BUSSE BROADCASTING CORP, 10-K405, 1998-03-25

BUSSE BROADCASTING CORP
10-K405, 1998-03-25
TELEVISION BROADCASTING STATIONS

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

_____________

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

_____________

For the fiscal year ended December 28, 1997 Commission file number 33-99622

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

DELAWARE 38-2750516
(State of Incorporation or organization) (IRS Employer Identification No.)

141 East Michigan Avenue, Suite 300
Kalamazoo, Michigan 49007
(616) 388-8019
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)

_____________

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

None.

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

None.

_____________

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

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

As of March 25, 1998, 107,700 shares of Busse Broadcasting Corporation
Common Stock were outstanding. None of the outstanding shares were held by
non-affiliates.

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
____ _____

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of Item 14 of Part IV are incorporated by reference to:
Busse Broadcasting Corporation's 1995 Registration Statement on Form S-1
(Commission File No. 33-99622) and certain exhibits to such 1995 Registration
Statement on Form S-1, Busse Broadcasting Corporation's Report on Form 8-K
filed on September 6, 1996, Busse Broadcasting Corporation's Report on Form
8-K filed on December 27, 1996, Busse Broadcasting Corporation's Report on
Form 8-K filed on October 15, 1997, Busse Broadcasting Corporation's Report
on Form 8-K filed on January 15, 1998, Busse Broadcasting Corporation's
Report on Form 8-K filed on February 18, 1998 and Busse Broadcasting
Corporation's Report on Form 8-K filed on March 6, 1998.
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PART I

ITEM 1. BUSINESS.

Busse Broadcasting Corporation (the "Company" or "Busse"), directly or
through wholly-owned subsidiaries, owns and operates two network-affiliated
very high frequency ("VHF") television stations: KOLN/KGIN-TV, an integrated
broadcast station serving Lincoln and Grand Island, Nebraska, and WEAU-TV
serving Eau Claire and La Crosse, Wisconsin (collectively, the "Stations").
KOLN/KGIN-TV is affiliated with CBS, Inc. ("CBS") and WEAU-TV is affiliated
with National Broadcasting Company, Inc. ("NBC"). KOLN/KGIN-TV and WEAU-TV
broadcast in the 101st and 129th largest national media markets ("DMAs"),
respectively. The Company's operating strategy for the Stations is (i) to
increase viewership and advertising revenues and (ii) to maintain control of
operating and programming costs, working capital and capital expenditures
without sacrificing the quality of broadcasting services local audiences have
come to expect from the Stations.

CORPORATE HISTORY, RESTRUCTURING, PENDING SALE OF THE COMPANY'S CAPITAL STOCK

The Company was incorporated in June 1987 and acquired its initial
operations, consisting of five television stations, including the Stations,
and Winnebago Color Press ("Winnebago"), a commercial printing facility, in
August 1987 from Gillett Holdings, Inc. ("GHI") and various parties
affiliated with GHI for an aggregate purchase price of approximately $148.5
million (the "Acquisition"). The Acquisition was financed primarily through
the Company's (i) issuance of $110.0 million face amount ($45.4 million in
net proceeds) of Zero Coupon Senior Notes due August 15, 1994 (the "Zero
Coupon Notes") and $30.0 million principal amount of Senior Subordinated
Debentures due August 15, 1999 (the "Subordinated Debentures"), (ii)
borrowing of approximately $58.1 million under a credit facility with a bank
group (the "Old Credit Agreement") and (iii) assumption of a subordinated
promissory note in the principal amount of $15.0 million (the "Subordinated
Note").

On September 15, 1988, the Company sold WRLH-TV, Richmond, Virginia, for
gross proceeds of approximately $7.9 million plus the assumption by the
purchaser of $3.9 million in liabilities associated with WRLH-TV.
Approximately $7.0 million of the net cash proceeds from the sale of WRLH-TV
were used to reduce certain of the Company's outstanding bank debt.

On February 12, 1991, the Company sold KOKH-TV, Oklahoma City, Oklahoma,
for net proceeds of approximately $7.0 million to an affiliate of a
substantial holder of the Company's then outstanding preferred stock. The net
cash proceeds from the sale of KOKH-TV were used to reduce certain of the
Company's outstanding indebtedness.

At the time of the Acquisition, the Company anticipated that the debt
incurred in connection therewith would be repaid through cash flow from
operations and the sale of one or more of its broadcast properties. Shortly
after the Acquisition, the television industry began a period of reduced
growth in revenues that reached a low point in 1991 when industry revenues
experienced an absolute decline for the first time since cigarette
advertising on television was banned in the early 1970's. The combined effect
on the Company of declining operating cash flows and reduced values for asset
sales led management to conclude that the Company would be unable to service
its then existing indebtedness. Accordingly, the Company commenced
negotiations with its primary creditors to restructure the Company's
indebtedness. These negotiations resulted in a series of amendments and
waivers to the instruments governing such indebtedness. The primary effects
of these amendments and waivers were to restructure the scheduled
amortization of the indebtedness under the Old Credit Agreement, and to defer
or modify the interest payment obligations on certain of its other
indebtedness. As of October 1994, the Company was in default with respect to
approximately $196.9 million of the indebtedness incurred in connection with
the Acquisition and it became necessary for the Company to explore a more
permanent restructuring of its capitalization. The restructuring negotiations
initiated by the Company at that time principally involved lenders under the
Old Credit Agreement and Greycliff Partners, the investment adviser to
certain investment funds (the "South Street Investment Funds"), which,
immediately prior to the Restructuring (as defined herein), held
approximately 98% of the Company's non-bank indebtedness.

As an outcome of such negotiations, on May 3, 1995 (the "Effective
Date") the Company completed a comprehensive restructuring of its debt and
equity (the "Restructuring") through the implementation of a prepackaged plan
of reorganization (the "Plan") that was confirmed on April 20, 1995 under
Chapter 11 of the United States

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Bankruptcy Code by the United States Bankruptcy Court for the district of
Delaware. The total outstanding debt of the Company immediately prior to the
Effective Date equaled approximately $222.4 million, including accrued
interest. On the Effective Date, the following transactions were consummated
pursuant to the Plan:

- Approximately $4.6 million of indebtedness outstanding under the
Old Credit Agreement was paid in cash and the balance of debt outstanding
thereunder, or $10.4 million, was exchanged for a like principal amount of
term notes accruing interest at 10.5% per annum under a credit agreement (the
"Credit Agreement").

- The Zero Coupon Notes, Subordinated Debentures, Subordinated Note
and certain other indebtedness (which evidenced claims aggregating
approximately $207.0 million as of the Effective Date) were exchanged for
approximately $110.0 million in principal amount of 7.38% Secured Senior
Subordinated Pay-In-Kind Notes (the "Secured Senior Subordinated Notes") and
approximately $97.0 million in principal amount of 7.38% Junior Subordinated
Pay-In-Kind Notes (the "Junior Subordinated Notes").

- All rights and claims of the holders of the Company's then
outstanding capital stock (or interests to acquire such stock) were
extinguished.

- Substantially all other obligations of the Company, including trade
payables and other general unsecured obligations, were unaffected by the
Restructuring.

- The Company issued 100% of its common stock, $0.01 par value per
share (the "Common Stock"), to holders of Zero Coupon Notes on a pro rata
basis based on the aggregate face amount of Zero Coupon Notes owned by such
holders of record. As a result of such issuance, the South Street Investment
Funds acquired approximately 98% of the Common Stock.

- Messrs. Lawrence A. Busse, W. Don Cornwell and Stuart J. Beck were
appointed as members of the Board of Directors of the Company. Under the
terms of the Plan, Messrs. Cornwell and Beck, each of whom is an executive
officer, director and stockholder of Granite Broadcasting Corporation
("Granite"), were prohibited from voting on any matter pertaining to the WWMT
Sale (as defined herein).

On September 21, 1995, the United States Bankruptcy Court for the
District of Delaware issued an order closing the case pursuant to which the
Restructuring was effected.

WWMT SALE

On February 17, 1995, the Company contributed all of the assets and
liabilities related to WWMT-TV, Kalamazoo, Michigan ("WWMT"), to a
wholly-owned subsidiary, WWMT, Inc., in exchange for all of the capital stock
of the subsidiary.

On June 1, 1995, the Company completed the sale of substantially all of
the assets of WWMT to Granite for gross proceeds of $99.4 million (the "WWMT
Sale"). The gain for federal income tax purposes attributable to the WWMT
Sale was offset against and reduced the Company's available net operating
loss ("NOL") carryover. During June 1995, approximately $97.0 million of the
net proceeds from the WWMT Sale were used to (i) repay all outstanding
borrowings under the Credit Agreement in an amount equal to $10.4 million
plus accrued and unpaid interest through the date of redemption, (ii)
purchase (and retire) $1.3 million aggregate principal amount of Secured
Senior Subordinated Notes, $1.2 million aggregate principal amount of Junior
Subordinated Notes and 2,300 shares of Common Stock, all held by an
unaffiliated third party, for an aggregate purchase price of $2.6 million
including accrued and unpaid interest through the date of purchase and (iii)
redeem $83.1 million aggregate principal amount of the Secured Senior
Subordinated Notes held by the South Street Investment Funds at 100% of the
principal amount thereof, plus accrued and unpaid interest thereon, for an
aggregate redemption price of $84.0 million. As a result of the foregoing
transactions, the South Street Investment Funds presently own 100% of the
issued and outstanding Common Stock. WWMT, Inc. changed its name to Busse
Management, Inc. as of May 3, 1995 and further changed its name to KOLN/KGIN,
Inc. as of October 19, 1995.

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ISSUANCE OF SENIOR NOTES; REDEMPTION OF JUNIOR SUBORDINATED NOTES FOR CASH
AND SERIES A PREFERRED STOCK AND EXCHANGE OF SENIOR NOTES.

On October 26, 1995, the Company issued and sold $62,527,000 principal
amount of its 11 5/8% Senior Secured Notes due October 15, 2000 ("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. The Senior Notes are senior secured
obligations of the Company secured by all of the Company's equity interests
in and certain intercompany indebtedness of its subsidiaries, including the
License Subsidiaries (as defined herein) which hold the Federal Communication
Commission ("FCC") licenses of the Stations, certain agreements and contract
rights related to the 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. The
Senior Notes rank senior in right of payment to all existing and future
subordinated indebtedness of the Company and PARI PASSU with all existing and
future senior indebtedness of the Company. The Senior Notes are fully and
unconditionally guaranteed (together with the guarantees of the Exchange
Notes (as defined herein), the "Guarantees") on a senior secured basis by all
of the subsidiaries of the Company (the "Guarantors") on a joint and several
basis. See Note 6 of Notes to Consolidated Financial Statements for the
period ended December 29, 1996 included herein.

A portion of the net proceeds from the issuance of the Senior Notes was
used by the Company on October 26, 1995 to redeem all of the outstanding
Secured Senior Subordinated 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. On January 12, 1996, the Company effected a redemption, without
penalty or premium, of 100% of the aggregate principal amount of the Junior
Subordinated Notes, plus interest accrued thereon to the date of redemption
(the "Junior Subordinated Note Redemption"), as follows: (i) cash on hand of
approximately $3,193,409 (the "Excess Cash") plus the funds deposited in the
Escrow Account and interest earned thereon was used to redeem certain of the
Junior Subordinated Notes at a cost of $35,241,061 and (ii) the balance of
the Junior Subordinated Notes not redeemed for cash were 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 South Street Investment
Funds beneficially own 100% of the Series A Preferred Stock.

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.

CORPORATE REORGANIZATION

In connection with and prior to the issuance of the Senior Notes, the
Company completed a corporate reorganization (the "Corporate Reorganization")
pursuant to which (i) all of the assets and liabilities relating to the
ownership and operation of KOLN/KGIN-TV were contributed to KOLN/KGIN, Inc.
(formerly Busse Management, Inc. and previously WWMT, Inc.), a Delaware
corporation and a wholly owned subsidiary of the Company, (ii) KOLN/KGIN,
Inc., in turn, transferred the FCC licenses relating to KOLN/KGIN-TV to
KOLN/KGIN License, Inc., a Delaware corporation, in exchange for all of the
issued and outstanding capital stock of KOLN/KGIN License, Inc. and (iii) the
FCC licenses relating to WEAU-TV were transferred to WEAU License, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Company, in
exchange for all of the issued and outstanding capital stock of WEAU

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License, Inc. and a promissory note that is subordinated to the Senior Notes,
the Guarantees and all other obligations under the Indenture and the related
collateral agreements. In connection with the Corporate Reorganization,
KOLN/KGIN License, Inc. and WEAU License, Inc. (collectively, the "License
Subsidiaries") also entered into agreements that provide the Company and
KOLN/KGIN, Inc. with the exclusive right to use the FCC licenses relating to
WEAU-TV and KOLN/KGIN-TV, respectively. The Corporate Reorganization was
effected, among other things, to facilitate the collateral arrangements to be
entered into in connection with the issuance of the Senior Notes. The Senior
Notes and the Guarantees are secured by all of the Company's equity interests
in, and intercompany indebtedness of, its subsidiaries, including the License
Subsidiaries, certain agreements and contract rights related to the Stations,
certain machinery, equipment, fixtures and general intangibles of the Company
and its subsidiaries, mortgages on substantially all of the owned and certain
of the leased real property of the Company and its subsidiaries and proceeds
thereof.

WINNEBAGO SALE

On December 27, 1996, the Company entered into a Buy and Sell Agreement
(the "Buy and Sell Agreement"), with Winnebago Color Press, Inc. ("WCP"), a
Wisconsin corporation and a company affiliated with Mr. Lawrence A. Busse,
Chairman and Chief Executive Officer of the Company, pursuant to which the
Company sold substantially all of the assets of Winnebago, the Company's sole
operations within the printing segment, to WCP for aggregate consideration of
$3,327,856 in cash plus (i) the assumption by WCP of $369,638 of certain
current liabilities and (ii) the additional assumption by WCP of certain
other liabilities as set forth in the Buy and Sell Agreement (collectively,
the "Winnebago Asset Sale"). The Company received net proceeds from the
Winnebago Asset Sale of approximately $3,207,000 including a working capital
purchase price adjustment payment of approximately $102,857 received by the
Company in February 1997. In connection with the sale, the Company received
an opinion from an investment banking firm to confirm that the terms of the
sale were fair to the Company and its stockholders from a financial point of
view.

On February 12, 1997, pursuant to the indenture under which the
Senior Notes were issued (the "Indenture"), the Company commenced an offer to
purchase the maximum principal amount of Senior Notes that may be purchased
with the $3,207,000 of net proceeds from the Winnebago Asset Sale at an offer
price in cash per $1,000 principal amount equal to 100% of the Accreted Value
(as defined in the Indenture) (the "Winnebago Asset Sale Offer"). On March
14, 1997, the Winnebago Asset Sale Offer expired by its terms. Upon such
expiration, no Senior Notes had been tendered by noteholders and
consequently, no Senior Notes were purchased by the Company pursuant to the
Winnebago Asset Sale Offer. Pursuant to the terms of the Indenture, the
Company may only utilize the $3,207,000 in net proceeds to make investments
in or acquire properties and assets directly related to television or radio
broadcasting, all as more fully described in the Indenture.

PENDING SALE OF THE COMPANY'S CAPITAL STOCK

On February 13, 1998, the Company, all of the holders of record of the
Company's capital stock (the "Stockholders") and Gray Communications Systems,
Inc., a Georgia Corporation ("Gray"), entered into a definitive purchase
agreement (the "Stock Purchase Agreement") whereby Gray agreed to acquire,
and the Stockholders agreed to sell, all of the capital stock of the Company
for the aggregate purchase price of (i) $112 million, plus (ii) the Company's
cash and cash equivalents, less (iii) the aggregate amount of the Company's
indebtedness and accrued and unpaid interest thereon, including the accreted
amount of the Senior Notes (the "Gray Sale"). The value of the Company's
cash, cash equivalents and aggregate indebtedness will be determined as of
the close of business on the business day immediately preceding the closing
date of the Stock Purchase Agreement.

Consummation of the transactions contemplated by the Stock Purchase
Agreement is subject to the receipt of requisite governmental approvals,
including the approval of the FCC. The Company can make no assurance as to
whether the transactions contemplated by the Stock Purchase Agreement will be
completed, but currently anticipates that such transactions will close on or
before September 1, 1998.

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COMPANY AND INDUSTRY OVERVIEW

TELEVISION

INDUSTRY BACKGROUND

Commercial television broadcasting began in the United States on a
regular basis in the 1940s. Currently there are a limited number of channels
available for broadcasting in any one geographic area and the license to
operate a broadcast station is granted by the FCC. Television stations can be
distinguished by the frequency on which they broadcast. Historically,
television stations that have broadcast over the VHF band (channels 2-13) of
the spectrum generally have had some competitive advantage over television
stations that broadcast over the UHF band (channels above 13) of the spectrum
because the former usually have better signal coverage and operate at a lower
transmission cost. The improvement of UHF transmitters and receivers, the
complete elimination from the marketplace of VHF-only receivers and the
expansion of cable television systems have reduced the VHF signal advantage.
Further, in television markets in which all local stations are UHF stations,
no competitive disadvantage exists.

Television station revenues are primarily derived from local, regional
and national advertising and, to a lesser extent, from network compensation
and revenues from studio or transmission tower rentals and commercial
production activities. Advertising rates are based upon a program's
popularity among the viewers an advertiser wishes to attract, the number of
advertisers competing for the available time, the size and demographic
make-up of the market served by the station and the availability of
alternative advertising media in the market area. Rates are also determined
by a station's overall ratings and share in its market, aggressive and
knowledgeable sales forces and development of projects, features and
marketing programs that tie advertising messages to programming. Since
broadcast television stations rely on advertising revenues, declines in
advertising budgets, particularly in recessionary periods, adversely affect
the broadcast industry.

Historically, three major broadcast networks -- Capital Cities/ABC, Inc.
("ABC"), NBC and CBS -- dominated broadcast television. In recent years, the
Fox Broadcasting Company ("Fox") has effectively evolved into the fourth
major network, although the hours of network programming produced by Fox for
its affiliates are less than those produced by the other three major
networks. In addition, United Paramount Network ("UPN") and WB Television
Network ("WB Network") have been launched as new television networks and
other companies have announced plans to launch networks in the near future.

Whether a station is affiliated with one of the four major networks,
NBC, ABC, CBS or Fox, has a significant impact on the composition of the
station's revenues, expenses and operations. A typical network affiliate
receives a significant portion of its programming each day from the network.
This programming, along with cash payments, is provided to the affiliate by
the network in exchange for a substantial majority of the advertising
inventory during network programs. The network then sells this advertising
time and retains the revenues so generated. The affiliate retains the
revenues from time sold during breaks in and between network programs and
during programs produced by the affiliate or purchased from non-network
sources.

In acquiring programming to supplement programming supplied by the
affiliated network, network affiliates compete primarily with other
affiliates and independent stations in their markets. Cable systems generally
compete with local stations for programming, and various national cable
networks from time to time have acquired programs that would have otherwise
been offered to local television stations. Public broadcasting outlets in
most communities compete with commercial broadcasters for viewers, but, with
the exception of the use of "donor acknowledgments," not for advertising. In
addition, a television station may acquire programming through other
arrangements. For instance, barter and cash-plus-barter arrangements are
becoming increasingly popular with both network affiliates and independent
stations. Under such arrangements, a national program distributor typically
retains up to 50% of the available advertising time for programming it
supplies in exchange for reduced fees for such programming.

An affiliate of UPN or WB Network receives a smaller portion of each day's
programming from its network compared to an affiliate of a major network. As a
result of the smaller amount of programming provided by their

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network, affiliates of UPN or WB Network must purchase or produce a greater
amount of their programming, resulting in generally higher programming costs.
These stations, however, retain a larger portion of the inventory of
advertising time and the revenues obtained therefrom compared to stations
affiliated with the major networks. In contrast, a fully independent station
purchases or produces all of the programming that it broadcasts, resulting in
generally higher programming costs, although the independent station is, in
theory, able to retain its entire inventory of advertising and all of the
revenue obtained therefrom.

Through the 1970s, prior to the advent of competing technologies for the
delivery of video programming to television viewers and the rise of
independent stations as viable competitors to network affiliates, television
broadcasting enjoyed virtual dominance of television viewership and
television advertising revenues, and network-affiliated stations competed
primarily only with each other in local markets. FCC regulation of the
broadcast industry evolved to address this environment consisting of only
three commercial broadcast networks, with the focus on encouraging increased
competition and diversity of viewpoints and programming in the television
broadcasting industry.

Cable television systems were first installed in significant numbers in
the early 1970s and were initially used to retransmit broadcast television
programming to paid subscribers in areas with poor broadcast signal
reception. In contrast to broadcast television stations, the primary source
of revenues for cable systems is subscriber fees. As the technology of
satellite program delivery to cable systems advanced in the late 1970s,
development of programming for cable accelerated dramatically. The emergence
of multiple, national-scale program alternatives, in turn, fueled the rapid
expansion of cable television and produced high subscriber growth rates.
Aggregate cable-originated programming has emerged as a significant
competitor for viewers of broadcast television programming, although no
single cable programming network regularly attains audience levels amounting
to more than a small fraction of any single major broadcast network.

Other developments have also affected television programming and
delivery. Independent stations have emerged as viable competitors for
television viewership share and have stimulated the development of new
television networks, two of which, UPN and WB Network, were launched in early
1995. In addition, there has been substantial growth in the number of home
satellite dish receivers, direct broadcast satellite receivers, VCRs and
other video delivery systems, which has further expanded the number of
programming alternatives for household audiences.

Further advances in technology may increase competition for household
audiences and video compression techniques, now in development, are expected
to reduce the bandwidth required for television signal transmission. These
compression techniques, as well as other technological developments, are
applicable to all video delivery systems and have the potential to provide
vastly expanded programming to highly targeted audiences. Reduction in the
cost of creating additional channel capacity could lower entry barriers for
new channels and encourage the development of increasingly specialized
"niche" programming. This ability to reach very defined audiences is expected
to alter the competitive dynamics for advertising expenditures. See "--
Competition".

THE STATIONS

The table below presents historical data regarding the television
revenues, homes and relative market rank for the Lincoln-Hastings-Kearney,
Nebraska (including Grand Island, Nebraska) and the LaCrosse-Eau Claire,
Wisconsin television markets. Additionally, individual station rank and
audience share within their respective markets are shown for KOLN/KGIN-TV and
WEAU-TV.

<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
----- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
LINCOLN, HASTINGS, KEARNEY AND GRAND ISLAND, NEBRASKA
Market gross revenue in thousands (1) . . . . . . . . - $21,100 $19,600 $20,100 $18,000 $17,400
Market revenue growth (decline) from prior period . . - 7.7% -2.5% 11.7% 3.5% 7.4%
Market rank (DMA) (2) . . . . . . . . . . . . . . . . 101 101 101 101 100 98
Television homes (in thousands) (2) . . . . . . . . . 253 252 249 248 245 250
Total commercial competitors in market (3) . . . . . 4 4 3 3 3 3
Station rank in market (4) . . . . . . . . . . . . . 1 1 1 1 1 1
Station audience share (5) . . . . . . . . . . . . . 24 24 25 29 29 30
</TABLE>

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<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992
----- ------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
LA CROSSE AND EAU CLAIRE, WISCONSIN
Market gross revenue in thousands (1) . . . . . . . . - $22,500 $20,300 $19,400 $16,600 $16,700
Market revenue growth (decline) from prior period . . - 10.8% 4.6% 16.9% -0.1% 15.2%
Market rank (DMA) (2) . . . . . . . . . . . . . . . . 129 130 135 135 135 134
Television homes (in thousands) (2) . . . . . . . . . 179 177 165 165 164 162
Total commercial competitors in market (3) . . . . . 4 4 4 4 4 4
Station rank in market (4) . . . . . . . . . . . . . 1 1 1 1 1 1
Station audience share (6) . . . . . . . . . . . . . 23 27 25 24 26 27

</TABLE>
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(1) Total broadcast television revenues in the DMA, as estimated and reported
by BIA Publications Inc. in "Investing in Television 1997," 3rd Edition
(the "BIA Guide").
(2) Based on the Nielsen Station Index Report for the
period indicated.
(3) Total number of commercial broadcast television stations in the DMA
delivering at least 1% of the 7am -1am Sunday through Saturday ("Sign-on
to Sign-off") audience.
(4) Station's rank in market based on its share of total viewing on
commercial broadcast television stations in the market, Sign-on to
Sign-off.
(5) Station's share of total viewing of commercial broadcast television
stations, Sign-on to Sign-off, based on the (a) average derived from the
February, May, July and November Television Market Reports published by
Arbitron Company ("Arbitron") for 1992 and (b) average derived from the
February, May, July and November Nielsen Station Index Reports for 1993,
1994, 1995, 1996 and 1997.
(6) Station's share of total viewing of commercial broadcast television
stations, Sign-on to Sign-off, based on the average derived from the
February, May, July and November Nielsen Station Index Reports for each of
the periods indicated.

