
James C. Ryan, V.P. - CFO
-17-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUSSE
BROADCASTING CORPORATION UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,239,441
<SECURITIES> 0
<RECEIVABLES> 4,180,856
<ALLOWANCES> 213,374
<INVENTORY> 806,300
<CURRENT-ASSETS> 11,711,672
<PP&E> 19,532,654
<DEPRECIATION> 2,075,782
<TOTAL-ASSETS> 87,885,138
<CURRENT-LIABILITIES> 4,796,820
<BONDS> 60,234,770
0
18,377,291
<COMMON> 1,077
<OTHER-SE> 3,872,063
<TOTAL-LIABILITY-AND-EQUITY> 87,885,138
<SALES> 0
<TOTAL-REVENUES> 6,070,495
<CGS> 0
<TOTAL-COSTS> 5,564,531
<OTHER-EXPENSES> (104,448)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,203,243
<INCOME-PRETAX> (1,592,831)
<INCOME-TAX> 25,000
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,617,831)
<EPS-PRIMARY> (24.74)
<EPS-DILUTED> (1.237)
</TABLE>