KOLN/KGIN-TV, LINCOLN AND GRAND ISLAND, NEBRASKA

The Lincoln-Hastings-Kearney, Nebraska DMA is the 101st largest, which
includes an estimated 253,040 television households. The economy in the
Lincoln-Hastings-Kearney region is based primarily on state government,
medical services, agriculture and education including the University of
Nebraska. As of December 1997, unemployment in the Lincoln metropolitan area
was approximately 1.3%, one of the lowest rates in the country. According to
the BIA Guide, the average household income in the Lincoln-Hastings-Kearney
market in 1995 was $37,040, with effective buying income projected to grow at
an annual rate of 4.6% through 2000. Historically, retail sales growth has
been closely correlated with expenditures on broadcast television advertising
in a given market. Retail sales growth in this market is projected by the BIA
Guide to average 4.8% annually through 2000.

KOLN-TV began operations in 1953 and its satellite station KGIN-TV
commenced operations in 1961. KOLN/KGIN-TV is affiliated with CBS. The
Lincoln-Hastings-Kearney DMA is a geographically large market covering most
of the western two-thirds of Nebraska. KOLN/KGIN-TV, through its broadcast
signal translators across the state, provides coverage of the entire market.
For the November 1997 rating period, KOLN/KGIN-TV had an audience Sign-on to
Sign-off share of 24%, compared to 10%, 5% and 5% for its closest
competitors.

On December 31, 1997, the Company entered into an option agreement (the
"Channel 45 Option") with McPike Communications, Inc. ("McPike") to provide
McPike with funding in connection with its FCC application for, and
construction of, Channel 45 in Lincoln, Nebraska, a UHF channel ("Channel
45"), and to provide the Company with an option to purchase the assets
relating to Channel 45. A principal officer of McPike is the controller for
KOLN/KGIN-TV. Except for certain nominal amounts, the Company intends to
invest such funds only after receipt of requisite FCC and other governmental
approvals of the proposed transactions. The funds are expected to be provided
to McPike primarily in the form of a secured loan. In exchange for such
financial assistance, McPike will, subject to the receipt of requisite FCC
and other governmental approvals, including the grant of the Channel 45
license, enter into a local marketing agreement (an "LMA") with the Company.
An LMA involves the payment of a fee to and/or expenses of a station licensee
in exchange for the rights to provide programming to a station and to retain
revenues derived from the sale of advertising in such programming. In
consideration of the Channel 45 LMA, the Company will agree to pay all of
such station's operating expenses. The Company intends (subject to requisite
FCC and other governmental approvals) to operate Channel 45 under such an LMA
but is presently unable to predict whether the requisite FCC and other
governmental approvals will be received or the timing of such approvals.
Pursuant to the Channel 45 Option, the Company has agreed to pay to McPike
(i) $25,000 within 10 days of a final FCC grant of a construction permit to
McPike for Channel 45, (ii) $25,000 less any amounts received by McPike as
the result of a settlement in the event the construction permit for Channel
45 is granted to any other party or (iii) a $25,000 termination fee in the
event the Company wishes to terminate the Channel 45 Option in order to
perform its obligations under the Channel 51 Option

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<PAGE>

(described below). The Channel 45 Option will have a term of 10 years
following program test authority for McPike's Channel 45 facility, but can be
extended by the Company for an additional 10 years upon payment by the
Company to McPike of $25,000. The Company's exercise price to purchase the
Channel 45 assets is the greater of $100,000 or an amount equal to the
outstanding principal balance and accrued interest on the secured loan plus a
cash payment of $25,000. The Channel 45 Option also provides for a five-year
lease to install the Channel 45 antenna on the KOLN-TV tower and the Channel
45 transmitter at a suitable location on the KOLN-TV tower site, for a
monthly rental of $2,500. On November 6, 1995, Citadel Communications, Ltd.
("Citadel") filed with the FCC a petition to deny McPike's application for
Channel 45. Citadel's petition asserts, among other things, that the
Company's proposed interest in Channel 45 is so substantial that it violates
the FCC's multiple station ownership restrictions. Although McPike has
opposed Citadel's petition, the Company cannot predict the outcome of this
proceeding. Also, on November 6, 1995, Northwest Television, Inc.
("Northwest") and Larry A. Miller ("Miller"), an individual, filed separate
applications with the FCC for Channel 45. The Miller application indicates
that the applicant intends to enter into an LMA with Pappas Telecasting of
The Midlands, a California Limited Partnership ("Pappas"). Pappas (or
affiliates of Pappas) operate, directly or indirectly, television stations
KHGI-TV (with its satellite station KWNB-TV), an ABC affiliate, and KTVG-TV
(with its satellite station KSNB-TV), affiliated with Fox and UPN, in the
Lincoln-Hastings-Kearney market. In addition, Pappas (or an affiliate of
Pappas) owns and operates KPTM-TV, a Fox affiliate in the adjacent Omaha,
Nebraska television market. In addition, on November 7, 1995, Walnut Creek
Telecasting ("Walnut Creek") filed an application with the FCC for Channel
45. The McPike, Northwest, Miller and Walnut Creek applications for Channel
45 are mutually exclusive. On December 14, 1995, Northwest, Miller and
Walnut Creek filed a proposed settlement agreement with the FCC pursuant to
which, if approved by the FCC, Northwest and Walnut Creek would withdraw
their respective applications in return for certain payments from Miller.
However, one of the parties has subsequently attempted to withdraw from the
proposed settlement and the effect of such attempted withdrawal is unclear.

On December 31, 1997, the Company entered into an option agreement (the
"Channel 51 Option") with Mr. David M. Comisar ("Comisar") to provide Comisar
with funding in connection with his FCC application for, and construction of,
Channel 51 in Lincoln, Nebraska, a UHF channel ("Channel 51"), and to provide
the Company with an option to purchase the assets relating to Channel 51.
Except for certain nominal amounts, the Company intends to invest such funds
only after receipt of requisite FCC and other governmental approvals of the
proposed transactions. The funds are expected to be provided to Comisar
primarily in the form of a secured loan. In exchange for such financial
assistance, Comisar will, subject to the receipt of requisite FCC and other
governmental approvals, including the grant of the Channel 51 license, enter
into an LMA with the Company. In consideration of the Channel 51 LMA, the
Company will agree to pay all of such station's operating expenses. The
Company intends (subject to requisite FCC and other governmental approvals)
to operate Channel 51 under such an LMA but is presently unable to predict
whether the requisite FCC and other governmental approvals will be received
or the timing of such approvals. Pursuant to the Channel 51 Option, the
Company has agreed to pay to Comisar (i) $25,000 within 10 days of a final
FCC grant of a construction permit to Comisar for Channel 51, (ii) $25,000
less any amounts received by Comisar as the result of a settlement in the
event the construction permit for Channel 51 is granted to any other party or
(iii) a $25,000 termination fee in the event the Company wishes to terminate
the Channel 51 Option in order to perform its obligations under the Channel
45 Option (described above). The Channel 51 Option will have a term of 10
years following program test authority for Comisar's Channel 51 facility, but
can be extended by the Company for an additional 10 years upon payment by the
Company to Comisar of $25,000. The Company's exercise price to purchase the
Channel 51 assets is the greater of $100,000 or an amount equal to the
outstanding principal balance and accrued interest on the secured loan plus a
cash payment of $25,000. The Channel 51 Option also provides for a five-year
lease to install the Channel 51 antenna on the KOLN-TV tower and the Channel
51 transmitter at a suitable location on the KOLN-TV tower site, for a
monthly rental of $2,500. Mutually exclusive applications for Channel 51 were
filed by Anthony J. Fant on June 2, 1996, by Channel 51, L.L.C. on July 23,
1996 and by World Broadcasting, Inc. and Prime Broadcasting Company on July
24, 1996.

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<PAGE>

those proposing service to underserved communities or reception areas.
Although each of McPike and Comisar has advised the Company that it intends
to prosecute fully its application for Channel 45 and Channel 51,
respectively, the Company cannot predict the outcome of the competing
applications for Channel 45 and Channel 51 or the proposed auction procedures.

In 1993, the FCC allotted VHF Channel 8 to Lincoln, Nebraska, and
modified the license of 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 October 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. On July 12, 1996 the Court of Appeals denied the Company's
appeal and dismissed its petition for review. The Company has determined not
to appeal the Court of Appeals' decision. Citadel has changed the station
call letters of Channel 8 to KLKN, and in June, 1996, commenced full power
over-the-air broadcast operations. KLKN operations have not had a material
impact upon the Company's past operations, but the Company cannot predict the
impact of KLKN operations upon the Company's future operations.

WEAU-TV, LA CROSSE AND EAU CLAIRE, WISCONSIN

The La Crosse-Eau Claire, Wisconsin DMA is the 129th largest, with an
estimated 179,050 television households. The economy in the La Crosse-Eau
Claire region is centered on skilled industry, medical services, agriculture,
education and retail businesses. The Eau Claire area had an unemployment
rate in December 1997 of approximately 3.3%. According to the BIA Guide, the
average household income in the La Crosse-Eau Claire market in 1995 was
$32,849, with effective buying income projected to grow at an annual rate of
4.5% through 2000. Retail business sales growth in this market is projected
by the BIA Guide to average 4.7% annually during the same period.

WEAU-TV, the NBC affiliate in the La Crosse-Eau Claire market, began
operations in 1953. Although 90 miles apart, the cities of La Crosse and Eau
Claire are considered by Nielsen to be a single market that includes 12
counties, ten of which are located in Wisconsin and two of which are located
in Minnesota. WEAU-TV's signal covers the entire DMA and extends into 15
counties adjacent to the DMA. WEAU-TV achieves this geographical coverage by
utilizing a 2,000 foot tower for its broadcast antenna. There are four
commercial stations in the DMA with WEAU-TV constituting one of only two
local VHF stations. For the November 1997 rating period, WEAU-TV had a 21%
share of the audience sign-on to sign-off compared to a 14%, 14% and a 11%
share, respectively, for its closest competitors.

On December 31, 1997, the Company entered into an option agreement (the
"Channel 39 Option") with McPike to provide McPike with funding in connection
with its FCC application for, and construction of, Channel 39 in Marshfield,
Wisconsin, a UHF channel ("Channel 39"), and to provide the Company with an
option to purchase the assets relating to Channel 39. Except for certain
nominal amounts, the Company intends to invest such funds only after receipt
of requisite FCC and other governmental approvals of the proposed
transactions. The funds are expected to be provided to McPike primarily in
the form of a secured loan. In exchange for such financial assistance, McPike
will, subject to the receipt of requisite FCC and other governmental
approvals, including the grant of the Channel 39 license, enter into an LMA
with the Company. In consideration of the Channel 39 LMA, the Company will
agree to pay all of such station's operating expenses. The Company intends
(subject to FCC and other governmental approvals) to operate Channel 39 under
such an LMA but is presently unable to predict whether the requisite FCC and
other governmental approvals will be received or the timing of such
approvals. Pursuant to the Channel 39 Option, the Company has agreed to pay
to McPike (i) $25,000 within 10 days of a final FCC grant of a construction
permit to McPike for Channel 39 or (ii) $25,000 less any amounts received by
McPike as the result of a settlement in the event the construction permit for
Channel 39 is granted to any other party. The Channel 39 Option will have a
term of 10 years following program test authority for McPike's Channel 39
facility, but can be extended by the Company for an additional 10 years upon
payment by the Company to McPike of $25,000. The Company's exercise price to
purchase the Channel 39 assets is the greater of $100,000 or an amount equal
to the outstanding principal balance and accrued interest on the secured loan
plus a cash payment of $25,000. The Channel 39 Option also provides for a
five-year lease to install the Channel 39 antenna on the WEAU-TV tower and
the Channel 39 transmitter at a suitable location on the WEAU-TV tower site,
for a monthly rental of $2,500. On November 25, 1997, the FCC proposed rules
to require that pending mutually exclusive applications for commercial
broadcast facilities be resolved through auctions, rather than comparative
selection procedures. For

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applications such as McPike's application for Marshfield, which was filed
prior to July 1, 1997 and against which no mutually exclusive applications
have been filed, the FCC has suggested that it might open a further window
for the filing of competing applications or permit parties who had not filed
applications to participate in an auction for such facilities. Bidding
preferences or other advantages might be given to certain types of
"designated entities," including minorities, small businesses, women, those
promoting ownership diversification, and those proposing service to
underserved communities or reception areas. The FCC has proposed the use of
Channel 39 as a second, ATV channel for WEAU-TV, which would preclude its use
by McPike at Marshfield and could jeopardize the viability of that
application. See "-Federal Regulation of Television Broadcasting - Advanced
Television Service."

NETWORK AFFILIATION

KOLN/KGIN-TV is affiliated with CBS. The affiliation agreement with CBS
relating to KOLN/KGIN-TV was renewed in July 1995, expires December 31, 2005
and is subject to automatic renewal for successive five year terms unless
either party provides notice of its intent to terminate the agreement at
least six months prior to the end of the term. Beginning January 1, 1996, the
aggregate compensation under this agreement increased to approximately
$800,000 per year. WEAU-TV is affiliated with NBC. On April 8, 1996, the
Company and WEAU License, Inc. entered into an affiliation agreement with NBC
effective as of January 1, 1996 and expiring in December 2005. This agreement
provides for automatic renewals of subsequent five year terms subject to each
party's right to terminate the agreement at the end of any term upon at least
12 months prior written notice. The basic network compensation under
WEAU-TV's network affiliation agreement with NBC will be approximately
$300,000 per annum, but provides for certain additional quarterly payments
based in part on the number of hours of NBC "prime time" programming
broadcast by the Station.

Network affiliation agreements generally require an affiliate to carry a
significant amount of network-provided programming and compensate the
affiliate for broadcasting network-provided programming. Although network
compensation payments to network affiliated stations generally account for
only 4% to 6% of a station's net revenues, network affiliation is generally
advantageous because it provides the station with competitive programming at
lower cost than may otherwise be available. In addition, certain advertising
time in these programs is made available to the local affiliate for its sale
to local advertisers.

An affiliated station's competitive position in its market is somewhat
affected by the competitive strength of its network, but network strength
does not necessarily determine an individual station's audience or its
financial performance. Local programming, particularly local news coverage,
community involvement and promotion, are important competitive factors. The
Company anticipates that its stations' network affiliations with CBS and NBC
will continue to be advantageous, and that the national television networks
will remain highly competitive with each other.

ADVERTISING SALES

Television station revenues are primarily derived from local, regional
and national advertising and, to a modest extent, from network compensation
and revenues from tower rentals and commercial production activities.
Advertising rates are based upon numerous factors including a program's
popularity among the viewers an advertiser wishes to target, the number of
advertisers competing for the available time, the size and demographic
composition of a program's audience and the availability of competing or
alternative advertising media in the market area. Because broadcast
television stations rely on advertising revenue, declines in advertising
budgets, particularly in recessionary periods, adversely affect the broadcast
industry and as a result may contribute to a decrease in the revenues of
broadcast television stations. The Company seeks to manage its spot inventory
efficiently, thereby maximizing advertising revenues.

Set forth below are the principal types of television gross revenues
(before agency and representative commissions) received by the Stations for
the periods indicated and the percentage contribution of each to the gross
television revenues of such Stations (dollars in thousands).

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<TABLE>
<CAPTION>
Year Ended
------------------------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31, JANUARY 1, JANUARY 2,
1997 1996 1995 1995 1994
---------------- --------------- -------------- --------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
------- -- ------- -- ------- -- ------- -- ------ --
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Local & Regional (a) . . . $13,232 60.51% $12,343 55.36% $12,070 60.39% $11,937 55.92% $10,728 57.08%
National (b) . . . . . . . 6,492 29.69 6,527 29.27 6,434 32.19 6,562 30.74 6,309 33.57
Network Compensation (c) . 1,390 6.36 1,371 6.15 735 3.68 753 3.53 835 4.44
Political (d) . . . . . . . 144 0.66 1,451 6.51 161 .80 1,456 6.82 381 2.03
Other Revenue (e) . . . . . 611 2.78 604 2.71 588 2.94 639 2.99 543 2.88
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total . . . . . . . . . . . $21,869 100% $22,296 100.0% $19,988 100.0% $21,347 100.0% $18,796 100.0%
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
</TABLE>
- ----------------
(a) Represents sale of advertising time to local and regional advertisers or
agencies representing such advertisers and other local sources.
(b) Represents sale of advertising time to agencies representing national
advertisers.
(c) Represents payment by networks for broadcasting network programming.
(d) Represents sale of advertising time to political advertisers.
(e) Represents miscellaneous revenue, including payment for production of
commercials.

Automobile advertising constitutes the Stations' single largest source
of gross revenues, accounting for approximately 20.4% of their total gross
revenues in 1997. Gross revenues from furniture, bedding, appliance and
department stores accounted for approximately 14.5%, gross revenues from
restaurants accounted for approximately 10.5%, gross revenues from financial
services providers accounted for approximately 3.0% and gross revenues from
medical service providers accounted for approximately 2.6% of the Company's
total gross revenues in 1997. Each other category of advertising revenue
represented less than 2.5% of the Stations' total gross revenues. Political
revenues in national or statewide election years, such as 1994 and 1996,
generally are significantly greater than political revenues in other years.

COMPETITION

Competition in the television industry exists on several levels,
including competition for audience, competition for programming (including
news) and competition for advertisers. Additional factors that are material
to a television station's competitive position include management experience,
signal coverage, local program acceptance, network affiliation, audience
characteristics, assigned frequency and strength of local competition. In
addition to the competition the Company faces from television stations in its
markets and other advertising supported media, leisure time activities, such
as sporting events and concerts, also compete for a television viewer's
leisure time. Some competitors are part of larger companies with
substantially greater financial resources than the Company.

The broadcasting industry is faced continually with technological change
and innovation, the possible rise of competing entertainment and
communications media and governmental restrictions or actions of the Congress
and federal regulatory bodies, including the FCC and the Federal Trade
Commission, any of which could have a material effect on the Company's
operations.

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

The WB Network and UPN each has been launched as a new television
network and other entities have announced plans to launch additional
networks. See "--Programming" below. The Company is unable to predict the
effect, if any, that such networks will have on the future results of the
Company's operations.

Conventional commercial television broadcasters also face competition
from other programming, entertainment and video distribution systems, the
most common of which is cable television, which has significantly increased

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competition. These other programming, entertainment and video distribution
systems can increase competition for a broadcasting station by bringing into
its market distant broadcasting signals not otherwise available to the
station's audience and also serving as distribution systems for non-broadcast
programming. Through the 1970s, prior to the advent of competing technologies
for the delivery of video programming to television viewers and the rise of
independent stations as viable competitors to network affiliates, television
broadcasting enjoyed virtual dominance of television viewership and
television advertising revenues, and network-affiliated stations competed
primarily only with each other in local markets. Although cable television
systems initially retransmitted broadcast television programming to paying
subscribers in areas with poor broadcast signal reception, significant
increases in cable television penetration in areas that did not have signal
reception problems occurred throughout the 1970s and 1980s. Programming is
now being distributed to cable television systems by both terrestrial
microwave systems and by satellite. As the technology of satellite program
delivery to cable systems advanced in the late 1970s, development of
programming for cable television accelerated dramatically, resulting in the
emergence of multiple, national-scale program alternatives and the rapid
expansion of cable television and higher subscriber growth rates.

Other sources of competition include home entertainment systems
(including video cassette recorder and playback systems, video discs and
television game devices), "wireless cable" services, satellite master antenna
television systems, low power television stations, television translator
stations, multi-point distribution systems and multichannel multi-point
distribution systems and other video delivery systems, including video
delivery over the internet. The Company's television stations also face
competition from direct broadcast satellite services which transmit
programming directly to homes equipped with special receiving antennas and
competition from video signals delivered over telephone lines. Public
broadcasting outlets in most communities compete with commercial television
stations for audience, but, with the exception of the use of "donor
acknowledgments," not for advertising dollars, although this may change as
Congress considers alternative means for the support of public television.

The broadcasting industry is continuously faced with technological
change and innovation, which could possibly have a material adverse effect on
the Company's operations and results. Video compression techniques are
expected to reduce the bandwidth required for television signal transmission.
These compression techniques, as well as other technological developments,
are applicable to all video delivery systems, including over-the-air
broadcasting, and have the potential to provide vastly expanded programming
to highly targeted audiences. Reduction in the cost of creating additional
channel capacity could lower entry barriers for new channels and encourage
the development of increasingly specialized "niche" programming. This ability
to reach very narrowly defined audiences is expected to alter the competitive
dynamics for advertising expenditure. Commercial television broadcasting may
face future competition from interactive video and data services that may
provide two-way interaction with commercial video programming, along with
information and data services that may be delivered by commercial television
stations, cable television, direct broadcast satellites, multi-point
distribution systems, multichannel multi-point distribution systems or other
video delivery systems. The Company is unable to predict the effect that
these or other technological changes will have on the broadcast television
industry or the future results of the Company's operations. In addition,
recent actions by the FCC, Congress and the courts all presage significant
future involvement in the provision of video services by telephone companies
and others. The 1996 Act (as defined herein) permits telephone companies to
provide cable service within their telephone service areas; however, it
prohibits buyouts of cable operators providing cable service within the
telephone company's telephone service area. Telephone companies may provide
video programming services using radio communication or may choose to be
regulated as a cable system, as a common carrier or as a newly created "open
video system." As a common carrier, a telephone company would be required to
establish channel capacity sufficient to meet all bona fide demand for
carriage. As an operator of an "open video system," a telephone company would
have to make channel capacity available to unaffiliated programmers without
discrimination and, if demand were to exceed capacity, it could not select
programmers for more than one-third of capacity. Open video systems, but not
common carriers (so long as the facility is not used in the transmission of
video programming directly to subscribers), would be required to comply with
rules governing the carriage of television stations on cable systems,
including network non-duplication, syndicated exclusivity, must-carry and
retransmission consent rules, but would not have to obtain a local government
franchise. The FCC is currently considering whether and to what extent a
provider of cable service over the facility of a common carrier is subject to
regulation as the operator of a cable system, including rules governing
carriage of television stations, network non-duplication, syndicated
exclusivity, must-carry and retransmission consent. It is not possible to
predict the impact of any future relaxation of the former statutory ban on
the Company's television stations;

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<PAGE>

however, the further relaxation could increase the competition the Company's
television stations face from other distributors of video programming.

PROGRAMMING. Competition for programming involves negotiating with national
program distributors or syndicators that sell first-run and rerun packages of
programming. Each Station competes against the broadcast station competitors
in its market for exclusive access to off-network reruns (such as HOME
IMPROVEMENT) and first-run product (such as JEOPARDY). In addition, various
national cable networks compete for programming by acquiring programs that
would have otherwise been offered to local television stations. Competition
exists for exclusive news stories and features, as well.

WB Network announced its intention to establish separate affiliations
with independent television stations in 1994 and began to distribute
programming in January 1995. During 1994, UPN established affiliations with
independent stations and began to distribute programming in January 1995.
Both of these networks have expanded their programming delivery since the
start of their respective operations.

ADVERTISING. The financial success of the Stations is dependent on audience
ratings and revenues from advertisers within each Station's geographic
market. Advertising rates are based upon the size of the market in which the
Station operates, a program's popularity among the viewers that an advertiser
wishes to attract, the number of advertisers competing for the available
time, the demographic make-up of the market served by the Station, the
availability of alternative advertising media in the market area, aggressive
and knowledgeable sales forces and the development of projects, features and
programs that tie advertising messages to programming. Advertising revenues
comprise the primary source of revenues for the Stations. The Stations
compete for such advertising revenues with other television stations in their
respective markets. Independent stations may achieve a greater proportion of
the television market advertising revenues than network affiliated stations
relative to their share of the market's audience because independent stations
have greater amounts of available advertising time. The Stations also compete
for advertising revenues with other advertising media, such as newspapers,
radio, magazines, outdoor advertising, transit advertising, yellow page
directories, direct mail, local cable systems and advertising on the
internet.

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

RATING SERVICES DATA

Except as noted herein, all television audience share and aggregate
television audience information contained herein are based upon data compiled
from surveys conducted by Nielsen, a national audience measuring service. All
television stations in the country are grouped by Nielsen into approximately
210 generally recognized non-overlapping television markets, each called a
designated market area ("DMA"), that are ranked in size according to various
formulae based upon actual or potential audience. A DMA generally consists of
counties in which commercial television stations located in the same general
vicinity achieve the largest audience share. Nielsen periodically publishes
data on estimated audiences for the television stations in the various
television markets throughout the country. The estimates are expressed in
terms of the percentage of the total potential audience in the market viewing
a station, a rating, and of the percentage of the audience actually watching
television, a share. Nielsen provides such data on the basis of total
television households and selected demographic groupings in the market.
Nielsen uses two methods of determining a station's ability to attract
viewers. In larger geographic markets, ratings are determined by meters
connected directly to selected television sets, while in smaller markets,
including the DMAs in which each Station operates, weekly diaries of
television viewing are completed by selected households during a four week
period comprising most of each February, May, July and November. Advertising
rates charged by a television station are based in large part on the number
of households tuned to a particular station during a particular time period,
the demographic characteristics of those households, and whether the station
is a leading station in its geographic market area. In addition, ratings
information for periods that the Olympic Games are broadcast by a network,
including February 1994, July 1996 and February 1998 are not considered by
broadcasters or advertisers to be indicative of future viewing trends.
Certain ratings for Olympic periods may be more or less favorable to the
Stations than ratings for other periods.

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<PAGE>

Television audience share and aggregate television audience share
information with respect to KOLN/KGIN-TV for 1992 is based upon data compiled
from surveys conducted by Arbitron. During such periods, Arbitron measured
rankings within specific geographic markets called ADIs and published its
estimates of audience share data in periodic Television Market Reports. The
ADI designated for KOLN/KGIN-TV is roughly comparable to the
Lincoln-Hastings-Kearney, Nebraska DMA, and the methodology employed by
Arbitron to determine audience share data is generally similar to that used
by Nielsen in comparable markets. Since 1993, KOLN/KGIN-TV has relied on
Nielsen for its ratings data.

FEDERAL REGULATION OF TELEVISION BROADCASTING

EXISTING REGULATION. Television broadcasting is subject to the jurisdiction
of the FCC under the Communications Act. The Communications Act prohibits the
operation of television broadcasting stations unless under a license issued
by the FCC and empowers the FCC, among other things, to issue, revoke and
modify broadcasting licenses, determine the locations of stations, regulate
the equipment used by stations, adopt regulations to carry out the provisions
of the Communications Act and impose penalties for violation of such
regulations. The Communications Act prohibits the assignment of a license or
the transfer of control of a licensee or of an entity controlling a licensee
without prior approval of the FCC. The Telecommunications Act of 1996
("1996 Act") was signed into law by the President of the United States on
February 8, 1996; however, implementation of most of the 1996 Act's
provisions which apply to the Company's business require action by the FCC.
Relevant provisions of the 1996 Act are discussed in the sections that follow.

LICENSE GRANT AND RENEWAL. Until implementation of the 1996 Act, television
broadcasting licenses generally were granted or renewed for a period of five
years, but may be renewed for a shorter period upon a finding by the FCC that
the "public interest, convenience, and necessity" would be served thereby.
Under earlier procedures, any person could have filed a competing application
for authority to operate the station and replace the incumbent licensee. In
the vast majority of cases, broadcast licenses were renewed by the FCC even
when petitions to deny or competing applications were filed against broadcast
license renewal applications. The 1996 Act extended the license term for
television stations from five to eight years and requires a broadcast license
to be renewed if the FCC finds that (i) the station has served the public
interest, convenience and necessity; (ii) there have been no serious
violations of either the Communications Act or the FCC's rules and
regulations by the licensee; and (iii) there have been no other violations of
the Communications Act or the FCC's rules and regulations which, taken
together, would constitute a pattern of abuse. Competing applications would
be permitted only if an application for renewal of license were denied after
hearing. At the time an application was made for renewal of a television
license, parties in interest could file petitions to deny, and such parties,
including members of the public, could comment upon the service the station
has provided during the preceding license term and urge denial of the
application.

The FCC license renewal for WEAU-TV was granted for an eight year term
on November 19, 1997 and expires on December 1, 2005. The FCC license
renewals for KOLN-TV and KGIN-TV were granted for five year terms on May 27,
1993 and expire on June 1, 1998. The Company has applied to the FCC for a
renewal of the KOLN-TV and KGIN-TV licenses to June 1, 2006. Such
applications are awaiting FCC action. Although there can be no assurance
that the Company's licenses will be renewed upon their expiration, the
Company is not aware of any facts or circumstances that would prevent the
Company from having its licenses renewed.

MULTIPLE OWNERSHIP RESTRICTIONS. The FCC has promulgated rules that limit
the ability of individuals and entities to own or have an ownership interest
above a certain level (an "attributable" interest, as defined more fully
below) in broadcast stations, as well as certain other mass media entities.
These rules include limits on the number of radio and television stations
that may be owned both on a national and a local basis. On a national basis,
the 1996 Act generally limits any individual or entity from having an
attributable interest in television stations which have an aggregate natural
audience reach in excess of 35% of all U.S. households. This rule became
effective on March 15, 1996. The Company is unable to predict the effect of
such changes.

On a local basis, FCC rules currently allow an entity to have an
attributable interest in only one television station in a market. In
addition, FCC rules, the Communications Act or both generally prohibit an
individual or entity

-14-
<PAGE>

from having an attributable interest in a television station and a radio
station, daily newspaper or cable television system that is located in the
same local market area served by the television station. Proposals currently
before the FCC would substantially alter these standards. For example, in a
pending rulemaking proceeding, the FCC suggests narrowing the geographic
scope of the local television cross-ownership rule from Grade B to Grade A
contour overlap but only if the stations are located in different DMAs,
although existing combinations might be grandfathered. In the same
proceeding, the FCC also proposes eliminating the TV/radio cross-ownership
restriction entirely or at least exempting larger markets. In addition, the
FCC is seeking comment on issues of control and attribution with respect to
local marketing agreements entered into by television stations. In addition,
on June 1, 1995, the FCC released an interim policy announcing that during
the pendency of the foregoing rulemaking, it will not approve assignments or
transfers of control of television licenses involving LMA's where the
programmer owns an attributable interest in another station in the same
market and loans funds to a station and holds an option to purchase the
station. This interim policy would not apply to the Company's arrangements
with McPike and Comisar. There can be no assurance that any of these rules
will be changed or what will be the effect of any such change. The 1996 Act
permits existing and future LMAs that are in compliance with FCC regulations.
Pursuant to the 1996 Act, the FCC is conducting rulemaking to consider
common ownership of more than one local TV station, although it is possible
that local VHF-VHF combinations would be permitted only in compelling
circumstances. The 1996 Act further waives the TV/radio cross ownership
restriction in the top 50 markets and facilitates a change in the FCC rule
barring common ownership of TV stations and local cable systems by repealing
the current statutory ban.

Expansion of the Company's broadcast operations in particular areas and
nationwide will continue to be subject to the FCC's ownership rules and any
changes the FCC or Congress may adopt. At the same time, any relaxation of
the FCC's ownership rules may increase the level of competition in one or
more of the markets in which the Stations are located, particularly to the
extent that the Company's competitors may have greater resources and thereby
be in a better position to capitalize on such changes.

Under the FCC's ownership rules, a direct or indirect purchaser of
certain types of securities of the Company (but not including the Senior
Notes) could violate FCC regulations if that purchaser held or acquired an
"attributable" or "meaningful" interest in other media properties in the same
areas as stations owned by the Company or in a manner otherwise prohibited by
the FCC. All officers and directors of a licensee, as well as general
partners, uninsulated limited partners and stockholders who own five percent
or more of the outstanding voting stock of a licensee (either directly or
indirectly), generally will be deemed to have an "attributable" interest.
Certain institutional investors who exert no control or influence over a
licensee may own up to ten percent of such outstanding voting stock before
attribution occurs. Under current FCC regulations, debt instruments,
non-voting stock, certain limited partnership interests (provided the
licensee certifies that the limited partners are not "materially involved" in
the management and operation of the subject media property) and voting stock
held by minority stockholders in cases in which there is a single majority
stockholder generally are not subject to attribution. The FCC's
cross-interest policy, which precludes an individual or entity from having a
"meaningful" but not "attributable" interest in one media property and an
"attributable" interest in a broadcast, cable or newspaper property in the
same area, may be invoked in certain circumstances to reach interests not
expressly covered by the multiple ownership rules.

In January 1995, the FCC released a Notice of Proposed Rule Making
designed to permit a "thorough review of [its] broadcast media attribution
rules." Among the issues on which comment is sought are (i) whether to change
the voting stock attribution benchmarks from five percent to ten percent and,
for passive investors, from ten percent to twenty percent; (ii) whether there
are any circumstances in which nonvoting stock interests, which are currently
considered non-attributable, should be considered attributable; (iii) whether
the FCC should restrict or eliminate its single majority shareholder
exception (pursuant to which voting interests in excess of five percent are
not considered cognizable if a single majority shareholder owns more than
fifty percent of the voting power); (iv) whether to relax insulation
standards for business development companies and other widely-held limited
partnerships; (v) how to treat limited liability companies and other new
business forms for attribution purposes; (vi) whether to eliminate or modify
the cross-interest policy; and (vii) whether to adopt a new policy which
would consider whether multiple "cross interests" or other significant
business relationships (such as time brokerage agreements, debt relationships
or holdings of nonattributable interests), which individually do not raise
concerns, raise issues with respect to diversity and competition. In November
1996, the FCC issued further proposals (i) that could attribute television
LMAs involving 15% or more

-15-
<PAGE>

of the brokered station's weekly time; (ii) that could attribute joint sales
agreements (agreements which do not comprise LMAs, since they do not involve
the provision of significant amounts of programming, but which do provide for
the joint sale of commercial time for separately controlled stations); and
(iii) that could adopt a new "equity or debt plus" attribution rule which
would attribute otherwise non-attributable debt or equity interests in a
license where the equity and/or debt holding exceeded a specified numerical
threshold or where the interest holder also held certain other significant
interests in or relationships to a licensee or media outlet that could result
in the ability to exercise significant influence. There can be no assurance
that any of these standards will be changed. Should the attribution rules be
changed, the Company is unable to predict what, if any, effect it would have
on the Company or its activities. To the best of the Company's knowledge at
present, no officer, director or five percent stockholder of the Company
holds an interest in another radio station, cable television system or daily
newspaper that is inconsistent with the FCC's ownership rules and policies or
with ownership of the Stations.

ALIEN OWNERSHIP RESTRICTIONS. The Communications Act restricts the ability
of foreign entities or individuals to own or hold interests in broadcast
licenses. Foreign governments, representatives of foreign governments,
non-citizens, representatives of non-citizens, and corporations or
partnerships organized under the laws of a foreign nation are barred from
holding broadcast licenses. Non-citizens, collectively, may directly or
indirectly own or vote up to twenty percent of the capital stock of a
licensee. In addition, a broadcast license may not be granted to or held by
any corporation that is controlled, directly or indirectly, by any other
corporation more than one-fourth of whose capital stock is owned or voted by
non-citizens or their representatives, by foreign governments or their
representatives, or by non-U.S. corporations, if the FCC finds that the
public interest will be served by the refusal or revocation of such license.
The Company has been advised that the FCC staff has interpreted this
provision of the Communications Act to require an affirmative public interest
finding before a broadcast license may be granted to or held by any such
corporation and the FCC has made such an affirmative finding only in limited
circumstances. Accordingly, the Company, which will control each of the
License Subsidiaries, is restricted from having more than one-fourth of its
capital stock owned or voted by non-citizens.

RESTRICTIONS ON BROADCAST ADVERTISING. Advertising of cigarettes and certain
other tobacco products on broadcast stations has been banned for many years.
Various states restrict the advertising of alcoholic beverages. Congressional
committees have recently examined legislation proposals which may eliminate
or severely restrict the advertising of alcoholic beverages including beer
and wine. Although no prediction can be made as to whether any or all of the
present proposals will be enacted into law, the elimination of all beer and
wine advertising would have a significant adverse effect upon the revenues of
the Company's television stations, as well as the revenues of other stations
which carry beer and wine advertising.

The FCC has imposed commercial time limitations in children's
programming pursuant to legislation. In programs designed for viewing by
children of 12 years of age and under, commercial matter is limited to 12
minutes per hour on weekdays and 10.5 minutes per hour on weekends. All
television stations are required to broadcast some television programming
designed to meet the educational and informational needs of children 16 years
of age and under. The Company does not believe that these requirements will
have a significant impact on the Company's Stations because both of its
Stations broadcast programming designed to meet the educational and
informational needs of children and have already limited commercials in such
programming.

PROGRAMMING AND OPERATION. The Communications Act requires broadcasters to
serve the "public interest." The FCC gradually has relaxed or eliminated many
of the more formalized procedures it had developed in the past to promote the
broadcast of certain types of programming responsive to the needs of a
station's community of license. FCC licensees continue to be required,
however, to present programming that is responsive to community issues, and
to maintain certain records demonstrating such responsiveness. Complaints
from viewers concerning a station's programming often will be considered by
the FCC when it evaluates renewal applications of a licensee, although such
complaints may be filed at any time and generally may be considered by the
FCC at any time. The 1996 Act requires a television renewal applicant to
provide a summary of written complaints which characterize any of its
programming as violent. Stations also must pay regulatory and application
fees, and follow various rules promulgated under the Communications Act that
regulate, among other things, political advertising, sponsorship
identifications, the advertisement of contests and lotteries, obscene and
indecent broadcasts, and technical operations, including limits on radio
frequency radiation. In addition, licensees

-16-
<PAGE>

currently must develop and implement affirmative action programs designed to
promote equal employment opportunities, and must submit reports to the FCC
with respect to these matters on an annual basis and in connection with a
renewal application and certain assignment of license and transfer of control
applications. Failure to observe these or other rules and policies can
result in the imposition of various sanctions, including monetary
forfeitures, or the grant of "short" (less than the full) renewal terms or,
for particularly egregious violations, the denial of a license renewal
application or the revocation of a license.

The 1996 Act requires the broadcast industry to establish ratings for
sexual, violent or otherwise indecent programming, to inform parents of the
ratings for such programming prior to broadcast, and to broadcast signals
which would activate a so-called "V-chip" in newly manufactured receivers
which would permit parents to program television sets to bar the reception of
certain rated programming. In January 1997, an industry coalition
voluntarily implemented a rating system identifying two categories of
children's programming (those designed for all children and those directed to
children aged 7 and up) and four categories of programs designed for various
maturity levels of general audiences. Several networks and program suppliers
have voluntarily added to these categories symbols designating adult content,
including violence, sexuality and language. The ratings are broadcast during
the first 15 seconds of each program in a corner of the screen and are
beginning to be included in program guides. On March 12, 1998, the FCC
approved the industry's program rating system as modified to include the
adult content designations. The FCC further ordered manufacturers to include
v-chips in at least half of their product models with a picture screen 13
inches or greater in size by July 1, 1999, and in the remaining half of such
models by January 1, 2000. The same requirement applies to personal
computers that include a television tuner and an appropriately sized monitor.
The ratings and v-chip have been a source of controversy, and it is possible
that the industry, Congress or the courts may order changes. The Company is
unable to predict the effect of the ratings system upon its operations.

In November 1966, the FCC adopted a set of specific regulations relating
to children's programming which require television stations to (i) provide an
average of at least three hours per week of "core programming" that is
specifically designed to educate and inform children; (ii) identify core
programs on the air; (iii) provide information about children's programming
to program guides; (iv) prepare children's programming reports on a quarterly
basis for placement in the station's local public inspection file; and (v)
file the quarterly reports with the FCC on an annual basis for an
experimental period of three years. In order to qualify as "core
programming," a program must be at least 30 minutes long and aired on a
regularly scheduled weekly basis between 7 a.m. and 10 p.m.; its educational
and informational objective and its target child audience must also be
specified in writing in the licensee's quarterly children's television
programming report. These requirements became effective January 2, 1997.
All renewals filed after September 1, 1997 are to be evaluated for
compliance with the children's programming standard. Licensees airing less
than three hours per week of core programming may compensate for up to a
thirty minute deficit through other programming and non-programming efforts.
The renewals of stations having a deficit of more than 30 minutes per week
could result in sanctions, including possible denial. Although the Company
is unable to predict the effect of these regulations, it does not believe
that they will have a significant impact on the Company's stations.

RECENT DEVELOPMENTS; PROPOSED LEGISLATION AND REGULATION. The FCC eliminated
the prime time access rule ("PTAR"), effective August 30, 1995. PTAR had
limited a station's ability to broadcast network programming (including
syndicated programming previously broadcast over a network) during prime time
hours. The elimination of PTAR could increase the amount of network
programming broadcast over a station affiliated with ABC, NBC or CBS. Such
elimination also could result in (i) an increase in the compensation paid by
the network (due to the additional prime time during which network
programming could be aired by a network-affiliated station) and (ii)
increased competition for syndicated network programming that previously was
unavailable for broadcast by network affiliates during prime time.

Congress and the FCC currently have under consideration, and may in the
future adopt, new laws, regulations and policies regarding a wide variety of
matters that could affect, directly or indirectly, the operation and
ownership of the Company's broadcast properties. In addition to the changes
noted above, such matters include, for example, spectrum use fees, political
advertising rates, potential advertising restrictions on the advertising of
certain products (beer and wine, for example), the rules and policies to be
applied in enforcing the FCC's equal employment opportunity regulations,
reinstitution of the fairness doctrine (which requires broadcasters to air
programming concerning controversial issues of public importance and to
afford a reasonable opportunity for the expression of contrasting

-17-
<PAGE>

viewpoints), the standards to govern evaluation of television programming
directed toward children. Other matters that could affect the Company's
broadcast properties include technological innovations and developments
generally affecting competition in the mass communications industry, such as
the recent initiation of direct broadcast satellite service, and the
continued establishment of wireless cable systems and low power television
stations. In addition, the FCC already has lifted the financial interest
rules and restraints on foreign and domestic syndication.

The FCC presently is seeking comment on its policies designed to
increase minority ownership of mass media facilities. Congress also enacted
legislation that eliminated the minority tax certificate program. In
addition, a recent Supreme Court decision has cast into doubt the continued
validity of many of the programs designed to increase minority ownership of
mass media facilities.

DISTRIBUTION OF VIDEO SERVICES BY TELEPHONE COMPANIES. Recent actions by the
FCC and Congress permit telephone companies to engage in the provision of
video services within their service areas. The Company cannot predict either
the timing or the extent of such involvement. This anticipated involvement
results from Congress' lifting of the statutory prohibition against a
telephone company providing video programming directly to subscribers within
the company's telephone service area, which prevented telephone companies
from providing cable service over either the telephone network or a cable
system located within the telephone service area.

Congress' lifting of the ban was preceded by successful telephone
company litigation over the constitutionality of the ban in various federal
courts. The Supreme Court agreed to consider the issue, but returned it to a
lower court for that court to reconsider whether the issue had been rendered
moot by passage of the 1996 Act. Also, the FCC interpreted the statutory ban
in its 1992 "video dialtone" ("VDT") decision so as to permit telephone
company construction of a transport "platform" on which the telephone company
was required to grant non-discriminatory access to multiple video
programmers. The 1996 Act permits telephone companies to provide cable
service within their telephone service areas, though it prohibits buyouts of
cable operators providing cable service in the telephone company telephone
service area. Telephone companies may provide video programming via radio
based systems, such as wireless cable, pursuant to Title III of the Act or
may choose to provide such services as a cable operator, as a common carrier
or as an open video system ("OVS") operator. As a common carrier, a
telephone company would be required to establish channel capacity sufficient
to meet all bona fide demands for carriage. The FCC is currently considering
whether the common carrier provision of video programming on behalf of a
program distributor may render one or both entities the operator of a cable
system subject to the Act's local franchise requirement. As an operator of a
cable system, the telephone company would be subject to Title VI of the Act
and the FCC's implementing rules and policies, including the local government
franchise requirement. As an OVS operator, the telephone company has the
ability to program channels on the system; however, it is required to make
channel capacity available to unaffiliated programmers on a
non-discriminatory basis, and, if demand were to exceed capacity, could not
select programming for more than one third of such capacity. OVS operators
are obligated to comply with certain rules governing cable systems,
including, but not limited to, rules governing carriage of television
stations, e.g. retransmission consent, must carry, network non-duplication
and syndicated exclusivity, but are not required to obtain a local government
franchise. On May 31, 1996, the FCC adopted rules relevant to the operation
of open video systems. An appeal of the FCC's rules is currently pending.
The FCC has also eliminated its rules implementing the telephone-cable cross
ownership restrictions, eliminated its VDT rules and policies, terminated its
proceeding which was to have established VDT rules and policies and required
all VDT systems to convert to another form of video distribution.

THE 1992 CABLE ACT. On October 5, 1992, Congress enacted the Cable
Television Consumer Protection and Competition Act of 1992 (the "1992 Cable
Act"). The FCC began implementing the requirements of the 1992 Cable Act in
1993 and final implementation proceedings remain pending regarding certain of
the rules and regulations previously adopted. Certain statutory provisions,
such as signal carriage, retransmission consent and equal employment
opportunity requirements, have a direct effect on television broadcasting.
Other issues addressed in the FCC rules were market designations, the scope
of retransmission consent and procedural requirements for implementing the
signal carriage provisions. Other provisions are focused exclusively on the
regulation of cable television but can still be expected to have an indirect
effect on the Company because of the competition between over-the-air
television stations and cable systems.

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<PAGE>

The signal carriage, or "must carry," provisions of the 1992 Cable Act
require cable operators to carry the signals of local commercial and
non-commercial television stations and certain low power television stations.
Systems with 12 or fewer usable activated channels and more than 300
subscribers must carry the signals of at least three local commercial
television stations. A cable system with more than 12 usable activated
channels, regardless of the number of subscribers, must carry the signals of
all local commercial television stations, up to one-third of the aggregate
number of usable activated channels of such system. The 1992 Cable Act also
includes a retransmission consent provision that prohibits cable operators
and other multichannel video programming distributors from carrying broadcast
stations without obtaining their consent in certain circumstances. The "must
carry" and retransmission consent provisions are related in that a local
television broadcaster, on a cable system-by-cable system basis, must make a
choice once every three years whether or not to proceed under the "must
carry" rules or to waive that right to mandatory but uncompensated carriage
and negotiate a grant of retransmission consent to permit the cable system to
carry the station's signal, in most cases in exchange for some form of
consideration from the cable operator. Cable systems must obtain
retransmission consent to carry all distant commercial stations other than
"super stations" delivered via satellite.

Under rules adopted to implement these "must carry" and retransmission
consent provisions, local television stations were required to make an
initial election of "must carry" or retransmission consent by June 17, 1993,
with subsequent elections to be made at three year intervals, E.G.: by
October 1, 1996 for the three year period commencing on January 1, 1997 and
concluding on December 31, 1999. Stations that failed to elect were deemed
to have elected carriage under the "must carry" provisions. Stations electing
to grant retransmission authority were expected to conclude their consent
agreements with cable systems by October 6, 1993, the date on which systems'
authority to carry broadcast signals without consent expired. A must carry
election entitled the Stations to carriage on those systems until at least
December 31, 1996.

With respect to the three-year period commencing January 1, 1997, the
Company granted retransmission consents to cable systems representing
approximately 87.8%, or approximately 246,623, of the cable households within
the Stations' markets and provided for substantially all other cable
households under "must carry" elections. Generally, the retransmission
consent agreements expire on or after December 31, 1999. The Company's
revenue derived from these agreements will not have a material impact on
future results. Although the Company expects to renew its current
retransmission consent agreements upon their expiration, there can be no
assurance that such renewals will be entered into.

On April 8, 1993, a special three judge panel of the U.S. District Court
for the District of Columbia upheld the constitutionality of the "must carry"
provisions of the 1992 Cable Act. However, on June 27, 1994 the United States
Supreme Court in a 5-4 decision vacated the lower court's judgment and
remanded the case to the District Court for further proceedings. Although the
Supreme Court found the "must carry" rules to be content-neutral and
supported by legitimate governmental interests under appropriate
constitutional tests, it also found that genuine issues of material fact
still remained that must be resolved in a more detailed evidentiary record.
On December 12, 1995, a special three-judge panel of the United States
District Court for the District of Columbia voted on remand to uphold the
must-carry provisions. On March 31, 1997, the Supreme Court affirmed the
lower court's decision.

In addition, pursuant to the 1992 Cable Act's requirements, the FCC has
adopted new rules providing for a review of the equal employment opportunity
performance of each television station at the mid-point of its license term
(in addition to renewal time). Such a review will give the FCC an opportunity
to evaluate whether the licensee is in compliance with the FCC's processing
criteria and notify the licensee of any deficiency in its employment profile.

ADVANCED TELEVISION SERVICE. The FCC has proposed the adoption of rules for
implementing advanced television service ("ATV") in the United States.
Implementation of digital ATV will improve the technical quality of
television signals receivable by viewers and will provide broadcasters the
flexibility to offer new services, including high definition television
("HDTV"), which is generally considered to have clarity of a quality
comparable to 35 millimeter projection film and the ability to provide
simultaneous delivery of multiple programs of standard definition television
("SDTV") and data broadcasting.

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<PAGE>

In December 1996, the FCC adopted technical standards for ATV which will
afford broadcasters the flexibility to respond to market demand by
transmitting a mix of HDTV, SDTV and perhaps other services. In August 1996,
the FCC proposed a table of ATV channel allotments, which are subject to
further review and further revised such table in February 1998. The FCC
adopted ATV service rules in April 1997 so broadcasters can provide the
services enabled by the new technology.

The FCC may assign all existing television licensees and permittees a
second channel on which to provide ATV simultaneously with their current
"NTSC" service. The 1996 Act limits eligibility for ATV licenses to current
television licensees and permittees. Accordingly, the ability of McPike and
Comisar to obtain second channels for simultaneous operation of their
proposed UHF TV stations at Lincoln, Nebraska and Marshfield, Wisconsin
remains in doubt. Moreover, the FCC's ATV allotment plan anticipates
utilizing Channel 39 as the ATV channel for WEAU-TV, which would preclude its
use by McPike at Marshfield, Wisconsin. Unless an alternate channel can be
made available either for Marshfield or for the second channel for WEAU-TV,
the McPike Marshfield application would no longer be viable. See "- WEAU-TV,
LaCrosse and Eau Claire, Wisconsin." Recent legislation requires that by
December 31, 2006 broadcasters cease NTSC operations and return to the FCC
one of their two channels. The FCC is required to extend the deadline in
markets failing to meet prescribed tests for ATV penetration. The 1996 Act
permits ATV licensees to offer ancillary services, provided such offerings do
not degrade the quality of their ATV service and otherwise meet public
interest standards. A spectrum fee will be assessed upon ancillary services
which provide compensation to the licensee (other than from advertising on
non-subscription services). The FCC is required to reevaluate ATV service
within 10 years in light of consumer acceptance and spectrum efficiency.

Under certain circumstances, conversion to ATV operations could reduce a
station's geographical coverage area but some stations may obtain service
areas that match or exceed the limits of existing operations. Due to
additional equipment costs and increased operating expenses, implementation
of ATV will impose significant financial burdens on television stations
providing the service. At the same time, there is a potential for increased
revenues to be derived from ATV.

DIRECT BROADCAST SATELLITE SYSTEMS. The FCC has authorized DBS, a service
which provides video programming via satellite directly to home subscribers.
Local broadcast stations are not carried on DBS systems. In June 1994,
DirecTV Inc., a subsidiary of GM Hughes Electronics Corp., and United States
Satellite Broadcasting Company initiated DBS service. Other companies have
also obtained authority to provide DBS service and may offer DBS service in
the future.

The 1996 Act includes a prohibition on restrictions that inhibit a
viewer's ability to receive video programming through DBS services and vests
the FCC with exclusive jurisdiction over the regulation of DBS. Proposed
legislation may also affect state and local taxation of direct-to-home
satellite services. The Company cannot predict the impact of this new service
upon the Company's business.

NETWORK AFFILIATION RELATIONSHIPS. On June 15, 1995, the FCC adopted a
Notice of Proposed Rule Making seeking to re-examine five of the rules
governing the relationship between television networks and their affiliates.
These are (i) the right to reject rule (which provides that affiliation
agreements between a broadcast network and a broadcast licensee generally
must permit the licensee to reject programming provided by the network), (ii)
the time option rule (which prohibits arrangements whereby a network reserves
an option to use specified amounts of an affiliate's broadcast time), (iii)
the exclusive affiliation rule (which prohibits arrangements that forbid an
affiliate from broadcasting the programming of another network), (iv) the
dual network rule (which prevents a single entity from owning more than one
broadcast television network) and (v) the network territorial exclusivity
rule (which proscribes arrangements whereby a network affiliate may prevent
other stations in its community from broadcasting programming the affiliate
rejects, and arrangements that inhibit the ability of stations outside of the
affiliate's community to broadcast network programming). The 1996 Act relaxes
the dual network rule, except for mergers involving ABC, CBS, NBC and/or Fox.

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<PAGE>

SEASONALITY

The advertising revenues of the 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.

EMPLOYEES

At December 28, 1997, the Company had approximately 202 employees, all
of which were engaged in television broadcasting. No employees are currently
represented by a labor union or covered under any collective bargaining
agreement. The Company believes that its relations with its employees are
satisfactory.

ITEM 2. PROPERTIES.

The Company's principal executive offices are located in Kalamazoo,
Michigan. The lease agreement for such office space expires in August 1999.
The types of properties required to support each of the Company's Stations
include offices, studios, transmitter and antenna sites. A Station's studios
are generally housed with its offices in downtown or business districts. The
transmitter sites are generally located so as to provide maximum market
coverage. The Company believes all of its facilities are adequate and
suitable for its business and operations as presently conducted.

The following table sets forth the principal operating properties owned
or leased by the Company:

<TABLE>
<CAPTION>
LOCATION OWNERSHIP USE
---------------------- --------- ------------------------
<S> <C> <C> <C>
KOLN/KGIN-TV . . . Lincoln, Nebraska Owned Office and Studio
KOLN/KGIN-TV . . . Grand Island, Nebraska Leased Office
KOLN/KGIN-TV . . . Hartwell, Nebraska Owned Tower
KOLN/KGIN-TV . . . Beaver Island, Nebraska Owned Tower
WEAU-TV . . . . . . Eau Claire, Wisconsin Owned Office, Studio and Tower
WEAU-TV . . . . . . Fairchild, Wisconsin Permanent Tower
Easement
</TABLE>

ITEM 3. LEGAL PROCEEDINGS.

In 1993, the FCC allotted VHF Channel 8 to Lincoln, Nebraska, and
modified the license of Citadel, the license 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 October 10, 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. On July 12, 1996 the Court of Appeals denied the Company's
appeal and dismissed its petition for review. The Company did not appeal the
Court of Appeal's decision. Citadel has changed the station call letters of
Channel 8 to KLKN, and in June, 1996, commenced full power over-the-air
broadcast operations. KLKN operations have not had a material impact upon
the Company's past operations, but the Company cannot predict the impact of
KLKN operations upon the Company's future operations.

The Company from time to time is involved in litigation incidental to
the conduct of its business. The Company is not currently a party to any
lawsuit or proceeding which, in the opinion of the Company, could have a
material adverse effect on the Company.

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<PAGE>

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

On February 11, 1998, the Company sought and received the written
consent of the Stockholders (the "1998 Stockholder Consent") to the execution
of the Stock Purchase Agreement. Pursuant to the 1998 Stockholder Consent,
the Stockholders also ratified the Long Term Incentive Plan (as defined
herein) and approved the Incentive Fee Plan (as defined herein) and the
Lawrence Busse Option Agreement (as defined herein). See Item 11, "Executive
Compensation-Long Term Incentive Plan," "-Incentive Fee Plan" and "-Lawrence
Busse Option Agreement."

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.

There is no established public trading market for the Company's Common
Stock. As of December 28, 1997, the South Street Investment Funds
beneficially held 100% of the Company's Common Stock. Messrs. Salovaara and
Eckert together indirectly control 100% of the Company's Common Stock. See
Item 12, "Security Ownership of Certain Beneficial Owners and Management."

No dividends have been declared on the Company's Common Stock nor does
the Company intend to declare any such dividends in the forseeable future.
Under the terms of the Indenture related to the Senior Notes, dividends are
subject to certain limits based on, among other things, the Company's
operating cash flow and consolidated interest expense.

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<PAGE>

ITEM 6. SELECTED FINANCIAL DATA.

The selected financial information presented below should be read in
conjunction with the consolidated financial statements of the Company and
notes thereto included elsewhere under Item 8, "Financial Statements and
Supplementary Data" and additional information under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Because of the Restructuring, the adoption of Fresh Start Accounting, the
WWMT Sale and accounting for Winnebago as a discontinued operation, the
selected data presented as of and for Post-Effective Date periods is not
comparable to Pre-Effective Date periods. The selected consolidated
financial data for the five years in the period ended December 28, 1997 are
derived from the Company's audited consolidated financial statements.

(DOLLARS (EXCEPT DOLLARS PER SHARE) AND SHARES OF COMMON STOCK IN THOUSANDS)

<TABLE>
<CAPTION>
POST-EFFECTIVE DATE | PRE-EFFECTIVE DATE
---------------------------------------|------------------------------------
FISCAL YEAR MAY 3, 1995 | JANUARY 2,
FISCAL YEAR ENDED THROUGH | 1995 FISCAL YEAR FISCAL YEAR
ENDED DECEMBER 29, DECEMBER 31, | THROUGH ENDED ENDED
DECEMBER 28, 1996 1995 | MAY 2, JANUARY 1, JANUARY 2,
1997 NOTE (B) NOTE (A&B) | 1995 1995 1994
------------ ------------ ------------ | ---------- ----------- -----------
<S> <C> <C> <C> | <C> <C> <C>
STATEMENT OF OPERATIONS DATA: |
Net revenue from continuing operations . . . . $18,971 $19,274 $11,358 | $14,511 $44,727 $39,902
Operating costs and expenses, excluding |
depreciation and amortization . . . . . . . . 8,428 8,407 5,152 | 8,510 23,676 22,756
Depreciation and amortization . . . . . . . . . 5,802 5,714 3,967 | 1,776 5,646 6,948
Corporate expenses . . . . . . . . . . . . . . 1,524 1,572 870 | 291 989 836
------- ------- ------- | ------- ------ -------
Income from continuing operations: . . . . . . 3,217 3,581 1,369 | 3,934 14,416 9,362
Interest expense, net . . . . . . . . . . . . (7,896) (8,113) (4,958) | (7,387) (26,711) (24,640)
Other income (expense) . . . . . . . . . . . (39) (54) 1 | 146 (537) (705)
------- ------- ------- | ------- ------ -------
(4,718) (4,586) (3,588) | (3,307) (12,832) (15,983)
Reorganization items: |
Gain on restructuring transaction . . . . . . -- -- -- | 103,811 -- --
Legal and professional fees . . . . . . . . . -- -- -- | (2,661) (2,149) (559)
------- ------- ------- | ------- ------ -------
Income (loss) from continuing operations before |
income taxes and extraordinary item . . . . . (4,718) (4,586) (3,588) | 97,843 (14,981) (16,542)
Credit for income taxes from continuing |
operations . . . . . . . . . . . . . . . . . . -- -- 871 | 2,218 956 253
------- ------- ------- | ------- ------ -------
Income (loss) from continuing operations before |
discontinued operations and extraordinary item (4,718) (4,586) (2,717) | 100,061 (14,025) (16,289)
Discontinued operations: |
Income from discontinued operations, net of |
taxes. . . . . . . . . . . . . . . . . . . . -- 220 68 |
Loss on disposal of discontinued operations. . -- (1,929) -- |
Extraordinary item -- debt forgiveness related |
to restructuring transaction . . . . . . . . . -- -- -- | 46,480 -- --
------- ------- ------- | ------- ------ -------
Net income (loss). . . . . . . . . . . . . . . . (4,718) (6,295) (2,649) | 146,541 (14,025) (16,289)
|
Charges to stockholders' equity for Series A |
preferred stock dividends in arrears . . . . . (4,822) (4,663) -- | -- (450) (450)
------- ------- ------- | ------- ------ -------
Net income (loss) attributable to common |
stockholders . . . . . . . . . . . . . . . . . $(9,540) $(10,958) $(2,649) | $146,541 $(14,475) $(16,739)
------- ------- ------- | ------- ------ -------
------- ------- ------- | ------- ------ -------
Net income (loss) per common share (basic and |
diluted) . . . . . . . . . . . . . . . . . . . . $(88.58) $(101.75) $(24.50) | $1,450.90 $(143.32) $(165.73)
------- ------- ------- | ------- ------ -------
------- ------- ------- | ------- ------ -------
Weighted average common shares outstanding . . . 107.7 107.7 108.126 | 101 101 101
------- ------- ------- | ------- ------ -------
------- ------- ------- | ------- ------ -------
</TABLE>

<TABLE>
<CAPTION>
PRE-EFFECTIVE DATE AS OF POST-EFFECTIVE DATE AS OF
-----------------------------------------------------------------------------
DECEMBER 28, DECEMBER 29, DECEMBER 31, MAY 3, | JANUARY 1, JANUARY 2,
1997 1996 1995 1995 | 1995 1994
------------ ------------ ------------ ------ | ---------- ----------
<S> <C> <C> <C> <C> | <C> <C>
BALANCE SHEET DATA: |
Total assets . . . . . . . . . . . . . . . . . . $77,936 $82,154 $122,980 $184,985 | $87,794 $89,704
Total debt . . . . . . . . . . . . . . . . . . . 60,919 60,464 112,741 171,293 | 215,680 202,093
Stockholders' equity (deficit) . . . . . . . . . 12,856 17,573 6,538 9,203 | (143,647) (129,173)

</TABLE>

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<PAGE>

(a) Commencing on the Effective Date, the Company accounted for its
interest in WWMT as an investment held for sale. Accordingly, results of
operations for WWMT are not reflected in the historical statement of
operations or other data for periods after the Effective Date. See Note 5
to Notes to Consolidated Financial Statements for the year ended
December 28, 1997.

(b) Winnebago was sold December 27, 1996 and constituted the Company's only
operations within the printing segment. The sale of Winnebago has been
accounted for by the Company as a discontinued operation since the
Effective Date. See Note 4 to Notes to Consolidated Financial Statements
for the year ended December 28, 1997.

ITEM 7. 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 Consolidated Financial
Statements of the Company and notes thereto included in Item 8, "Financial
Statements and Supplementary Data" which provide additional information
regarding the Company's financial activities and condition.

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 1997, 1996 and/or 1995 refer to the fiscal
years ended December 28, 1997, December 29, 1996 and December 31, 1995,
respectively.

The Company emerged from Chapter 11 bankruptcy reorganization on the
Effective Date. The transactions comprising the Restructuring are summarized
in Note 1 to Notes to Consolidated Financial Statements of the Company for
the year ended December 28, 1997. 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.

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 and $2,148,588 were reported as an expense
of the Restructuring in the Company's financial statements for the period
ended May 2, 1995 and the fiscal year ended January 1, 1995, respectively; and

-24-
<PAGE>

(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.

The consolidated financial statements of the Company included in Item 8,
"Financial Statements and Supplementary Data," present the consolidated
financial position of the Company at December 28, 1997 and December 29, 1996
(Post-Effective Date) and the consolidated results of its operations and cash
flows for the fiscal years ended December 28, 1997, December 29, 1996 and the
period from May 3, 1995 through December 31, 1995 (Post-Effective Date) and
the period from January 2, 1995 through May 2, 1995 (Pre-Effective Date), in
conformity with generally accepted accounting principles.

The net revenue of the Stations are derived primarily from advertising
revenues and, to a much lesser extent, from compensation paid by the networks
to the Stations for broadcasting network programming. The Stations' primary
operating expenses are employee compensation and related benefits, news
gathering and production, programming and promotions.

In general, television stations receive revenues for advertising sold
for placement within and adjoining its locally originated programming and
adjoining national network programming. Advertising is sold in time
increments and is priced primarily on the basis of a program's popularity
within the demographic group an advertiser desires to reach, as measured
principally by quarterly audience surveys. In addition, advertising rates
are affected by the number of advertisers competing for the available time,
the size of the demographic make-up of the markets served by the television
station and the availability of alternate advertising media in the market
areas. Rates are highest during the most desirable viewing hours with
corresponding reductions during other hours. The ratings of local television
stations affiliated with a national television network can be affected by the
ratings of the network programming.

Most advertising contracts are short-term and generally run for only a
few weeks. A large portion of the Stations' revenues is generated from local
and regional advertising, which is sold primarily by the Stations' sales
staff, and the remainder of the advertising revenues represents national
advertising, which is sold by an independent national advertising sales
representative. The Stations generally pay commissions to advertising
agencies on local, regional, and national advertising, and on national
advertising the Stations also generally pay commissions to the national sales
representative. The Stations' advertising revenues 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.

RESULTS OF OPERATIONS

The consolidated financial statements of the Company for the
Post-Effective Date fiscal period(s) are not comparable to the Pre-Effective
Date fiscal period(s) 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, as a result of its
adoption of Fresh Start Accounting, the Company was required to account for
WWMT as an investment held for sale. Accordingly, results of operations for
WWMT from May 3, 1995 through the date of sale on June 1, 1995 are excluded
from the Company's consolidated results of operations for the fiscal period
ended December 31, 1995. Furthermore, as the Company's sale of Winnebago on
December 27, 1996 constituted a discontinuance of operations within the
printing segment, the Post-Effective Date results of operations account for
Winnebago as a discontinued operation.

In the discussion of operations which follows, the results of operations
for the periods from January 2, 1995 through May 2, 1995 (Pre-Effective Date)
and May 3, 1995 through December 31, 1995 (Post-Effective Date) are

-25-
<PAGE>

combined for certain items of revenue and expense for purposes of comparison
to fiscal year 1996. Revenue and expense items combined in 1995 for the Pre-
and Post-Effective Date periods are referred to as "Combined 1995."

COMPARISON OF THE YEARS ENDED DECEMBER 28, 1997 AND DECEMBER 29, 1996
(POST-EFFECTIVE DATE)

Net revenue from continuing operations decreased $303,131, or 1.6%, to
$18,971,040 from $19,274,171 for the year ended December 28, 1997 compared to
the year ended December 29, 1996. Such decrease was primarily attributable
to a decrease in net political revenue for the Stations during the year ended
December 28, 1997 of approximately $1,046,000, or 89.9%, to $118,000 from
$1,164,000 for the year ended December 29, 1996, reflecting 1997 as the
"off-year" of the biannual election cycle. Such decrease in net political
revenue was offset in part by growth in local and national net revenue,
excluding political net revenue, at KOLN/KGIN-TV. That station recorded a
year-to-year increase in net local and national time sales, excluding net
political revenue, of approximately 14.0% and 2.7%, respectively, due to a
general increase in advertising demand by clients within that station's
market. WEAU-TV recorded decreases of approximately 3.7% and 4.6% in net
local and national time sales, excluding net political revenue, respectively,
during the year ended December 28, 1997 compared to the year ended December
29, 1996 due to decreased advertiser demand within that station's market.
Network compensation for the Stations was consistent between the respective
fiscal periods.

Operating expenses, excluding depreciation and amortization expenses,
increased $20,263, or 0.2%, to $8,427,942 for the year ended December 28,
1997 from $8,407,679 for the comparable 1996 period. Such slight increase is
attributable to a non-recurring gain of $344,782 reflecting the curtailment
of the Company's defined benefit retirement plan offsetting other operating
expense increases. See Note 7 of Notes to Consolidated Financial Statements
included in Item 8, "Financial Statements and Supplementary Data."

Depreciation expenses increased $17,216, or 0.9%, to $1,871,079 for the
year ended December 28, 1997 from $1,853,863 for the comparable 1996 period,
reflecting depreciation related to capital assets acquired since December 29,
1996.

Amortization expenses increased $71,305, or 1.8%, to $3,931,304 for the
year ended December 28, 1997 from $3,859,999 for the comparable 1996 period.

Corporate expenses decreased $48,098, or 3.1%, to $1,523,674 during the
year ended December 28, 1997 from $1,571,772 for the comparable 1996 period
reflecting, in part, differences in the incurrence of charges for
professional services between the respective fiscal periods.

Income from continuing operations decreased $363,817, or 10.2%, to
$3,217,041 for the year ended December 28, 1997 from $3,580,858 for the
comparable 1996 period reflecting the decreased net revenue and slightly
increased operating expenses as discussed above.

Interest expense decreased $59,495, or 0.7%, to $8,340,845 for the year
ended December 28, 1997 from $8,400,340 for the comparable 1996 period
reflecting the Company's redemption and/or repayment of certain debt in
January and October 1996 offset, in part, by increasing amortization of the
original issue discount related to the Senior Notes.

Interest income for the year ended December 28, 1997 increased $157,279,
or 54.7%, to $445,072 from $287,793 for the comparable 1996 period primarily
due to interest earnings on the net proceeds from the sale of Winnebago on
December 27, 1996.

The Company has analyzed its current and deferred tax assets and
liabilities and has concluded that no provision for current or deferred
federal or state taxes is required for the year ended December 28, 1997.

-26-
<PAGE>

Income from discontinued operations for the year ended December 29, 1996
reflects the results for Winnebago, accounted for as a discontinued operation
for the 1996 period and includes $6,896,484 of net revenue for the year then
ended. Winnebago was sold on December 27, 1996. See Note 4 to Notes to
Consolidated Financial Statements included in Item 8, "Financial Statements
and Supplementary Data."

COMPARISON OF THE YEAR ENDED DECEMBER 29, 1996 (POST-EFFECTIVE DATE) AND THE
PERIODS FROM JANUARY 2, 1995 THROUGH MAY 2, 1995 (PRE-EFFECTIVE DATE) AND MAY
3, 1995 THROUGH DECEMBER 31, 1995 (POST-EFFECTIVE DATE)

Net revenue declined $6,594,819, or 25.5%, to $19,274,171 from
$25,868,990 for the year ended December 29, 1996 compared to the Combined
1995 year ended December 31, 1995. Of such decline, $6,234,524 is
attributable to the sale of WWMT during the Combined 1995 period and
$2,368,909 is attributable to accounting for Winnebago as a discontinued
operation in the Post-Effective date periods. The decline in net revenue was
partially offset by increased net revenue at the Stations as described in the
next paragraph.

Net revenue for the Stations for the year ended December 29, 1996
increased $2,008,616, or 11.6%, to $19,274,171 from $17,265,555 for the
corresponding Combined 1995 period. Net political revenue for the Stations
during the year ended December 29, 1996 increased by approximately $1,033,000
to $1,164,000 from $131,000 for the Combined 1995 period reflecting issue
orientated advertising placed by political parties and political action
committees and advertising placed on behalf of candidates in connection with
the 1996 elections associated with the biannual election cycle. For the year
ended December 29, 1996 compared to the Combined 1995 year ended December 31
1995, net national advertising revenues, excluding net political advertising
revenues, for KOLN/KGIN-TV increased 4.2% due to increased national
advertiser demand within that station's market while for the same periods net
local advertising revenues, excluding net political advertising revenues,
increased 0.5% reflecting increased local advertiser demand within the
market. For the year ended December 29, 1996 compared to the Combined 1995
year ended December 31, 1995, net national advertising revenues, excluding
net political advertising revenues, for WEAU-TV decreased 1.7% due to
decreased advertiser demand within that station's market while for the same
periods net local advertising revenues, excluding net political advertising
revenues, increased 4.9% reflecting increased local advertiser demand within
the market. Network compensation for the Stations increased approximately
$635,000 to $1,371,000 for the year ended December 29, 1996 compared to
$736,000 for the Combined 1995 year ended December 31, 1995. Such increase
reflects increased compensation pursuant to new long-term network affiliation
agreements for each station which became effective as of January 1, 1996.
Such long-term network affiliation agreements, each expiring in 2005,
generally do not provide for any additional increases in network compensation
for the Stations above the 1996 compensation levels.

Operating expenses for the year ended December 29, 1996, excluding
depreciation and amortization expenses, decreased $5,253,848, or 38.5%, to
$8,407,679 from $13,661,527 for the corresponding Combined 1995 period. Of
such decline, $3,377,234 is attributable to the sale of WWMT during the
Combined 1995 period resulting in the inclusion of no operating expenses
attributable to WWMT for the year ended December 29, 1996 and $2,100,921 is
attributable to accounting for Winnebago as a discontinued operation in the
Post-Effective date periods. In addition, the year ending December 29, 1996
contains charges of $129,507 for pension expenses while the corresponding
Combined 1995 period recorded a net benefit of $150,041 resulting from the
partial curtailment of the Company's pension plan upon the sale of WWMT.
Operating expenses, excluding depreciation and amortization expenses, for the
Stations decreased $55,243, or 0.7%, to $8,278,172 for the year ended
December 29, 1996 from $8,333,415 for the corresponding Combined 1995 period
reflecting certain non-recurring sales promotion costs incurred during the
Combined 1995 period.

Depreciation and amortization expenses for the year ended December 29,
1996 decreased $29,516, or 0.5%, to $5,713,862 from $5,743,378 for the
Combined 1995 period. Of such decline, $511,307 is attributable to the sale
of WWMT during the Combined 1995 period resulting in the inclusion of no
depreciation and amortization expenses relating to WWMT for the year ended
December 29, 1996 and $144,600 is attributable to accounting for Winnebago as
a discontinued operation in the Post-Effective date periods. Depreciation and
amortization expenses attributable to the Stations increased $626,391, or
12.3%, to $5,713,862 for the year ended December 29, 1996 from $5,087,471 for
the Combined 1995 period. Of such aggregate increase in depreciation and
amortization charges for the Stations,

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<PAGE>

depreciation charges decreased $360,173 and amortization charges increased
$986,564 reflecting the changes in asset carrying amounts, useful lives and
amortization periods related to the adoption of Fresh Start Accounting.

Corporate expenses increased $410,740, or 35.4%, to $1,571,772 during
the year ended December 29, 1996 from $1,161,032 for the Combined 1995 year
ended December 31, 1995. Such increase resulted primarily from increased
professional service charges during the 1996 period and charges during fiscal
year 1996 of approximately $354,000 relating to the accrual of obligations
under the Company's Long Term Incentive Plan for 1996 as compared to the
incurrence of approximately $236,000 of such charges in the corresponding
Combined 1995 period.

Income from operations decreased $1,722,195, or 32.5%, to $3,580,858 for
the year ended December 29, 1996 from $5,303,053 for the corresponding
Combined 1995 period. Of such decline, $2,345,983 is attributable to the
sale of WWMT during the Combined 1995 period resulting in the inclusion of no
income from operations attributable to WWMT for the year ended December 29,
1996 and $123,388 is attributable to accounting for Winnebago as a
discontinued operation in the Post-Effective date periods. Income from
operations attributable to the Stations increased $1,372,711, or 35.7%, to
$5,217,384 for the year ended December 29, 1996 from $3,844,673 for the
Combined 1995 period as the Stations' increased net revenues were partially
offset by increased amortization charges resulting from the adoption of Fresh
Start Accounting.

Interest expense decreased $4,866,476, or 36.7%, to $8,400,340 for the
year ended December 29, 1996 from $13,266,816 for the corresponding Combined
1995 period in part reflecting the Company's Post-Effective Date
capitalization, the issuance of the Senior Notes, the Senior Subordinated
Note Redemption and the Junior Subordinated Note Redemption. See Note 6 to
Notes to Consolidated Financial Statements included in Item 8, "Financial
Statements and Supplementary Data." In addition, pursuant to the Plan, the
Company did not accrue approximately $1.8 million of interest on certain of
its Pre-Effective Date indebtedness for the period from March 9, 1995 through
May 2, 1995.

Interest income decreased $633,851, or 68.8%, to $287,793 for the year
ended December 29, 1996 from $921,644 for the Combined 1995 period. Such
decrease primarily reflects the inclusion of interest earnings on the WWMT
sales proceeds, prior to the redemption of certain indebtedness with such
proceeds, only in the Combined 1995 period. See Notes 5 and 6 to Notes to
Consolidated Financial Statements included in Item 8, "Financial Statements
and Supplementary Data." In addition, the Company's cash balances, after
giving effect to the issuance of the Senior Notes, the Senior Subordinated
Note Redemption and the Junior Subordinated Note Redemption, have been
reduced between the respective fiscal periods and associated interest
earnings thereon have decreased.

The Company has analyzed its current and deferred federal and state tax
assets and liabilities and has concluded that no provision was required for
the year ended December 29, 1996.

The increase in income from discontinued operations for the year ended
December 29, 1996 compared to the corresponding Combined 1995 period in part
reflects accounting for Winnebago as a discontinued operation for a full
fiscal year in the 1996 period compared to the eight months contained in the
1995 Post-Effective Date period. In addition, such increase reflects
slightly improved operating results as net revenue from Winnebago increased
$214,970, or 3.2%, to $6,896,484 for the year ended December 29, 1996 from
$6,681,514 for the corresponding Combined 1995 period due to increased
customer demand. Operating expenses of the discontinued operation were
comparable, relative to the respective net sales, between the respective
fiscal periods.

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<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

The Company's cash and cash equivalents at December 28, 1997 totaled
$8,974,699 compared to $7,989,805 at December 29, 1996. The Company's cash
balance at December 28, 1997 includes $3,360,024 of net proceeds from the
sale of Winnebago as compared to $3,140,000 for the year ended December 29,
1996; such increase is attributable to the Company's receipt of $102,857 as a
working capital purchase price adjustments in February 1997 and interest
earnings on the aggregate net proceeds. The Company's use of such aggregate
net proceeds is restricted under the terms of the Indenture governing the
Senior Notes to making investments in or acquiring property and assets
directly related to television and/or radio broadcasting, to funding the
capital expenditures described below and other capital expenditures or for
other permitted uses. The increase in the Company's cash position resulted
primarily from cash generated by the Company's operations offset in part by
capital expenditures.

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 $1,872,699 and $3,816,724 for the years ended December
28, 1997 and December 29, 1996, respectively. The decrease in net cash
provided by operations for the year ended December 28, 1997 is due primarily
to the Company's results of operations, contributions to the Company's
pension plan trust fund and changes in certain working capital accounts.

The Company's cash interest requirements were generally consistent
between fiscal year 1997 and 1996. The Company's cash interest requirements
increased 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, which indebtedness was subsequently
redeemed in connection with the sale of WWMT, the issuance of the Senior
Notes and the Junior Subordinated Note Redemption, was payable through the
issuance of additional securities.

CAPITAL EXPENDITURES

In addition to its debt service obligations, the Company will require
liquidity for capital expenditures and working capital needs. For the 1997
fiscal year, capital expenditures totaled $883,599, all of which related to
the Stations. The Company currently anticipates that it will make capital
expenditures of approximately $1 million for the 1998 fiscal year.

It is anticipated that significant capital expenditures may be required
in the future to implement ATV at the Stations. The FCC has determined the
technical standards, the channel assignments and a time table for
implementation of ATV. The FCC has assigned the following ATV channels to
the Company's current channels:

STATION LOCATION CURRENT CHANNEL ATV CHANNEL
------- -------- --------------- -----------
<S> <C> <C> <C>
KOLN Lincoln, Nebraska 10 25
KGIN Grand Island, Nebraska 11 32
WEAU Eau Claire, Wisconsin 13 39

</TABLE>

Generally, under the FCC's implementation schedule, the Company must
apply for ATV construction permits for each of its present television
stations by November 1, 1999 and then commence ATV operations by May 1, 2002.
Under the current FCC implementation schedule the Company would generally be
required to surrender to the government either the current channel or the ATV
channel by December 31, 2006 and continue its digital operations thereafter
on the retained channel. Recent legislation requires the FCC to extend the
December 31, 2006 surrender date with respect to certain stations within a
given television market if (i) at least one network affiliate is not
broadcasting a digital service in the given market and has exercised "due
diligence" in meeting the ATV buildout requirements for

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<PAGE>

that market or (ii) digital to analog converter technology is not generally
available in the given market or (iii) 15 percent or more of the television
households in a given market do not subscribe to a multichannel video
programming distributor that carries the digital service of each local
station and those television households do not have at least one advanced
television set or at least one digital to analog converter. The foregoing
implementation schedule is subject to review by the FCC each two years and
may also be subject to future legislation or judicial review, the effect of
which cannot be predicted by the Company.

The Company is currently studying the ATV channel assignments for the
Stations as well as the technical and capital expenditure requirements to
implement ATV at the Stations. The Company currently intends to implement
ATV at the Stations within the FCC mandated implementation period. The
Company cannot presently predict the cost of such implementation but, based
upon general industry estimates, currently believes that such costs will be
material and will require several million dollars to commence initial ATV
operations.

PROGRAM COMMITMENTS

The Company has entered into contracts to purchase rights to air certain
programs at future dates extending through the year 2002. As of December 28,
1997, the Company had aggregate commitments of $3,031,795 under such
contracts. Cash payments for program contract rights are made at fixed
monthly amounts over the terms of the contracts.

POSSIBLE LOCAL MARKETING AGREEMENTS

On December 31, 1997, the Company entered into the Channel 45 Option
with McPike to provide McPike with funding in connection with its FCC
application for, and construction of, Channel 45 and to provide the Company
with an option to purchase the assets relating to Channel 45. A principal
officer of McPike is the controller for KOLN/KGIN-TV. Except for certain
nominal amounts, the Company intends to invest such funds only after receipt
of requisite FCC and other governmental approvals of the proposed
transactions. The funds are expected to be provided to McPike primarily in
the form of a secured loan. In exchange for such financial assistance,
McPike will, subject to the receipt of requisite FCC and other governmental
approvals, including the grant of the Channel 45 license, enter into an LMA
with the Company. An LMA involves the payment of a fee to and/or expenses of
a station licensee in exchange for the rights to provide programming to a
station and to retain revenues derived from the sale of advertising in such
programming. In consideration of the Channel 45 LMA, the Company will agree
to pay all of such station's operating expenses. The Company intends (subject
to requisite FCC and other governmental approvals) to operate Channel 45
under such an LMA but is presently unable to predict whether the requisite
FCC and other governmental approvals will be received or the timing of such
approvals. Pursuant to the Channel 45 Option, the Company has agreed to pay
to McPike (i) $25,000 within 10 days of a final FCC grant of a construction
permit to McPike for Channel 45, (ii) $25,000 less any amounts received by
McPike as the result of a settlement in the event the construction permit for
Channel 45 is granted to any other party or (iii) a $25,000 termination fee
in the event the Company wishes to terminate the Channel 45 Option in order
to perform its obligations under the Channel 51 Option (described below).
The Channel 45 Option will have a term of 10 years following program test
authority for McPike's Channel 45 facility, but can be extended by the
Company for an additional 10 years upon payment by the Company to McPike of
$25,000. The Company's exercise price to purchase the Channel 45 assets is
the greater of $100,000 or an amount equal to the outstanding principal
balance and accrued interest on the secured loan plus a cash payment of
$25,000. The Channel 45 Option also provides for a five-year lease to
install the Channel 45 antenna on the KOLN-TV tower and the Channel 45
transmitter at a suitable location on the KOLN-TV tower site, for a monthly
rental of $2,500. On November 6, 1995, Citadel filed with the FCC a petition
to deny McPike's application for Channel 45. Citadel's petition asserts,
among other things, that the Company's proposed interest in Channel 45 is so
substantial that it violates the FCC's multiple station ownership
restrictions. Although McPike has opposed Citadel's petition, the Company
cannot predict the outcome of this proceeding. Also, on November 6, 1995,
Northwest and Miller filed separate applications with the FCC for Channel 45.
The Miller application indicates that the applicant intends to enter into an
LMA with Pappas. Pappas (or affiliates of Pappas) operate, directly or
indirectly, television stations KHGI-TV (with its satellite station KWNB-TV),
an ABC affiliate, and KTVG-TV (with its satellite station KSNB-TV),
affiliated with Fox and UPN, in the Lincoln-Hastings-Kearney market. In
addition, Pappas (or an affiliate of Pappas) owns and operates KPTM-TV, a Fox
affiliate in the adjacent Omaha, Nebraska television market. In addition, on
November 7, 1995, Walnut Creek filed an application with the FCC for Channel
45.

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<PAGE>

The McPike, Northwest, Miller and Walnut Creek applications for Channel 45
are mutually exclusive. On December 14, 1995, Northwest, Miller and Walnut
Creek filed a proposed settlement agreement with the FCC pursuant to which,
if approved by the FCC, Northwest and Walnut Creek would withdraw their
respective applications in return for certain payments from Miller. However,
one of the parties has subsequently attempted to withdraw from the proposed
settlement and the effect of such attempted withdrawal is unclear.

On December 31, 1997, the Company entered into the Channel 51 Option
with Comisar to provide Comisar with funding in connection with his FCC
application for, and construction of, Channel 51 and to provide the Company
with an option to purchase the assets relating to Channel 51. Except for
certain nominal amounts, the Company intends to invest such funds only after
receipt of requisite FCC and other governmental approvals of the proposed
transactions. The funds are expected to be provided to Comisar primarily in
the form of a secured loan. In exchange for such financial assistance,
Comisar will, subject to the receipt of requisite FCC and other governmental
approvals, including the grant of the Channel 51 license, enter into an LMA
with the Company. In consideration of the Channel 51 LMA, the Company will
agree to pay all of such station's operating expenses. The Company intends
(subject to requisite FCC and other governmental approvals) to operate
Channel 51 under such an LMA but is presently unable to predict whether the
requisite FCC and other governmental approvals will be received or the timing
of such approvals. Pursuant to the Channel 51 Option, the Company has agreed
to pay to Comisar (i) $25,000 within 10 days of a final FCC grant of a
construction permit to Comisar for Channel 51, (ii) $25,000 less any amounts
received by Comisar as the result of a settlement in the event the
construction permit for Channel 51 is granted to any other party or (iii) a
$25,000 termination fee in the event the Company wishes to terminate the
Channel 51 Option in order to perform its obligations under the Channel 45
Option (described above). The Channel 51 Option will have a term of 10 years
following program test authority for Comisar's Channel 51 facility, but can
be extended by the Company for an additional 10 years upon payment by the
Company to Comisar of $25,000. The Company's exercise price to purchase the
Channel 51 assets is the greater of $100,000 or an amount equal to the
outstanding principal balance and accrued interest on the secured loan plus a
cash payment of $25,000. The Channel 51 Option also provides for a five-year
lease to install the Channel 51 antenna on the KOLN-TV tower and the Channel
51 transmitter at a suitable location on the KOLN-TV tower site, for a
monthly rental of $2,500. Mutually exclusive applications for Channel 51 were
filed by Anthony J. Fant on June 2, 1996, by Channel 51, L.L.C. on July 23,
1996 and by World Broadcasting, Inc. and Prime Broadcasting Company on July
24, 1996.

On November 25, 1997, the FCC proposed rules to require that pending
mutually exclusive applications for commercial broadcast facilities be
resolved through auctions, rather than comparative selection procedures. For
applications such as McPike's and Comisar's applications filed prior to July
1, 1997, only applications already on file are to be eligible to participate
in the auction. Bidding preferences or other advantages might be given to
certain types of "designated entities," including minorities, small
businesses, women, those promoting ownership diversification, and those
proposing service to underserved communities or reception areas. Although
each of McPike and Comisar has advised the Company that it intends to
prosecute fully its application for Channel 45 and Channel 51, respectively,
the Company cannot predict the outcome of the competing applications for
Channel 45 and Channel 51 or the proposed auction procedures.

On December 31, 1997, the Company entered into the Channel 39 Option
with McPike to provide McPike with funding in connection with its FCC
application for, and construction of, Channel 39 and to provide the Company
with an option to purchase the assets relating to Channel 39. Except for
certain nominal amounts, the Company intends to invest such funds only after
receipt of requisite FCC and other governmental approvals of the proposed
transactions. The funds are expected to be provided to McPike primarily in
the form of a secured loan. In exchange for such financial assistance, McPike
will, subject to the receipt of requisite FCC and other governmental
approvals, including the grant of the Channel 39 license, enter into an LMA
with the Company. In consideration of the Channel 39 LMA, the Company will
agree to pay all of such station's operating expenses. The Company intends
(subject to FCC and other governmental approvals) to operate Channel 39 under
such an LMA but is presently unable to predict whether the requisite FCC and
other governmental approvals will be received or the timing of such
approvals. Pursuant to the Channel 39 Option, the Company has agreed to pay
to McPike (i) $25,000 within 10 days of a final FCC grant of a construction
permit to McPike for Channel 39 or (ii) $25,000 less any amounts received by
McPike as the result of a settlement in the event the construction permit for
Channel 39 is granted to any other party. The Channel 39 Option will have a
term of 10 years

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<PAGE>

following program test authority for McPike's Channel 39 facility, but can be
extended by the Company for an additional 10 years upon payment by the
Company to McPike of $25,000. The Company's exercise price to purchase the
Channel 39 assets is the greater of $100,000 or an amount equal to the
outstanding principal balance and accrued interest on the secured loan plus a
cash payment of $25,000. The Channel 39 Option also provides for a five-year
lease to install the Channel 39 antenna on the WEAU-TV tower and the Channel
39 transmitter at a suitable location on the WEAU-TV tower site, for a
monthly rental of $2,500. Pursuant to the FCC proposed rules, pending
mutually exclusive applications for commercial broadcast facilities are to be
resolved through auctions, rather than comparative selection procedures. For
applications such as McPike's application for Marshfield, which was filed
prior to July 1, 1997 and against which no mutually exclusive applications
have been filed, the FCC has suggested that it might open a further window
for the filing of competing applications or permit parties who had not filed
applications to participate in an auction for such facilities. Bidding
preferences or other advantages might be given to certain types of
"designated entities," including minorities, small businesses, women, those
promoting ownership diversification, and those proposing service to
underserved communities or reception areas. The FCC has proposed the use of
Channel 39 as a second, ATV channel for WEAU-TV, which would preclude its use
by McPike at Marshfield and could jeopardize the viability of that
application. See "Company and Industry Overview - Television - Federal
Regulation of Television Broadcasting - Advanced Television Service."

OTHER LIQUIDITY AND CAPITAL RESOURCES ISSUES

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 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 1999. 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 business. 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 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.

IMPACT OF THE YEAR 2000 ON THE COMPANY'S OPERATIONS

The Company has commenced a review of the possible impact of the year
2000 on the software systems directly utilized by the Company and such review
is currently expected to be completed by December 31, 1998. While the
Company can make no assurances as to the impact of the year 2000 on its
operations, it currently anticipates that any adverse consequences of the
year 2000 on the Company's software systems will not create a significant
disruption to the Company's operations and that remedial costs, if any, are
not anticipated to be material. The actual results of the Company's on going
review may produce results materially different from the result presently
anticipated due to, among other factors, (i) the accuracy and timeliness of
any remedial steps performed by third party software providers to the
Company, (ii) the ability and cost to identify, correct or replace all
relevant software programs, and (iii) the cost and availability of personnel
or third parties to provide effective and timely remedial action.

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<PAGE>

INCOME TAXES

The Company estimated that its federal NOL carryover as of December 28,
1997 was approximately $61.4 million and that such NOLs will begin to expire
in 2005. The Company elected treatment under Section 382(l)(5) (the "L5
Election") of the Internal Revenue Code, as amended (the "Code"), when it
filed its 1995 federal income tax return. The L5 Election allows the Company
to utilize, subject to certain restrictions, its Pre-Effective Date NOL of
approximately $59.8 million to offset any taxable income incurred after the
Effective Date. The Company's use of its Post-Effective Date NOL is not
restricted, absent a future "ownership change" under Section 382 of the Code.
The ownership change incurred upon closing of the Stock Purchase Agreement
will cause the Company's use of the Pre- and Post-Effective Date NOL to be
restricted under Section 382 of the Code. See Note 8 of Notes to Consolidated
Financial Statements included in "Financial Statements and Supplementary
Data" at Item 8.

RESIGNATION OF DIRECTOR

On October 15, 1996, by unanimous written consent of the then serving
directors, the Board of Directors of the Company was expanded from three to
four directors and Mr. Gary E. Hindes became a director of the Company on
such date. On September 10, 1997, Mr. Hindes resigned as a member of the
Company's Board of Directors leaving three serving directors. As of the date
hereof, the directorship vacated by Mr. Hindes remains unfilled and the
Company can give no assurance as to when or if such directorship will be
filled.

STOCK PURCHASE AGREEMENT

On February 13, 1998, the Company, the Stockholders and Gray entered into the
Stock Purchase Agreement whereby Gray agreed to acquire, and the
Stockholders agreed to sell, all of the capital stock of the Company for the
aggregate purchase price of (i) $112 million, plus (ii) the Company's cash
and cash equivalents, less (iii) the aggregate amount of the Company's
indebtedness and accrued and unpaid interest thereon, including the accreted
amount of the Senior Notes. The value of the Company's cash, cash
equivalents and aggregate indebtedness will be determined as of the close of
business on the business day immediately preceding the closing date of the
Stock Purchase Agreement.

Consummation of the transactions contemplated by the Stock Purchase Agreement
is subject to the receipt of requisite governmental approvals, including the
approval of the FCC. The Company can make no assurance as to whether the
transactions contemplated by the Stock Purchase Agreement will be completed,
but currently anticipates that such transactions will close on or before
September 1, 1998.

Effective with the closing of the Stock Purchase Agreement, Messrs. Busse and
Ryan will resign as executive officers of, and terminate their respective
employment with, the Company and Messrs. Busse, Beck and Cornwell will resign
as directors of the Company.

CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT

This annual report on Form 10-K contains "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995.
When used in this report, the words "believes," "expects," "anticipates,"
"estimates" and similar words and expressions are generally intended to
identify forward-looking statements. Statements that describe the Company's
future strategic plans, goals or objectives are also forward-looking
statements. Readers of this report are cautioned that any forward-looking
statements, including those regarding the intent, belief, or current
expectations of the Company or management, are not guarantees of future
performance, results or events and involve risks and uncertainties, and that
actual results and events may differ materially from those in the
forward-looking statements as a result of various factors including, but not
limited to (i) general economic conditions in the markets in which the
Company

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<PAGE>

operates, (ii) competitive pressures within the industry and/or the markets
in which the Company operates, (iii) the effect of future legislation or
regulatory changes on the Company's operations and (iv) other factors
described from time to time in the Company's filings with the Securities and
Exchange Commission. The forward-looking statements included in this report
are made only as of the date hereof. The Company undertakes no obligation to
update such forward-looking statements to reflect subsequent events or
circumstances.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

The financial statements are included in this report beginning on page
F-1.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table sets forth information concerning the executive
officers and directors of the Company as of December 28, 1997:

NAME AGE POSITION
- ------------------- --- ------------------------------------
<S> <C> <C>
Lawrence A. Busse 61 Chairman of the Board and President
James C. Ryan 37 Chief Financial Officer
Robert Greinert 66 Winnebago Color Press General Manager
Frank Jonas 50 KOLN/KGIN-TV General Manager
Cheryl Weinke 43 WEAU-TV General Manager
W. Don Cornwell 49 Director
Stuart J. Beck 50 Director

</TABLE>

Lawrence A. Busse has served as Chairman of the Board, President and a
Director of the Company since its inception in 1987. Mr. Busse has been
active in broadcasting for over 35 years. From 1973 until 1984, Mr. Busse
worked in various management roles for Post Corporation including the General
Manager positions with WLUC-TV, Marquette, Michigan, WEAU-TV, Eau Claire,
Wisconsin, WOKR-TV, Rochester, New York, and WLUK-TV, Green Bay, Wisconsin.
In 1984, Mr. Busse became Executive Vice President of the Broadcast Division
of Post Corporation following its acquisition by GHI. Prior to joining the
Company, Mr. Busse served as President of this division.

James C. Ryan has served as the Chief Financial Officer of the Company
since its formation in 1987. Mr. Ryan began his professional career in 1982
as an auditor with Peat Marwick. In 1985, Mr. Ryan entered the broadcast
industry as the controller of WOKR-TV, Rochester, New York.

Robert Greinert joined Winnebago in 1957 and served as General Manager
of this division from 1988 through December 27, 1996 when the division was
sold by the Company.

Frank Jonas has been the General Manager of KOLN/KGIN-TV since October
1986. Mr. Jonas has been active in broadcasting for over 25 years. In 1978,
Mr. Jonas joined WLUC-TV in Marquette, Michigan as General Sales Manager and
was named the General Sales Manager of WLUK-TV in Green Bay, Wisconsin in
1980. From September 1984 through October 1986, Mr. Jonas was the General
Manager at KTVO-TV, Kirksville, Missouri.

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<PAGE>

Cheryl Weinke has been the General Manager of WEAU-TV since January
1992. She started her broadcast career in 1980 as the Accounting Supervisor
for WEAU-TV and certain other affiliated broadcast businesses. Prior to
assuming her current position, Ms. Weinke served as the Controller of WEAU-TV
for eight years.

Messrs. Busse, Ryan, Greinert, Jonas and Ms. Weinke have each held their
current respective positions during the two years prior to the Company's
proceedings under Chapter 11 of the Bankruptcy Code.

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

Stuart J. Beck has been a Director of the Company since the Effective
Date. Mr. Beck is a founding stockholder of Granite and has been a member of
the Board of Directors, and Secretary of Granite since February 1988 and
President of Granite since September 1991. Prior to founding Granite, Mr.
Beck was an attorney in private practice of law in New York, New York and
Washington, DC.

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

Contemporaneously with the closing of the Gray Sale, Messrs. Busse and
Ryan will resign as executive officers of, and terminate their respective
employment with, the Company and Messrs. Busse, Beck and Cornwell will resign
as directors of the Company.

DIRECTOR COMPENSATION

Directors not also serving as employees of the Company are paid a fee of
$9,000 per year.

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<PAGE>

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth the compensation paid by the Company to
its chief executive officer, the President, and each of its most highly
compensated executive officers whose total cash compensation exceeded
$100,000 during 1997:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION COMPENSATION(2)
- --------------------------- ---- ------ ---------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Lawrence A. Busse 1997 $319,407 $256,397 N/A $32,417
Chairman of the Board 1996 301,327 262,775 N/A 25,687
and President 1995 284,271 135,553 N/A 358,264

James C. Ryan 1997 111,098 84,188 N/A 1,787
Chief Financial Officer 1996 104,809 86,506 N/A 950
1995 98,877 45,881 N/A 125,924

Frank Jonas 1997 165,916 104,683 N/A 17,633
KOLN/KGIN-TV Gen. Mgr. 1996 158,016 82,830 N/A 14,910
1995 150,491 59,781 N/A 38,273

Cheryl Weinke 1997 103,319 71,535 N/A 11,244
WEAU-TV Gen. Mgr. 1996 98,399 87,687 N/A 8,987
1995 93,713 73,466 N/A 33,829

Robert Greinert 1997 N/A N/A N/A N/A
Winnebago Gen. Mgr. 1996 86,253 27,265 N/A 2,138
1995 82,146 11,235 N/A 14,768

</TABLE>
- ------------
(1) The amounts disclosed as annual bonuses for 1995, 1996 and 1997 include
vested amounts Messrs. Busse, Ryan, Jonas and Ms. Weinke will receive
subject only to continued employment by the Company pursuant to the Long
Term Incentive Plan. Such vested amounts for Messrs. Busse, Ryan, Jones,
and Ms. Weinke are $121,553, $37,551, $39,781, and $36,466,
respectively, for fiscal year 1995, $182,815, $56,506, $59,830 and
$54,844, respectively, for fiscal year 1996 and $181,783, $56,188,
$59,493 and $54,535, respectively, for fiscal year 1997.

The amounts disclosed as annual bonuses for Mr. Greinert include the
vested amounts of $7,735 and $27,265 for fiscal years 1995 and 1996,
respectively, earned pursuant to the Long Term Incentive Plan. Mr.
Greinert was paid the total amount earned of $35,000 (the "Maximum
Amount", as defined herein) upon the Winnebago Asset Sale.

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<PAGE>

(2) The following table identifies and quantifies the types and amounts of
"All Other Compensation" paid for fiscal years 1995-1997:

<TABLE>
<CAPTION>
EMPLOYER
401(k) SIGNING SERVICES WWMT
NAME AND PRINCIPAL POSITION YEAR AUTO LIFE LTD CONTRIBUTION BONUS BONUS SALE BONUS
- --------------------------- ---- ------- ------ ------ ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Lawrence A. Busse 1997 $14,999 $4,592 $6,277 $6,549 N/A N/A N/A
Chairman of the Board and 1996 14,058 4,459 6,220 950 N/A N/A N/A
President 1995 3,330 3,735 6,089 924 $125,000 $44,186 $175,000

James C. Ryan 1997 N/A N/A N/A 1,787 N/A N/A N/A
Chief Financial Officer 1996 N/A N/A N/A 950 N/A N/A N/A
1995 N/A N/A N/A 924 50,000 N/A 75,000

Frank Jonas 1997 7,393 1,786 3,440 5,014 N/A N/A N/A
KOLN/KGIN-TV 1996 8,079 1,673 3,375 1,783 N/A N/A N/A
Gen. Mgr. 1995 6,683 1,518 3,227 1,845 25,000 N/A N/A

Cheryl Weinke 1997 6,675 178 1,639 2,752 N/A N/A N/A
WEAU-TV Gen. Mgr. 1996 5,935 171 1,528 1,353 N/A N/A N/A
1995 5,743 162 1,413 1,511 25,000 N/A N/A

Robert Greinert 1997 N/A N/A N/A N/A N/A N/A N/A
Winnebago Gen. Mgr. 1996 N/A N/A N/A 2,138 N/A N/A N/A
1995 N/A N/A N/A 2,268 12,500 N/A N/A
</TABLE>

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements (as amended, the
"Employment Agreements") with each of its executive officers. Each such
Employment Agreement had an initial term of approximately two and one-half
years commencing on the date immediately following the Effective Date and
ending on December 31, 1997. As of February 13, 1998, the Employment
Agreements were amended to extend their term through the later of December
31, 1998 or twelve months from a Trigger Event (as defined in the Long Term
Incentive Plan). See "- Long Term Incentive Plan." Under these Employment
Agreements, the executive officers (other than Messrs. Busse and Ryan) are
eligible to receive an annual discretionary performance-based bonus. The
amount of such bonus, if any, will be determined at the sole discretion of
the Board of Directors of the Company.

The Employment Agreements provide that if the Company terminates the
employment of an executive officer without "cause" (as defined below) or the
executive officer resigns with "good reason" (as defined below), such officer
will be entitled to receive a lump sum payment equal to the officer's annual
base salary in effect on the date of such termination or resignation. "Cause"
under the Employment Agreements means the commission of a felony (other than
driving while intoxicated), a willful dereliction of duty or intentional and
malicious conduct contrary to the best interests of the Company or a refusal
to perform a service customarily performed by and consistent with the
position as a senior executive officer of the Company if such refusal is not
corrected within thirty (30) days after written notice thereof from the
Company. An employee's termination of employment with the Company shall be
deemed to have occurred for "good reason" if it occurs within six (6) months
of the assignment by the Company of duties substantially inconsistent with,
or representing a substantial diminution in the nature or status of,
responsibilities, duties or job title or the relocation to any place more
than forty (40) miles from the office regularly occupied.

Contemporaneously with the closing of the Gray Sale, Mr. Busse's and Mr.
Ryan's employment with the Company will be terminated without "cause."

Pursuant to the Employment Agreements, each executive officer is
prohibited from disclosing information confidential to the Company during the
term of his or her Employment Agreement and for a period of three years
thereafter. In addition, such officers are prohibited from engaging, directly
or indirectly, in the television broadcast business in the geographic markets
served by the Company, or soliciting or enticing any individual to terminate
his or her employment with the Company or any of its affiliates during the
term of his or her Employment Agreement and for

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<PAGE>

a period of one year after termination with "cause" or resignation without
"good reason." In accordance with the Employment Agreements, Messrs. Busse,
Ryan, Jonas and Ms. Weinke received annual salaries of $284,271, $98,877,
$150,491 and $93,713, respectively, for the year ending December 31, 1995;
$301,327, $104,809, $158,016 and $98,399, respectively, for the year ending
December 31, 1996; and $319,407, $111,098, $165,916 and $103,319,
respectively, for the year ending December 31, 1997. Messrs. Busse, Ryan,
Jonas and Ms. Weinke will receive annual salaries of $335,377, $116,652,
$174,212 and $108,485, respectively, for the year ending December 31, 1998.
Mr. Greinert received, in accordance with his Employment Agreement, an annual
salary of $82,146 and $86,253 for the years ended December 31, 1995 and 1996,
respectively. Mr. Greinert's Employment Agreement was assumed by WCP as part
of the sale of Winnebago and the Company's obligations with respect to such
agreement terminated as of December 27, 1996. Further, in connection with
the Restructuring, Messrs. Busse, Ryan, Jonas, Ms. Weinke and Mr. Greinert
received signing and other bonuses in the aggregate amounts of $169,186,
$50,000, $25,000, $25,000, $12,500, respectively. In connection with the WWMT
Sale, Messrs. Busse and Ryan received one-time bonuses of $175,000 and
$75,000, respectively.

SENIOR MANAGEMENT BONUS PLAN

Each of Messrs. Busse and Ryan are eligible to participate in the
Company's Senior Management Bonus Plan (the "Bonus Plan") during the term of
his Employment Agreement. Under the Bonus Plan, Messrs. Busse and Ryan (and
other individuals as may be designated by Mr. Busse) will be eligible to
receive in the aggregate with respect to each fiscal year, commencing with
fiscal 1995, an amount equal to the product of (a) Actual Broadcast Cash Flow
(as defined below) for the relevant fiscal year and (b) a fixed percentage
equal to (i) 0.25% if Actual Broadcast Cash Flow equals between 90.00% and
94.99% of Target Broadcast Cash Flow (as defined below), (ii) 0.50% if Actual
Broadcast Cash Flow equals between 95.00% and 99.99% of Target Broadcast Cash
Flow, (iii) 1.00% if Actual Broadcast Cash Flow equals between 100.00% and
110.00% of Target Broadcast Cash Flow and (iv) 1.10% if Actual Broadcast Cash
Flow equals more than 110.00% of Target Broadcast Cash Flow. No bonus will be
payable under the Bonus Plan with respect to any fiscal year in which Actual
Broadcast Cash Flow represents less than 90.00% of Target Broadcast Cash
Flow. The portion of such amount, if any, paid to the participants in the
Bonus Plan will be determined at the sole discretion of Mr. Busse. For
purposes of the Bonus Plan, "Actual Broadcast Cash Flow" with respect to any
fiscal year generally means an amount equal to the sum of the Company's (a)
income (or loss) from operations before extraordinary items, (b) depreciation
expense, (c) amortization expense (other than with respect to program rights)
and (d) corporate overhead expenses; provided, that Actual Broadcast Cash
Flow does not take into account any of Winnebago's assets or operations.
"Target Broadcast Cash Flow" with respect to any fiscal year generally means
the amount reflected as the Target Broadcast Cash Flow on the operating
budget approved by the Company's Board of Directors for such fiscal year,
which amount was $9.7 million in fiscal year 1995, $10.8 million for fiscal
year 1996, $10.0 million for fiscal year 1997 and $11.3 million for fiscal
year 1998.

SHORT TERM INCENTIVE PLANS

For each fiscal year during the term of his or her Employment Agreement
commencing with fiscal 1995, Mr. Jonas, Ms. Weinke and Mr. Greinert , to the
date of the Winnebago Asset Sale, will be eligible to participate in the
Short Term Incentive Plan established for the Station by which he or she is
employed or for Winnebago, as applicable (each, a "Short Term Incentive
Plan"). Under each Short Term Incentive Plan, the aggregate amount of funds
available to all participants in any fiscal year will be equal to 8% of the
amount by which Actual Cash Flow (as defined below) exceeds Target Cash Flow
(as defined below) for such fiscal year. The amount, if any, allocated and
paid to the participants in such Short Term Incentive Plan from such
aggregate amounts will be determined at the sole discretion of Mr. Busse. For
purposes of any Short Term Incentive Plan, "Actual Cash Flow" with respect to
any fiscal year, generally means an amount equal to the sum of the (a) income
(or loss) from operations before extraordinary items, (b) depreciation
expense, (c) amortization expense (other than with respect to program rights,
if applicable) and (d) allocated corporate overhead charges for the relevant
Station or Winnebago, as applicable. "Target Cash Flow" with respect to any
fiscal year, generally means the amount of projected Actual Cash Flow
reflected on the annual operating budget approved by the Board of Directors
of the Company for the relevant Station or Winnebago, as applicable.

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<PAGE>

LONG TERM INCENTIVE PLAN

Each of the executive officers participates in the Company's Long Term
Incentive Plan (as amended, the "Long Term Incentive Plan"). Pursuant to the
Long Term Incentive Plan, the Company may be obligated to pay in the
aggregate a maximum of $1,100,000 to the participants. The maximum amounts
payable to each participant is referred to as the "Maximum Amount" and is set
forth in the respective long-term Incentive Agreement entered into by each
participant pursuant to the Long-Term Incentive Plan. The Maximum Amounts for
Messrs. Busse, Ryan, Jonas, Ms. Weinke and Mr. Greinert are $550,000,
$170,000, $180,000, $165,000 and $35,000, respectively. The allocation of the
aggregate maximum amount payable under the Long-Term Incentive Plan among the
individual participants was established by Mr. Busse in his capacity as the
sole member of the Company's Board of Directors prior to the Effective Date.
Each participant's right to receive his or her Maximum Amount will vest
ratably over three years, and, on the third anniversary of the Effective Date
(the "Third Anniversary Date"), the Company will become obligated to pay each
participant who has not previously received a payment under the Long Term
Incentive Plan and who has been continuously employed by the Company since
the Effective Date such Maximum Amount. Pursuant to the Long Term Incentive
Plan, if a participant's employment with the Company is terminated due to
death or Disability (as defined below), the Company will pay to such
participant (or the beneficiary or estate of such participant, as applicable)
an amount equal to the participant's Vested Amount (as defined below). Under
the Long-Term Incentive Plan, an employee is deemed subject to a "Disability"
if the employee is substantially unable to perform his or her duties by
reason of illness or mental or physical disability for a period in excess of
one hundred eighty (180) days in the aggregate during any twelve-month
period. In the event a participant's employment with the Company is
terminated by the Company without "cause" or by such participant for "good
reason" (other than in connection with certain events constituting a change
in control of the Company (each, a "Trigger Event")), the participant will be
entitled to receive an amount equal to the present discounted value of his or
her Maximum Amount discounted from the Third Anniversary Date at the
Applicable Federal Rate (defined as the lowest applicable federal rate
permitted under Section 1274(d) of the Code). On May 31, 1996, the Long Term
Incentive Plan was amended to provide that upon the occurrence of a Trigger
Event, the Company will pay to each participant an amount equal to such
participant's Maximum Amount.

For purposes of the Long Term Incentive Plan, "Vested Amount" generally
means an amount equal to such participant's Maximum Amount times a fraction,
the numerator of which is the number of days during which such participant
has been employed by the Company from and after the Effective Date and the
denominator of which is 1,095, but in no event more than the Maximum Amount
applicable to such participant and "Trigger Event" generally means, with
respect to each participant, certain events consisting of (i) the bankruptcy
or insolvency (or similar occurrence) of the Company or any "significant
subsidiary" of the Company, (ii) a change in beneficial ownership of more
than 50% of the voting securities of the Company and (iii) approval by the
Company's stockholders of certain fundamental changes to the Company's
corporate structure or ownership of its assets and, with respect to Mr.
Greinert, Mr. Jonas and Ms. Weinke, respectively, the disposition of the all
or substantially all of the assets of Winnebago or the respective Station
such participant manages. Mr. Greinert was paid his Maximum Amount ($35,000)
upon the Winnebago Asset Sale.

The Long Term Incentive Plan provides that if a participant's employment
with the Company is terminated by the Company for "cause" or by reason of
resignation of such participant other than for "good reason" the
participant's rights under the Long Term Incentive Plan will terminate and no
payments will be made to such participant. Upon such termination, up to 25%
of such participant's Maximum Amount or, in the event of the participant's
death or Disability, such participant's Unvested Amount (generally defined as
the participant's Maximum Amount less the participant's Vested Amount) may be
allocated to other participants in the Long Term Incentive Plan and the
remaining balance, together with any amount not so allocated, may be
allocated to any employee selected by the Company to replace such
participant.

The Company is not required to fund or otherwise segregate assets to be
used to pay benefits under the Long Term Incentive Plan. The Company's
obligations under the Long Term Incentive Plan rank senior to its obligations
under the indenture governing the Junior Subordinated Notes. Under the Long
Term Incentive Plan, the Company is precluded, with certain permitted
exceptions, from (a) paying cash dividends and making cash payments in
respect of the Junior

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<PAGE>

Subordinated Notes and (b) entering into transactions with Affiliates (as
defined therein) other than upon fair and reasonable terms.

In connection with the Transactions, the "Majority Participant" (as
defined below) under the Long Term Incentive Plan has executed a waiver
agreement pursuant to which any default arising under the Long Term Incentive
Plan as a result of the Secured Senior Note Redemption or the Junior
Subordinated Note Redemption has been waived. "Majority Participant" means
participants representing at least 50% of the aggregate Maximum Amounts of
all participants at such time then payable under the Long Term Incentive
Plan.

INCENTIVE FEE PLAN

On February 13, 1998, the Company adopted an Incentive Fee Plan (the
"Incentive Fee Plan"). Pursuant to the Incentive Fee Plan, upon a sale of
the Company, an incentive fee may be payable to and allocated among the
Company's employees in the manner directed by Lawrence Busse. The aggregate
amount of the incentive fee payable to the Company's employees will be (i)
$350,000 in the event the Aggregate Consideration (as defined below) is
between $110,000,000 and $115,000,000 and (ii) $500,000 in the event the
Aggregate Consideration is greater than $115,000,000. No incentive fee will
be payable to the Company's employees in the event the Aggregate
Consideration is less than $110,000,000. For purposes of the Incentive Fee
Plan, "Aggregate Consideration" generally means the total amount of cash paid
to the holders of the debt and equity securities of the Company in connection
with any sale of the Company, before deduction for transaction related fees
and expenses, and includes the value of any long-term liabilities and accrued
interest thereon of the Company (including the principal amount of any
indebtedness for borrowed money) repaid or assumed in connection with or in
anticipation of the sale of the Company. The Aggregate Consideration from
the Gray Sale currently is expected to exceed $115,000,000.

LAWRENCE BUSSE OPTION AGREEMENT

On February 13, 1998, the Company entered into an Agreement with
Lawrence Busse (the "Lawrence Busse Option Agreement") pursuant to which
Mr. Busse was granted an option to acquire certain assets of the Company for
an aggregate purchase price of $10.00 upon termination of his employment by
the Company without "cause" or for "good reason." Upon consummation of the
Gray Sale, Mr. Busse's employment with the Company will be terminated without
"cause."

BENEFIT PLANS

The Company sponsors a defined contribution savings plan (the "401(k)
Plan") whereby employees of the Company or its subsidiaries may (under
current administrative rules) elect to contribute, in whole percentages to
10% of compensation, provided no employee's elective contributions shall
exceed the amount permitted under Section 402(g) of the Code ($9,500 in
1997). A matching contribution of 50% of an employee's elective pre-tax
contribution up to 2% of compensation is made by the Company. Employees have
full and immediate vesting rights to their elective contributions.
Company-matched contributions generally vest at the rate of 25% for each year
of an employee's service to the Company after the first full year of such
service.

In addition, for the period from September 29, 1997 through December 28, 1997
the Company accrued a voluntary profit sharing contribution for each
participant of the greater of $75 or the product of the applicable percentage
set forth below times the participant's compensation during the period from
September 29, 1997 through December 28, 1997:

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<PAGE>

<TABLE>
<CAPTION>
YEARS OF VESTING SERVICE PERCENTAGE
------------------------ ----------
<S> <C>
Less than 5 1.0%
5 to 9 1.5%
10 to 14 3.0%
15 to 19 5.0%
20 to 24 6.0%
25 to 29 7.0%
30 or more 7.5%

</TABLE>

Funding of the voluntary profit sharing contribution will occur in
fiscal 1998. Total plan expense was $64,476, $71,673, $31,247 and $57,718
for fiscal years 1997 and 1996 and the periods from May 3, 1995 through
December 31, 1995, and January 2, 1995 through May 2, 1995, respectively.

The Company maintains a noncontributory defined benefit pension plan
(the "Pension Plan") for certain eligible employees of the Company. Prior to
September 28, 1997, an employee of the Company was generally eligible to
become a participant in the Pension Plan upon attaining age 21 and completing
a 12-month period of service to the Company. The Company makes annual
contributions to the Pension Plan in amounts determined by the actuary for
the Pension Plan.

The normal retirement age under the Pension Plan is 65. A reduced early
retirement benefit is available when a participant has attained age 55 and
completed at least ten years of "Vesting Service" (as defined below). A
participant's accrued monthly benefit under the Pension Plan starting at age
65 is the sum of (a) his accrued monthly benefit, if any, as of December 31,
1988 under any of the three predecessor plans merged into the Pension Plan on
such date, and (b) one-twelfth of 1.4% of the compensation (as defined below)
paid to the participant during each year of Benefit Service (as defined
below). Compensation is generally defined in the Pension Plan as the total
amount of cash paid to an employee during a calendar year, including salary
reduction contributions under certain benefit plans, such as the 401(k) Plan,
but excluding fringe benefits other than salary reduction contributions and
expense allowances or reimbursements; and is limited by federal law to
$150,000 per year (as adjusted for cost-of-living increases). Federal law
limits the maximum annual benefit payable under the Pension Plan to a person
who retires at age 65 to $148,500 (as adjusted for cost-of-living increases).
Under the Pension Plan, years of "Vesting Service" equals the sum of each
Plan Year beginning on or after January 1, 1989 during which an Employee
completes at least 1,000 Hours of Service and an Employee's years of vesting
service under a predecessor plan. A year of "Benefit Service" under the
Pension Plan means each year beginning after December 31, 1988 during which
the participant completes at least 1,000 hours of service.

On July 1, 1997, the Company amended its Pension Plan to freeze all
benefit and service accruals thereunder and to terminate, subject to
governmental approval, the Pension Plan effective as of September 28, 1997.
The Company has recorded a gain of $344,782 for the year ended December 28,
1997 for the curtailment of the Pension Plan. Such gain is included as an
offset to operating costs and expenses in the consolidated statement of
operations. Additional charges or gains, if any, for the settlement of the
Pension Plan will be recorded upon final settlement of the Pension Plan
obligations. Termination and settlement for the Pension Plan is subject to
various government agency approvals and the Company does not currently
anticipate such settlements to occur prior to the second half of the 1998
fiscal year.

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<PAGE>

Code and, therefore, will not be subject to tax under present income tax
laws. Upon plan termination, all participants will become fully vested and
will be able to accept their settlement benefit as an annuity, lump sum
payment or roll-over of benefits into the Company's 401(k) Plan.

In anticipation of the settlement of the Pension Plan, in September 1997
the Company contributed $500,000 to the Pension Plan's trust fund.

The Company currently anticipates that the present value of all vested
benefit obligations will exceed the fair value of the pension plan trust
assets at the future settlement date and as such the Company expects to be
required to fund such difference (the "Settlement Funding"). The settlement
date cannot be determined until the IRS and PBGC approve the Company's
termination applications. Any Settlement Funding to the pension trust by the
Company will not be calculable as a sum certain until the settlement date is
established according to the applicable governmental regulations since such
calculations are dependent upon certain governmentally prescribed settlement
interest rates in effect 60 days prior to the settlement date.

After consideration of the freeze in benefits and service accruals under
the Pension Plan effective September 28, 1997, discussed above, and assuming
a normal retirement age, the estimated annual benefits payable under the
Pension Plan for Messrs. Busse, Ryan and Jonas and Ms. Weinke would be
approximately $48,000, $13,000, $18,400 and $12,700, respectively. In the
alternative, Messrs. Busse, Ryan and Jonas and Ms. Weinke would be entitled
to receive a lump sum payment of approximately $438,000, $26,000, $75,000 and
$35,000, respectively, upon termination of the Pension Plan.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Directors of the Company has no compensation committee.
Prior to May 3, 1995, Lawrence A. Busse was the President and the sole
director of the Company, and in his capacity as sole director Mr. Busse
established the compensation for all executive officers of the Company.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The following table sets forth certain information, as of December 28,
1997, regarding beneficial ownership of the Common Stock by each stockholder
who is known by the Company to own beneficially more than 5% of the
outstanding Common Stock. None of the executive officers or directors of the
Company beneficially own any shares of the Common Stock.

<TABLE>
<CAPTION>
AMOUNT
OWNED PERCENTAGE OF VOTING
NAME AND COMPLETE MAIL ADDRESS (SHARES) SECURITIES OWNED
- ------------------------------- -------- --------------------
<S> <C> <C>
The South Street Investment Funds(1) 107,700 100%
3801 Kennett Pike
Suite D300
Wilmington, Delaware 19807

Mikael Salovaara(1) 107,700 100%
170 Dryden Road
Bernardsville, New Jersey 07924

Alfred C. Eckert III(1) 107,700 100%
134 Ballantine Road
Bernardsville, New Jersey 07924

</TABLE>
- ------------
(1) The number of shares of Common Stock beneficially owned by the South
Street Investment Funds includes (a) 87,603.1 shares owned by South Street
Corporate Recovery Fund I, L.P., the general partner of which is SSP
Advisors, L.P., a Delaware limited partnership, the general partner of which
is SSP, Inc., a Delaware corporation ("SSP"), 100% of the stock of which

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<PAGE>

is owned by Messrs. Salovaara and Eckert, who together indirectly control
100% of the voting stock of the Company, (b) 5,000 shares held by Greycliff
Leveraged Fund 1993, L.P., the general partner of which is SSP Partners,
L.P., a Delaware limited partnership ("SSP Partners"), the general partner of
which is SSP, (c) 12,324 shares held by South Street Leveraged Corporate
Recovery Fund, L.P., the general partner of which is SSP Partners, and (d)
2,772.9 shares held by South Street Corporate Recovery Fund I
(International), L.P., the general partner of which is SSP International
Partners, L.P., a Cayman Islands limited partnership, the general partner of
which is SSP International, Inc., a Cayman Islands corporation, 100% of the
stock of which is owned by Messrs. Salovaara and Eckert together.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

Concurrently with the issuance of the Senior Notes on October 26, 1995,
all of the outstanding Secured Senior Subordinated Notes were redeemed in
full without penalty or premium, at 100% of the principal amount thereof,
plus accrued interest thereon, to the date of redemption, at a cost of
approximately $26.5 million (the "Secured Senior Subordinated Note
Redemption"). On January 12, 1996 the Company used the portion of the net
proceeds from the Senior Notes offering remaining after the Secured Senior
Subordinated Note Redemption, including interest earned on such portion of
net proceeds, together with the Excess Cash, to redeem a portion of the
outstanding Junior Subordinated Notes, without penalty or premium, at 100% of
the principal amount thereof, plus accrued and unpaid interest thereon, at a
cost of approximately $35.2 million. Pursuant to the Junior Subordinated Note
Redemption, the balance of the Junior Subordinated Notes not redeemed for
cash were redeemed for shares of 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 South Street Investment
Funds owned all of the outstanding Secured Senior Subordinated Notes
immediately prior to the Secured Senior Subordinated Note Redemption and
owned all of the outstanding Junior Subordinated Notes immediately prior to
the Junior Subordinated Note Redemption.

On December 27, 1996, the Company entered into the Buy and Sell
Agreement with WCP, a Wisconsin corporation and a company affiliated with Mr.
Lawrence A. Busse, Chairman and Chief Executive Officer of the Company,
pursuant to which the Company sold substantially all of the assets of
Winnebago to WCP for aggregate consideration of $3,327,856 in cash plus (i)
the assumption by WCP of $369,638 of certain current liabilities and (ii) the
additional assumption by WCP of certain other liabilities as set forth in the
Buy and Sell Agreement (collectively, the "Winnebago Asset Sale"). The
Company received net proceeds from the Winnebago Asset Sale of $3,207,000. In
connection with the sale, the Company received an opinion from an investment
banking firm to confirm that the terms of the sale were fair to the Company
and its stockholders from a financial point of view.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a)1 Financial Statements

BUSSE BROADCASTING CORPORATION PAGE
----
<S> <C>
Report of Independent Auditors . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets as of December 28, 1997
and December 29, 1996 . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Operations for the fiscal
years ended December 28, 1997 and December 29, 1996
and the period from May 3, 1995 through December 31,
1995, Post-Effective Date . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations for the period
from January 2, 1995 through May 2, 1995, Pre-
Effective Date . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Stockholders' Equity
(Deficit) for the fiscal years ended December 28,
1997 and December 29, 1996; the period from May 3,
1995 through December 31, 1995, Post-Effective Date;
and the period from January 2, 1995 through May 2,
1995, Pre-Effective Date . . . . . . . . . . . . . . . . . . F-5
</TABLE>

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<PAGE>

Consolidated Statements of Cash Flows for the fiscal
years ended December 28, 1997 and December 29, 1996;
the period from May 3, 1995 through December 31,
1995, Post-Effective Date; and the period from
January 2, 1995 through May 2, 1995, Pre-Effective
Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . F-7

KOLN/KGIN, INC.
(A WHOLLY-OWNED SUBSIDIARY OF BUSSE BROADCASTING CORPORATION)
Report of Independent Auditors . . . . . . . . . . . . . . . . F-30
Consolidated Balance Sheets as of December 28, 1997
and December 29, 1996 . . . . . . . . . . . . . . . . . . . F-31
Consolidated Statements of Operations and
Stockholder's/Divisional Equity for the fiscal years
ended December 28, 1997 and December 29, 1996; the
period from May 3, 1995 through December 31, 1995,
Post-Effective Date; and the period from January 2,
1995 through May 2, 1995, Pre-Effective Date . . . . . . . F-32
Consolidated Statements of Cash Flows for the fiscal
years ended December 28, 1997 and December 29, 1996;
the period from May 3, 1995 through December 31,
1995, Post-Effective Date; and the period from
January 2, 1995 through May 2, 1995, Pre-Effective
Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-33
Notes to Consolidated Financial Statements . . . . . . . . . . F-34

(a)2 Financial Statement Schedule

Schedule II -- Busse Broadcasting Corporation: Valuation
and Qualifying Accounts Information. . . . . . . . . . . . S-1

</TABLE>
All other Financial Statement Schedules are omitted as they are
inapplicable, immaterial or the required information is included in the
consolidated financial statements or notes thereto.

(a)3 Exhibits

<TABLE>

<C> <S>
2.1+ Buy and Sell Agreement dated December 27, 1996 between the Company
and Winnebago Color Press, Inc.
2.2++ Stock Purchase Agreement dated as of February 13, 1998 by and among
Busse Broadcasting Corporation, South Street Corporate Recovery Fund
I, L.P., Greycliff Leveraged Fund 1993, L.P., South Street Leveraged
Corporate Recovery Fund, L.P., South Street Corporate Recovery
Fund I (International), L.P. and Gray Communications Systems, Inc.
3.1+ Amended and Restated Certificate of Incorporation of Busse
Broadcasting Corporation
3.2* Amended and Restated By-Laws of Busse Broadcasting Corporation
3.4* Certificate of Incorporation of KOLN/KGIN, Inc. (then known as WWMT,
Inc.)
3.5* Certificate of Amendment to the Certificate of Incorporation of
KOLN/KGIN, Inc. (then known as WWMT, Inc.)
3.6* Certificate of Amendment to the Certificate of Incorporation of
KOLN/KGIN, Inc. (then known as Busse Management, Inc.)
3.7* By-Laws of KOLN/KGIN, Inc.
3.8* Certificate of Incorporation of KOLN/KGIN License, Inc.
3.9* By-Laws of KOLN/KGIN License, Inc.
3.10* Certificate of Incorporation of WEAU License, Inc.
3.11* By-Laws of WEAU License, Inc.
4.1* Indenture dated as of October 26, 1995 among Busse Broadcasting
Corporation, KOLN/KGIN, Inc., KOLN/KGIN License, Inc. and WEAU
License, Inc. and Shawmut Bank Connecticut, National Association, as
Trustee, related to the 11 5/8% Senior Secured Notes due 2000
(including form of certificate to be delivered in connection with
transfers to institutional accredited investors)
4.2* Exchange and Registration Rights Agreement dated as of October 26,
1995 between Busse Broadcasting Corporation, KOLN/KGIN, Inc.,
KOLN/KGIN License, Inc. and WEAU License, Inc. and Lazard Freres &
Co. LLC
4.3* Amendment No. 1 to Registration Rights Agreement dated as of
October 26, 1995 between Busse Broadcasting Corporation and
KOLN/KGIN, Inc.
</TABLE>
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<PAGE>

<TABLE>

<C> <S>
4.4* Escrow Agreement dated as of October 26, 1995 among Busse
Broadcasting Corporation, Shawmut Bank Connecticut, National
Association, as collateral agent, under the Indenture dated as of
October 26, 1995 among the Company, the Guarantors and Shawmut Bank
Connecticut, National Association as trustee for the benefit of the
Holders of the 11 5/8% Senior Secured Notes due 2000 issued by the
Company and guaranteed on a senior secured basis by each of the
Subsidiaries of the Company, and Shawmut Bank Connecticut, National
Association as escrow agent
4.5* Pledge and Security Agreement dated as of October 26, 1995 by Busse
Broadcasting Corporation and each of its Subsidiaries in favor of
Shawmut Bank Connecticut, National Association, as collateral agent
under the Indenture dated as of October 26, 1995 among the Company,
the Guarantors and Shawmut Bank Connecticut, National Association as
trustee for the benefit of the Holders of the 11 5/8% Senior Secured
Notes due 2000 issued by the Company and guaranteed on a senior
secured basis by each Guarantor
4.6* Indenture dated as of May 3, 1995 between Busse Broadcasting
Corporation and Shawmut Bank, N.A., as Trustee, governing the
issuance of $97,021,000 aggregate principal amount of Busse's 7.38%
Junior Subordinated Pay-in-Kind Notes due December 31, 2014
4.7* Representative 7.38% Junior Subordinated Pay-in-Kind Note of Busse
4.8* First Supplemental Indenture to Indenture dated as of May 3, 1995
dated as of October 20, 1995 among Busse Broadcasting Corporation,
KOLN/KGIN, Inc. and Shawmut Bank, N.A., as Trustee
4.9* Deed of Trust, Assignment of Rents, Security Agreement and Fixture
Filings related to properties in Kearney County, Nebraska, Seward
County, Nebraska, Lancaster County, Nebraska, Dunn County,
Wisconsin, Pierce County, Wisconsin, and Winnebago County, Wisconsin
10.1* CBS Television Network Affiliation Agreement dated June 15, 1995
between CBS Television Network and Busse Broadcasting Corporation
relating to KOLN-TV
10.2* CBS Television Network Affiliation Agreement dated June 15, 1995
between CBS Television Network and Busse Broadcasting Corporation
relating to KGIN-TV
10.3+ NBC Television Network Affiliation Agreement dated April 8, 1996
between National Broadcasting Company, Inc. and Busse Broadcasting
Corporation relating to WEAU-TV
10.4* License Agreement between KOLN/KGIN, Inc. and KOLN/KGIN License, Inc.
10.5* License Agreement between Busse Broadcasting Corporation and WEAU
License, Inc.
10.6* Amended and Restated Employment Agreement -- Lawrence Busse
10.6A+ Second Amendment to Amended and Restated Employment Agreement -
Lawrence Busse
10.6B Third Amendment to Amended and Restated Employment Agreement -
Lawrence Busse
10.7* Amended and Restated Employment Agreement -- James Ryan
10.7A+ Amendment No. 1 to Amended and Restated Employment Agreement - James
Ryan
10.7B Second Amendment to Amended and Restated Employment Agreement - James
Ryan
10.8* Amended and Restated Employment Agreement -- Frank Jonas
10.8A+ Amendment No. 1 to Amended and Restated Employment Agreement - Frank
Jonas
10.8B Second Amendment to Amended and Restated Employment Agreement -
Frank Jonas
10.9* Amended and Restated Employment Agreement -- Cheryl Weinke
10.9A+ Amendment No. 1 to Amended and Restated Employment Agreement -
Cheryl Weinke
10.9B Second Amendment to Amended and Restated Employment Agreement -
Cheryl Weinke
10.10* Amended and Restated Employment Agreement -- Robert Greinert
10.11* Busse Broadcasting Corporation Long Term Incentive Plan
10.11A+ Amendment to Busse Broadcasting Long Term Incentive Plan dated May
31, 1996
10.12* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Lawrence A. Busse dated as of May 3, 1995
10.13* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and James C. Ryan dated as of May 3, 1995
10.14* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Frank Jonas dated May 3, 1995
10.15* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Cheryl Weinke dated May 3, 1995
10.16* Long-Term Incentive Agreement between Busse Broadcasting Corporation
and Robert Greinert dated May 3, 1995
10.17 Incentive Fee Plan
10.18 Agreement between the Company and Lawrence A. Busse dated
February 13, 1998
21.1* Subsidiaries of Busse Broadcasting Corporation
</TABLE>
-45-
<PAGE>

<TABLE>

<C> <S>
21.2* Subsidiary of KOLN/KGIN, Inc.
27 Financial Data Schedule
</TABLE>
- ------------
+ Incorporated by reference to the similarly numbered exhibits to Busse
Broadcasting Corporation's Annual Report on Form 10-K for the year ending
December 29, 1996.
++ Incorporated by reference to the similarly numbered exhibits to Busse
Broadcasting Corporation's Report on Form 8-K filed on February 18, 1998.
* Incorporated by reference to the similarly numbered exhibits to Amendment
No. 2 to Registration Statement No. 33-99622 filed on February 6, 1996.

(b) Reports on Form 8-K.

Form 8-K dated October 15, 1997 filed with the Securities and Exchange
Commission incorporating the press release issued by the Company
announcing that the controlling stockholders had instructed their
financial advisor, Morgan Stanley, to resume the evaluation of strategic
transactions in connection with the possible sale of the Company.

Form 8-K dated January 15, 1998 filed with the Securities and Exchange
Commission disclosing that the Stockholders had entered into a letter of
intent to sell all of the capital stock of the Company to Gray.

Form 8-K dated February 18, 1998 filed with the Securities and Exchange
Commission incorporating the press release issued by the Company and
Gray announcing that the Company, the Stockholders and Gray had entered
into a definitive agreement pursuant to which Gray had agreed to
purchase all of the capital stock of the Company.

Form 8-K dated March 6, 1998 filed with the Securities and Exchange
Commission incorporating the press release issued by the Company
announcing the Company's unaudited results of operations for the year
ended December 28, 1997.

-46-
<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Kalamazoo, State of Michigan, on March 25, 1998.

BUSSE BROADCASTING CORPORATION

By: /s/ Lawrence A. Busse
-------------------------------
Lawrence A. Busse
CHAIRMAN OF THE BOARD AND PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed by the following persons
in the capacities and on the dates indicated.

NAME TITLE DATE
---- ----- ----
<S> <C> <C>
/s/ Lawrence A. Busse Chairman of the Board March 25, 1998
- ---------------------- and President (Principal
Lawrence A. Busse Executive Officer)

/s/ James C. Ryan Chief Financial Officer March 25, 1998
- --------------------- (Principal Financial
James C. Ryan Officer and Principal
Accounting Officer)

/s/ W. Don Cornwell Director March 25, 1998
- ----------------------
W. Don Cornwell

/s/ Stuart J. Beck Director March 25, 1998
- -----------------------
Stuart J. Beck

</TABLE>
<PAGE>

Report of Independent Auditors

The Board of Directors
Busse Broadcasting Corporation

We have audited the accompanying consolidated balance sheets of Busse
Broadcasting Corporation (the Company) (Post-Effective Date) as of December
28, 1997 and December 29, 1996 and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for the years
ended December 28, 1997 and December 29, 1996 and the period from May 3, 1995
through December 31, 1995. We have also audited the accompanying consolidated
statements of operations, stockholders' equity (deficit), and cash flows of
Busse Broadcasting Corporation (Pre-Effective Date) for the period from
January 2, 1995 through May 2, 1995. Our audits also included the financial
statement schedule listed in the index at Item 14. These financial statements
and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Busse
Broadcasting Corporation (Post-Effective Date) at December 28, 1997 and
December 29, 1996 and the consolidated results of its operations and its cash
flows for the years ended December 28, 1997 and December 29, 1996 and the
period from May 3, 1995 through December 31, 1995 in conformity with
generally accepted accounting principles; and the consolidated results of its
operations and its cash flows (Pre-Effective Date) for the period from
January 2, 1995 through May 2, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken
as a whole, presents fairly, in all material respects, the information set
forth therein.

Ernst & Young LLP

Milwaukee Wisconsin
February 19, 1998

F-1

<PAGE>

Busse Broadcasting Corporation

Consolidated Balance Sheets

DECEMBER 28, DECEMBER 29,
1997 1996
------------------------------
<S> <C> <C>
ASSETS (NOTES 1 AND 3)
Current assets:
Cash and cash equivalents (NOTE 6) $ 8,974,699 $ 7,989,805
Receivables, net 3,804,410 3,848,990
Other current assets 1,343,483 856,200
------------------------------
Total current assets 14,122,592 12,694,995

Property, plant and equipment, net 13,226,067 14,327,392
Deferred charges and other assets 1,811,809 2,424,312
Intangible assets and excess reorganization value 48,775,820 52,707,124
------------------------------
Total assets $ 77,936,288 $ 82,153,823
==============================

LIABILITIES AND STOCKHOLDERS' EQUITY (NOTES 1 AND 3)
Current liabilities
Accounts payable and accrued expenses $ 4,161,712 $ 3,174,795

Long-term debt (NOTE 6) 60,918,857 60,464,182
Other long-term liabilities -- 941,501

Commitments (NOTE 11)

Stockholders' equity (NOTES 6 AND 10):
Series A cumulative convertible preferred stock
(non-voting) - $.01 par value, $1,000 per share
liquidation preference; 65,524.41 shares
authorized, issued and outstanding including
dividends in arrears of $9,485,924 and
$4,663,471 at December 28, 1997 and December 29,
1996, respectively 26,816,584 21,994,131
Common stock (voting) - $.01 par value;
2,154,000 shares authorized, and 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) (23,147,714) (13,607,635)
------------ ------------
Total stockholders' equity 12,855,719 17,573,345
------------ ------------
Total liabilities and stockholders' equity $ 77,936,288 $ 82,153,823
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-2
<PAGE>

Busse Broadcasting Corporation

Consolidated Statements of Operations

<TABLE>
<CAPTION>
POST-EFFECTIVE DATE
------------------------------------------------
FISCAL
FISCAL FISCAL PERIOD
YEAR YEAR FROM MAY 3,
ENDED ENDED 1995 THROUGH
DECEMBER 28, DECEMBER 29, DECEMBER 31,
1997 1996 1995
------------------------------------------------
<S> <C> <C> <C>
Net revenue from continuing operations $18,971,040 $ 19,274,171 $11,358,095

Operating costs and expenses, excluding depreciation and amortization 8,427,942 8,407,679 5,151,550
Depreciation 1,871,079 1,853,863 1,359,448
Amortization of intangibles and excess reorganization value 3,931,304 3,859,999 2,607,858
------------------------------------------------
Total operating costs and expenses of continuing operations 14,230,325 14,121,541 9,118,856
Corporate expenses 1,523,674 1,571,772 870,072
------------------------------------------------
Income from continuing operations 3,217,041 3,580,858 1,369,167

Other income (expense) from continuing operations:
Interest expense (8,340,845) (8,400,340) (5,794,343)
Interest income 445,072 287,793 836,119
Loss on disposition of assets (113,148) (77,982) (3,626)
Other income 74,254 23,922 4,522
------------------------------------------------
Other expense from continuing operations (7,934,667) (8,166,607) (4,957,328)
------------------------------------------------
Loss from continuing operations before income taxes (4,717,626) (4,585,749) (3,588,161)

(Provision) benefit for income taxes (NOTE 8)
Current - Federal -- -- (1,673,929)
Current - State -- -- (41,000)
Deferred - Federal -- -- 2,069,000
Deferred - State -- -- 517,000
------------------------------------------------
Income taxes benefit -- -- 871,071
------------------------------------------------
Loss from continuing operations (4,717,626) (4,585,749) (2,717,090)

Discontinued operations:
Income from operations net of applicable income tax provision
of $53,000 for the fiscal period from May 3, 1995 through
December 31, 1995 (NOTE 4) -- 220,468 67,843
Loss on disposal of operations (NOTE 4) -- (1,929,636) --
------------------------------------------------
-- (1,709,168) 67,843
------------------------------------------------
Net loss (4,717,626) (6,294,917) (2,649,247)

Charges to stockholders' equity for Series A preferred
stock dividends in arrears (4,822,453) (4,663,471) --
------------------------------------------------
Net loss attributable to common stockholders $(9,540,079) $(10,958,388) $(2,649,247)
================================================
Per common share (basic and diluted):
Loss from continuing operations $ (43.80) $ (42.58) $ (25.13)
Income (loss) from discontinued operations -- (15.87) .63
Series A preferred stock dividends in arrears (44.78) (43.30) --
------------------------------------------------
Net loss $ (88.58) $ (101.75) $ (24.50)
================================================
Weighted average common shares outstanding 107,700 107,700 108,126
================================================
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-3

<PAGE>

Busse Broadcasting Corporation

Consolidated Statements of Operations (continued)

<TABLE>
<CAPTION>
PRE-EFFECTIVE
DATE
______________
FISCAL PERIOD
FROM
JANUARY 2, 1995
THROUGH
MAY 2, 1995
---------------
<S> <C>
Net revenue $ 14,510,895

Operating costs and expenses, excluding depreciation and 8,509,977
amortization
Depreciation 1,307,271
Amortization of intangibles and excess reorganization value 468,801
------------
Total operating costs and expenses 10,286,049
Corporate expenses 290,960
------------
Income from operations 3,933,886

Other income (expense):
Interest expense (7,472,473)
Interest income 85,525
Gain on disposition of assets 2,133
Other income 144,198
------------
Other expense (7,240,617)
------------
(3,306,731)
Reorganization items:
Gain on restructuring transaction (NOTE 1) 103,810,917
Legal and professional fees (2,660,510)
------------
Income before income taxes and extraordinary item 97,843,676

(Provision) benefit for income taxes (NOTE 8)
Current - State (100,000)
Deferred-Benefit 2,318,000
------------
2,218,000
------------
Income before extraordinary item 100,061,676

Extraordinary item
Debt forgiveness related to restructuring transactions
(NOTE 1) 46,479,605
------------
Net income $146,541,281
============
Per common share (basic and diluted):
Income before extraordinary item $ 990.71
Extraordinary item 460.19
------------
Net income $ 1,450.90
============
Weighted average common shares outstanding 101,000
============
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-4

<PAGE>

Busse Broadcasting Corporation

Consolidated Statements of Stockholders' Equity (Deficit) (NOTE 1)

COMMON
STOCK
---------
PREFERRED STOCK PRE-
--------------------------------------------------------- EFFECTIVE
PRE- POST- DATE
EFFECTIVE EFFECTIVE SHARES
DATE DATE ---------
SHARES AMOUNT SHARES AMOUNT CLASS A
--------------------------------------------------------- ---------
<S> <C> <C> <C> <C> <C>

Balance January 1, 1995 30 $ 6,309,000 -- $ -- 1,000

Net income for the period from January 2,
1995 through May 2, 1995 -- -- -- -- --

Transactions pursuant to Plan of
Reorganizations:
Cancellation of pre-effective date
preferred stock (30) (6,309,000) -- -- --
Cancellation of pre-effective date
common stock -- -- -- -- (1,000)
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 -- -- -- -- --
Provisions for dividends in arrears -- -- -- 4,663,471 --
------------------------ ---------------------------- -------
Balance December 29, 1996 -- -- 65,524.41 21,994,131 --

Net loss -- -- -- -- --
Provisions for dividends in arrears -- -- -- 4,822,453 --
------------------------ ---------------------------- -------
Balance December 28, 1997 -- $ -- 65,524.41 $26,816,584 --
======================== ============================ =======
</TABLE>

Busse Broadcasting Corporation

Consolidated Statements of Stockholders' Equity (Deficit) (NOTE 1)

COMMON STOCK
--------------------------------------------------------------------
PRE-
EFFECTIVE
DATE POST-
SHARES ADDITIONAL EFFECTIVE
--------- PAID-IN DATE
CLASS B AMOUNT CAPITAL SHARES AMOUNT
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1995 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
Reorganizations:
Cancellation of pre-effective date
preferred stock -- -- -- -- --
Cancellation of pre-effective date
common stock (100,000) (1,010) (1,008,990) -- --
Issuance of post-effective date
common stock and adoption of
fresh start reporting -- -- -- 110,000 1,100
--------------------------------------- --------------------
Balance May 3, 1995 -- -- -- 110,000 1,100

Net loss for the period from May 3, 1995
through December 31, 1995 -- -- -- -- --
Purchase and cancellation of Company's
stock -- -- -- (2,300) (23)
--------------------------------------- --------------------
Balance December 31, 1995 -- -- -- 107,700 1,077

Issuance of Series A Preferred stock in
exchange for junior subordinated pay-in-
kind notes on January 12, 1996 -- -- -- -- --
Net loss -- -- -- -- --
Provisions for dividends in arrears -- -- -- -- --
--------------------------------------- --------------------
Balance December 29, 1996 -- -- -- 107,700 1,077

Net loss -- -- -- -- --
Provisions for dividends in arrears -- -- -- -- --
--------------------------------------- --------------------
Balance December 28, 1997 -- $ -- $ -- 107,700 $1,077
======================================= ====================
</TABLE>

Common
Stock
---------- Total
Additional Stockholders'
Paid-in Accumulated Equity
Capital Deficit (Deficit)
----------- -------------------------------
<S> <C> <C> <C>
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
Reorganizations:
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 date
common stock and adoption of
fresh start reporting 9,201,800 (9,202,900) --
---------- -------------------------------
Balance May 3, 1995 9,201,800 -- 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 (16,028) -- (16,051)
---------- -------------------------------
Balance December 31, 1995 9,185,772 (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 -- (6,294,917) (6,294,917)
Provisions for dividends in arrears -- (4,663,471) --
---------- -------------------------------
Balance December 29, 1996 9,185,772 (13,607,635) 17,573,345

Net loss -- (4,717,626) (4,717,626)
Provisions for dividends in arrears -- (4,822,453) --
---------- -------------------------------
Balance December 28, 1997 $9,185,772 $ (23,147,714) $ 12,855,719
========== ===============================
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-5

<PAGE>

Busse Broadcasting Corporation

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
| POST-EFFECTIVE
PRE-EFFECTIVE DATE | DATE
-------------------------------------------------|---------------
FISCAL PERIOD |
FISCAL YEAR FISCAL YEAR FROM MAY 3, | FISCAL PERIOD
ENDED ENDED 1995 THROUGH |FROM JANUARY 2,
DECEMBER 28, DECEMBER 29, DECEMBER 31, | 1995 THROUGH
1997 1996 1995 | MAY 2, 1995
-------------------------------------------------|---------------
<S> <C> <C> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) $(4,717,626) $ (6,294,917) $ (2,649,247) | $ 146,541,281
Adjustments to reconcile net income (loss) to net cash |
provided by operating activities: |
Depreciation and amortization 5,802,383 5,996,936 4,123,242 | 1,776,072
Loss on sale of discontinued operations - 1,929,636 - | -
Noncash interest expense 454,675 445,712 3,104,661 | 6,743,397
Amortization of deferred financing costs 617,406 611,433 88,043 | -
Program payments (over) under program amortization (2,568) (16,891) (15,582) | 20,063
Loss (gain) on disposition of property, plant and equipment 113,148 92,498 49,067 | (2,133)
Deferred compensation expense 351,999 346,260 244,193 | -
Pension expense (income) 63,060 129,507 (229,964) | 79,926
Gain on pension plan curtailment (NOTE 7) (344,782) - - | -
Deferred income tax benefit (NOTE 8) - - (2,600,000) | (2,318,000)
Reorganization items: |
Gain on restructuring transactions (NOTE 1) - - - | (103,810,917)
Debt forgiveness relating to restructuring |
transactions (NOTE 1) - - - | (46,479,605)
|
Change in current assets and liabilities: |
Receivables 44,580 (299,044) (515,122) | 596,984
Inventories and other current assets (32,923) 522,037 62,914 | 185,403
Accounts payable and accrued expenses 31,490 384,374 1,476,721 | (378,690)
Income taxes payable (8,143) (30,817) 58,817 | -
Contribution to pension plan trust (NOTE 7) (500,000) - - | -
-------------------------------------------------|--------------
Net cash provided by operating activities 1,872,699 3,816,724 3,197,743 | 2,953,781
|
INVESTING ACTIVITIES: |
Proceeds from sale of television station, net - - 98,979,532 | -
Capital expenditures (883,599) (1,983,417) (656,772) | (497,728)
Proceeds from disposition of assets 697 64,432 35,459 | 4,089
(Increase) decrease in other assets (4,903) (24,298) (34,364) | 295
Increase in intangibles - - (297,636) | -
Cash proceeds from sale of Winnebago Color Press net of |
expenses and cash sold ($285,101) (NOTE 4) - 2,854,277 - | -
-------------------------------------------------|--------------
Net cash provided by (used in) investing activities (887,805) 910,994 98,026,219 | (493,344)
|
FINANCING ACTIVITIES: |
Purchase and cancellation of Company's stock - - (16,051) | -
Payments on indebtedness - (35,391,571) (121,658,147) | (4,641,023)
Proceeds from issuance of Senior Secured Notes - - 60,000,909 | -
Payment of deferred financing costs - (240,301) (2,811,539) | -
-------------------------------------------------|--------------
Net cash used in financing activities - (35,631,872) (64,484,828) | (4,641,023)
-------------------------------------------------|--------------
Net increase (decrease) in cash and cash equivalents 984,894 (30,904,154) 36,739,134 | (2,180,586)
Cash and cash equivalents at beginning of period 7,989,805 38,893,959 2,154,825 | 4,335,411
-------------------------------------------------|--------------
Cash and cash equivalents at end of period $ 8,974,699 $ 7,989,805 $ 38,893,959 | $ 2,154,825
=================================================|==============
Supplemental disclosure of cash flow information: |
Interest paid during the period $ 7,268,764 $ 7,303,035 $ 1,313,943 | $ 742,020
=================================================|==============
Income taxes paid during the period $ - $ - $ 1,723,112 | $ 100,000
=================================================|==============
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-6
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements

December 28, 1997

1. BASIS OF PRESENTATION

The 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
(Sold December 27, 1996)

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;

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;

F-7
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

1. BASIS OF PRESENTATION (CONTINUED)

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 affiliated investment funds (the "South Street Investment Funds"). On
June 16, 1995, the Company purchased and retired the 2,300 shares of common
stock not controlled by the South Street Investment Funds;

Substantially all other obligations of the Company, including trade
payables and other general unsecured obligations were unaffected by the
plan;

All rights and claims of the holders of the Company's then outstanding
capital stock (or interests to acquire such stock) were extinguished; and

The appointment of new Board of Directors two of which are executive
officers of Granite Broadcasting Corporation (see Note 5).

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 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 5, 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.

F-8
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

1. BASIS OF PRESENTATION (CONTINUED)

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%.

The adjustments to adopt Fresh Start Accounting resulted in a total gain on
restructuring transactions of $150,290,522 in the accompanying consolidated
statement of operations for the period from January 2, 1995 through May 2, 1995.
The components of this gain are as follows:

<TABLE>
<CAPTION>
<S> <C>
Adjustments to assets and liabilities to reflect adoption
of Fresh Start Accounting $103,810,917

Debt forgiveness related to restructuring transactions
(classified as an extraordinary item in the
accompanying consolidated statement of operations) 46,479,605
------------

Total gain on restructuring transactions $150,290,522
============
</TABLE>

F-9
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

1. BASIS OF PRESENTATION (CONTINUED)

Pursuant to the Plan, the Company did not accrue approximately $1.8 million of
interest on certain of its Pre-Effective Date indebtedness for the period March
9, 1995 through the Effective Date.

In applying Fresh Start Accounting, the Company accounted for its interest in
WWMT-TV (sold June 1, 1995) 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". As discussed more fully in Note 5, the Company valued the investment in
WWMT-TV based on the expected sales proceeds, net of selling costs, the
incremental cash generated during the holding period and interest charges
relating to the debt to be retired with the net sale proceeds. The results of
operations for WWMT-TV and the incremental interest on the debt to be retired
with the net sale proceeds are not reflected in the accompanying Post-Effective
Date consolidated statement of operations but rather were estimated in the
original investment in WWMT-TV on the Effective Date.

As a result of the effectiveness of the Plan and the adoption of Fresh Start
Accounting, the results for the fiscal years ended December 28, 1997 and
December 29, 1996 and for the fiscal period from May 3, 1995 through December
31, 1995 are not comparable to any of the Company's fiscal periods ended on or
prior to May 2, 1995 and accordingly, Pre-Effective Date and Post-Effective Date
financial statements and disclosures are presented on separate pages or are
separated by a vertical line.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

TELEVISION PROGRAM CONTRACT RIGHTS

The rights to broadcast non-network programs are stated at cost less accumulated
amortization. These costs are amortized based upon the usage of the programs
under methods which generally result in straight-line amortization. The cost of
program rights expected to be used within one year is classified as a current
asset.

F-10
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is carried at cost net of accumulated
depreciation. Depreciation is generally calculated on the straight-line method
based on the following useful lives:

POST-EFFECTIVE|PRE-EFFECTIVE
DATE | DATE
--------------|-------------
YEARS | YEARS
--------------|-------------
<S> <C> | <C>
Leasehold and land improvements 5-20 | 5-10
Buildings 20 | 30
Machinery and equipment 1-20 | 10-20
Vehicles 1-3 | 3-7
</TABLE>

DEFERRED FINANCING COSTS

Deferred financing costs relate to costs incurred with the issuance of debt
securities and are being amortized over the respective lives of the debt issues
utilizing the weighted average debt outstanding method. Accumulated amortization
at December 28, 1997 and December 29, 1996 was $1,316,882 and $699,476,
respectively.

INTANGIBLE ASSETS AND EXCESS REORGANIZATION VALUE

On the Effective Date the amounts allocated to intangible assets and excess
reorganization value represent the excess of the reorganization value over the
amounts allocated to the net tangible and all other intangible assets as of the
Effective Date. These amounts are being amortized on a straight-line basis over
15 years. Accumulated amortization at December 28, 1997 and December 29, 1996
was $10,399,161 and $6,467,857, respectively.

Prior to the Effective Date, goodwill and amounts allocated to FCC licenses and
network contracts were amortized on a straight-line basis over forty years. The
cost of other intangible assets with determinable economic lives was charged to
operations based on their respective economic lives, under methods that
generally resulted in accelerated amortization.

F-11
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company records impairment losses on long-lived assets used in operations,
including excess reorganization value, when events and circumstances indicate
that the assets might be impaired and the undiscounted cash flows estimated to
be generated by those assets are less than the carrying amounts of those assets.

USE OF ESTIMATES

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

ADVERTISING

Advertising costs are expensed as incurred and totaled $239,689, $222,780 and
$489,243 for fiscal 1997, 1996 and 1995, respectively.

REPORTING PERIOD

The Company's fiscal year is the 52/53 week period ending on the Sunday nearest
December 31.

3. SUPPLEMENTARY BALANCE SHEET INFORMATION

The composition of certain balance sheet information follows:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
-------------------------
<S> <C> <C>
Receivables:
Trade $3,715,713 $3,786,502
Other 149,597 123,388
----------------------
3,865,310 3,909,890
Less allowance for doubtful accounts (60,900) (60,900)
----------------------
$3,804,410 $3,848,990
======================
</TABLE>

F-12
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

3. SUPPLEMENTARY BALANCE SHEET INFORMATION (CONTINUED)

DECEMBER 28, DECEMBER 29,
1997 1996
------------------------------
<S> <C> <C>
Other current assets:
Program contract rights (NOTE 11) $ 699,405 $ 675,719
Prepaid expenses and other 213,404 180,481
Prepaid pension costs (NOTE 7) 430,674 --
-----------------------------
$ 1,343,483 $ 856,200
=============================

Property, plant and equipment:
Land, land improvements, buildings and improvements $ 2,676,990 $ 2,666,744
Machinery and equipment 13,908,889 13,285,024
Office equipment 953,501 854,225
Vehicles 465,895 443,995
Construction in progress 67,767 175,931
-----------------------------
18,073,042 17,425,919
Accumulated depreciation (4,846,975) (3,098,527)
-----------------------------
$13,226,067 $14,327,392
=============================

Deferred charges and other assets:
Deferred financing costs $ 1,734,958 $ 2,352,364
Other 76,851 71,948
-----------------------------
$ 1,811,809 $ 2,424,312
=============================

Accounts payable and accrued expenses:
Accounts payable $ 245,761 $ 318,639
Program contracts payable (NOTE 11) 590,865 569,747
Accrued interest 1,514,326 1,514,326
Accrued long term incentive plan obligations (NOTE 7) 942,452 --
Other accrued expenses 868,308 772,083
-----------------------------
$ 4,161,712 $ 3,174,795
=============================

Other long-term liabilities:
Accrued pension plan obligations (NOTE 7) $ -- $ 351,048
Accrued long term incentive plan obligations (NOTE 7) -- 590,453
-----------------------------
$ -- $ 941,501
=============================
</TABLE>

F-13

<PAGE>
Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

4. DISCONTINUED OPERATIONS--SALE OF WINNEBAGO COLOR PRESS

On December 27, 1996, the Company sold substantially all of the assets of its
Winnebago Color Press ("Winnebago") division to Winnebago Color Press, Inc.,
an entity owned in part by Mr. Lawrence A. Busse, the Chairman and Chief
Executive Officer of BBC for $3,327,856 in cash plus the assumption of
certain liabilities totaling $369,638 and, after payment of certain selling
costs, retained net proceeds of $3,242,235 (approximately $3,207,000 after
payment of $35,000 of certain obligations under the Company's Long Term
Incentive Plan, see Note 7). The Company received $102,857 of the sale
proceeds in February 1997; such amount was recorded as a receivable as of
December 29, 1996. The Company's utilization of such net proceeds is
restricted under the terms of a certain indenture relating to the Company's
11 5/8% Senior Secured Notes due October 15, 2000 (see Note 6). As part of
the transaction the Company received an opinion from an investment banking
firm that the transaction was fair to the Company and its stockholders.
Winnebago was the Company's only operation within the printing segment and
accordingly, because of the sale, this segment has been presented as a
discontinued operation. The loss on the transaction of $1,929,636 is
classified as a loss on disposal of discontinued operations in the
accompanying consolidated statements of operations for the year ended
December 29, 1996 and the operations of Winnebago for the year ended December
29, 1996 and the period from May 3, 1995 through December 31, 1995 are
classified as income from discontinued operations. The net revenues of
Winnebago included in the consolidated statements of operations were
$6,896,484 and $4,312,605 for the year ended December 29, 1996 and the period
from May 3, 1995 through December 31, 1995, respectively.

Corporate expenses and interest expense, net of interest income, have been
allocated to income from discontinued operations only if such expenses are
directly attributable to Winnebago. For the year ended December 29, 1996 and
for the period from May 3, 1995 through December 31, 1995 the corporate
expenses allocated to income from discontinued operations were $27,233 and
$7,767, respectively, and $12,711 and $3,611, respectively, for interest
expense net of interest income.

F-14
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

5. 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 (see Note 9)], 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. Gross proceeds,
approximating $99,400,000 from the sale were used, in part, to repay the
outstanding Credit Agreement ($10,400,000) and purchase or redeem (at 100% of
aggregate principal value plus accrued interest) certain Senior PIK Notes
($84,437,000 aggregate principal value), Junior PIK Notes ($1,180,000
aggregate principal value) and 2,300 shares of common stock ($16,051 purchase
price).

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 as follows:

<TABLE>
<CAPTION>
<S> <C>
Expected gross cash proceeds from the sale of WWMT-TV $99,420,357
Plus cash generated from operations from May 3, 1995
through May 31, 1995 498,637
Less expenses incurred to sell WWMT-TV (316,969)
Less interest on the debt to be retired (622,493)
-----------
Net investment in WWMT-TV as of May 3, 1995 $98,979,532
===========
</TABLE>

Two of the three members of the board of directors of the Company are executive
officers of Granite. An individual affiliated with the South Street Investment
Funds is one of the nine members of the board of directors of Granite and holds
equity interests in Granite (see Note 1).

F-15
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

6. DEBT

Long-term debt is summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
-------------------------

<S> <C> <C>
Senior Secured Notes, net of unamortized original
issue discount of $1,608,143 and $2,062,818 at
December 28, 1997 and December 29, 1996,
respectively $60,918,857 $60,464,182
========================
</TABLE>

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 and received net proceeds of
$58,125,099 after payment of underwriting discounts and commissions of
$1,875,810.

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 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 Junior Subordinated Note Redemption, 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 Junior Subordinated Note
Redemption was $100,765,475. The balance of the Junior Subordinated Notes not
redeemed for cash in the Junior Subordinated Note Redemption was redeemed for
65,524.4135 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.

Interest on the Senior Notes is payable semiannually in arrears on April 15
and October 15 of each year. Interest is computed on the basis of a 360-day
year comprised of twelve 30-day months.

F-16
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

6. DEBT (CONTINUED)

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.

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, 1998 and 1999, respectively.

The indenture relating to the Senior Notes (the "Indenture") required that
the net proceeds, as defined by the Indenture and which are net of the
payment made under the long-term incentive plan, from the sale of Winnebago
($3,207,000) be utilized to (i) offer to redeem Senior Notes at 100% of their
accreted value on the date of redemption, plus accrued interest, or (ii) to
make investments in or acquire properties and assets directly related to
television and/or radio broadcasting as specified in the Indenture. In
accordance with the Indenture, on February 12, 1997 the Company commenced an
offer to purchase up to $3,207,000 of aggregate principal amount of Senior
Notes with the net proceeds of the sale of Winnebago. The Company's offer to
purchase expired, by its terms, on March 14, 1997 with no Senior Notes having
been tendered by their respective holders and, consequently, no Senior Notes
were purchased by the Company. Under the terms of the Indenture, the Company
may only utilize the $3,207,000 and the interest thereon to make investments
in or acquire properties and assets directly related to television and/or
radio broadcasting. Such net proceeds and the interest earnings thereon are
held by the Indenture Trustee as collateral proceeds and are classified as
cash equivalents on the accompanying consolidated balance sheet.

F-17
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

6. DEBT (CONTINUED)

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. Upon a change of control, as defined in the Indenture,
the Company is required to offer to repurchase all or any portion (equal to
$1,000 or an integral multiple thereof) of the Senior Notes at a purchase
price in cash equal to 101% of the accreted value thereof, plus accrued and
unpaid interest to the date of repurchase in accordance with the terms of the
Indenture. Consumation of the Stock Purchase Agreement (see Note 13) will
constitute a change of control, as defined in the Indenture.

The Indenture does not restrict the ability of a subsidiary to pay dividends
or make loans or advances to the Company.

It was not practicable to estimate the fair value of the Company's long-term
debt securities because of a lack of quoted market prices and the inability
to estimate fair value without incurring excessive costs.

7. EMPLOYEE BENEFIT PLANS

DEFINED BENEFIT PLAN

The Company has a noncontributory defined benefit pension plan (the "Pension
Plan") covering approximately 129 full-time employees, 15 retirees receiving
benefits and 90 separated vested participants. The benefits are based on
length of service, age and the employee's compensation.

On July 1, 1997 the Company amended its defined benefit plan to freeze all
benefit and service accruals thereunder and to terminate, subject to
governmental approval, the Pension Plan effective as of September 28, 1997.
The Company has recorded a gain of $344,782 for the year ended December 28,
1997 for the curtailment of the Pension Plan. Such gain is included as an
offset to operating costs and expenses in the consolidated statement of
operations. Additional charges or gains, if any, for the settlement of the
Pension Plan will be recorded upon final settlement of the Pension Plan
obligations. Termination and settlement for the Pension Plan are subject to
various government agency approvals and the Company does not currently
anticipate such settlements to occur prior to the second half of fiscal 1998.

F-18
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

7. EMPLOYEE BENEFIT PLANS (CONTINUED)

Applications for determination and notification with the Pension Benefit
Guaranty Corporation (the "PBGC") and Internal Revenue Service (the "IRS")
were filed pursuant to governmental regulations on January 22, 1998. The
Company anticipates that the IRS will rule that the Pension Plan qualifies
under Section 401(a) of the Internal Revenue Code and, therefore, will not be
subject to tax under present income tax laws. Upon termination, all
participants will become fully vested and will be able to accept their
settlement benefit as an annuity, lump sum payment or roll-over of benefits
into the Company's 401(k) Savings Plan.

In anticipation of the settlement of the Pension Plan, in September 1997 the
Company contributed $500,000 to the Pension Plan's trust fund.

The Company currently anticipates that the present value of all vested
benefit obligations will exceed the fair value of the pension plan trust
assets at the future settlement date and, as such, the Company expects to be
required to fund such difference, the "Settlement Funding". The settlement
date cannot be determined until the IRS and PBGC approve the Company's
termination applications. Any Settlement Funding to the pension trust by the
Company will not be calculable as a sum certain until the settlement date is
established according to the applicable governmental regulations since such
calculations are dependent upon certain governmentally prescribed settlement
interest rates in effect 60 days prior to the settlement date.

The Company's funding policy is to contribute amounts to the plan sufficient
to meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional amounts as the Company may
determine to be appropriate from time to time, including any contributions
necessary to effect the plan settlement. The components of pension cost were
as follows:

<TABLE>
<CAPTION>
1997 1996 1995
----------------------------------------
<S> <C> <C> <C>
Service cost--benefit earned during period $ 74,150 $ 134,377 $ 204,706
Interest cost on projected benefit obligation 162,453 154,256 180,362
Actual return on plan assets (239,265) (183,951) (227,067)
Net amortization and deferral 65,722 24,825 19,824
----------------------------------------
Net periodic pension cost $ 63,060 $ 129,507 $ 177,825
========================================
</TABLE>

F-19

<PAGE>
Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

7. EMPLOYEE BENEFIT PLANS (CONTINUED)

Assumptions used in the accounting for the defined benefit plan were:

1997 1996 1995
----------------------------
<S> <C> <C> <C>
Weighted average discount rates 7.5% 7.25% 7.25%
Rates of increase in compensation levels 5.0% 5.0% 5.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>

The following table sets forth the funded status and amounts recognized in the
Company's consolidated balance sheet:

DECEMBER 28, DECEMBER 29,
1997 1996
-------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $2,426,263 $2,149,278
=======================
Accumulated benefit obligation $2,426,263 $2,175,809
=======================
Projected benefit obligation 2,426,263 2,356,168
Plan assets at fair value, primarily group annuity
contracts and U.S. corporate stocks and bonds 2,729,263 2,103,190
-----------------------
Projected benefit obligation in excess of (less (303,000) 252,978
than) plan assets
Unrecognized gain (127,674) (15,561)
Unrecognized prior service cost -- 113,631
-----------------------
Net pension (asset) liability recognized in the
consolidated balance sheets $ (430,674) $ 351,048
=======================
</TABLE>

Effective June 1, 1995 the Company curtailed the portion of the defined benefit
pension plan related to the WWMT-TV employees and recognized an associated gain
of $327,866 at that time.

DEFINED CONTRIBUTION PLAN

The Company has 401(k) plans available to substantially all employees with at
least 1,000 hours of service annually. The Company matches 50% of the first 2%
of the employee contributions.

F-20
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

7. EMPLOYEE BENEFIT PLANS (CONTINUED)

In addition, for the period from September 29, 1997 through December 28, 1997
the Company accrued a voluntary profit sharing contribution for each participant
of the greater of $75 or the product of the applicable percentage set forth
below times the participant's compensation during the period from September 29,
1997 through December 28, 1997:

YEARS OF VESTING SERVICE PERCENTAGE
--------------------------------------------------------------

Funding of the voluntary profit sharing contribution will occur in fiscal
1998. Total plan expense was $64,476, $71,673, $31,247, and $57,718 for
fiscal years 1997 and 1996 and the periods from May 3, 1995 through December
31, 1995, and January 2, 1995 through May 2, 1995, respectively.

LONG TERM INCENTIVE PLAN

The Company maintains a Long Term Incentive Plan (the "LTIP") for certain key
executives (the "Participants"). As of December 28, 1997 the aggregate maximum
amount which the Company may become obligated to pay under the LTIP is
$1,065,000 and each Participants' allocated share of such amount is referred to
as the "Maximum Amount". Participants vest ratably over thirty-six months
beginning May 3, 1995 (the "Vested Amount"), and, subject only to continuous
employment, the Maximum Amount is due and payable May 3, 1998. In the event of a
Participant's death or disability the Participant will be entitled to payment of
the Vested Amount as of such date. In certain instances involving changes in
control of the Company or significant asset sales, a Participant may be entitled
to the Maximum Amount. In conjunction with the sale of Winnebago, a former
Participant was paid his Maximum Amount of $35,000. In the event of a
Participant's termination of employment without "cause" or by such Participant
for "good reason" (as defined therein) the Participant may be entitled to the
discounted present value of the Maximum Amount according to a formula defined in
the LTIP. If a Participant's employment with the Company terminates for "cause"
(as defined therein), the Company's obligations with respect to that Participant
terminate and no payments will be made to the Participant.

F-21
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

7. EMPLOYEE BENEFIT PLANS (CONTINUED)

The Company is not required to fund or otherwise segregate assets to be used to
pay benefits under the LTIP. Under the LTIP the Company is precluded, with
certain permitted exceptions, from paying cash dividends and entering into
transactions with Affiliates (as defined therein) other than on fair and
reasonable terms.

For fiscal years 1997 and 1996 and the fiscal period from May 3, 1995 through
December 31, 1995, the Company expensed $351,999, $381,260 and $244,193,
respectively, relating to the LTIP based on a 3 year straight line amortization.

8. 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:

DECEMBER 28, DECEMBER 29,
1997 1996
---------------------------
<S> <C> <C>
Deferred tax liabilities -
Property, plant and equipment basis differences $ 3,176,000 $ 3,569,000

Deferred tax assets:
Federal net operating loss carryforwards 20,876,000 20,706,000
State net operating loss carryforwards 3,177,000 2,747,000
Alternative minimum tax credit 1,615,000 1,615,000
Other 290,000 47,000
--------------------------
25,958,000 25,115,000
Valuation allowances (22,782,000) (21,546,000)
--------------------------
3,176,000 3,569,000
--------------------------
$ -- $ --
==========================
</TABLE>

Due to past and current operating losses, a valuation allowance has been
recognized to offset the Company's net deferred tax assets.

F-22

<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

8. INCOME TAXES (CONTINUED)

The benefit (provision) for income taxes from continuing operations is
different from the amount computed by applying the U.S. statutory rate due to
the following items:

<TABLE>
<CAPTION>
| PRE-EFFECTIVE
POST-EFFECTIVE DATE | DATE
--------------------------------------------------|-----------------
FISCAL PERIOD |
FISCAL YEAR ENDED FROM MAY 3, | FISCAL PERIOD
---------------------------- 1995 THROUGH | FROM JANUARY 2,
DECEMBER 28, DECEMBER 29, DECEMBER 31, | 1995 THROUGH
1997 1996 1995 | MAY 2, 1995
--------------------------------------------------|-----------------
<S> <C> <C> <C> | <C>
Benefit (provision), from continuing operations |
and including extraordinary item, at federal |
statutory rate $1,604,000 $1,559,000 $1,220,000 | $(49,070,000)
State taxes -- -- 341,000 | (1,358,000)
Change in valuation allowance -- -- 136,000 | 40,854,000
Unused current net operating loss (267,000) (71,000) -- | --
Gain on restructuring transactions and |
related items -- -- -- | 11,762,000
Non-deductible amortization of intangible assets |
and excess reorganization values and other |
items (1,337,000) (1,488,000) (825,929) | 30,000
--------------------------------------------------|-----------------
$ -- $ -- $ 871,071 | $ 2,218,000
==================================================|=================
</TABLE>

The deferred (provision) benefit from continuing operations consists of the
following:

<TABLE>
<CAPTION>
| PRE-EFFECTIVE
POST-EFFECTIVE DATE | DATE
--------------------------------------------------|-----------------
FISCAL PERIOD |
|
FISCAL YEAR ENDED FROM MAY 3, | FISCAL PERIOD
---------------------------- 1995 THROUGH | FROM JANUARY 2,
DECEMBER 28, DECEMBER 29, DECEMBER 31, | 1995 THROUGH
1997 1996 1995 | MAY 2, 1995
--------------------------------------------------|-----------------
<S> <C> <C> <C> | <C>
Deferred tax benefits of temporary differences |
other than operating loss carryforwards $ 636,000 $ 19,414,000 $30,220,000 | $(39,562,000)
Benefits (use) of operating loss carryforwards 600,000 1,728,000 (27,770,000) | 1,026,000
Change in valuation allowance (1,236,000) (21,142,000) 136,000 | 40,854,000
--------------------------------------------------|-----------------
$ -- $ -- $ 2,586,000 | $ 2,318,000
==================================================|=================
</TABLE>

F-23
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

8. INCOME TAXES (CONTINUED)

As of December 28, 1997 the Company had approximately $61,400,000 of federal net
operating loss carryforwards ("NOL's") which begin to expire in 2005. As a
result of the Plan (see Note 1) the Company elected treatment under Section 382
(1) (5) of the Internal Revenue Code, as amended. This treatment will allow the
restructured Company to utilize, under certain restrictions, its NOL's to offset
taxable income incurred after the Effective Date. The pending ownership change
(see Note 13) will further restrict the Company's use of its NOL's under Section
382. Utilization of a portion of these NOL's are assumed in the Company's
calculation of Post-Effective Date deferred taxes.

9. CORPORATE REORGANIZATION/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. To facilitate the collateral
arrangements required by the Senior Notes the Company effected the following
transactions on October 20, 1995:

1. The Federal Communication Commission ("FCC") licenses relating to the
operation of WEAU-TV were conveyed to a wholly-owned subsidiary, WEAU
License, Inc., in exchange for a $4,880,000 note payable to Busse
Broadcasting Corporation and 100% of the stock of the subsidiary;

2. The assets and liabilities relating to the operation of KOLN/KGIN-TV were
conveyed to a wholly-owned subsidiary, KOLN/KGIN, Inc. (formerly known as
Busse Management, Inc. which was formerly known as WWMT, Inc.); and

3. KOLN/KGIN, Inc. conveyed the FCC licenses relating to the operation of
KOLN/KGIN-TV to its wholly-owned subsidiary KOLN/KGIN License, Inc. in
exchange for all of the capital stock of the subsidiary.

F-24
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

9. CORPORATE REORGANIZATION/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 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>
POST-EFFECTIVE DATE
--------------------------
DECEMBER 28, DECEMBER 29,
1997 1996
--------------------------
<S> <C> <C>
ASSETS
Current assets $ 3,377,708 $ 3,258,170
Non-current assets 45,525,932 49,097,117
--------------------------
$48,903,640 $52,355,287
==========================

LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities $ 1,112,618 $ 1,090,989
Non-current liabilities 6,373,635 6,703,675
Shareholder's equity 41,417,387 44,560,623
--------------------------
Total liabilities and shareholder's equity $48,903,640 $52,355,287
==========================
</TABLE>

<TABLE>
<CAPTION>
| PRE-EFFECTIVE
POST-EFFECTIVE DATE | DATE
--------------------------------------------|---------------
FISCAL PERIOD |
FISCAL YEAR FISCAL YEAR FROM MAY 3, | FISCAL PERIOD
ENDED ENDED 1995 THROUGH | FROM JANUARY 2,
DECEMBER 28, DECEMBER 29, DECEMBER 31, | 1995 THROUGH
1997 1996 1995 | MAY 2, 1995
--------------------------------------------|----------------
<S> <C> <C> <C> | <C>
Net revenue $12,310,713 $11,926,061 $ 6,657,481 | $ 3,489,390
Total operating costs and expenses 10,325,586 9,937,965 6,345,213 | 2,393,360
Income from operations 1,985,127 1,988,096 312,268 | 1,096,030
Reorganization item--gain on |
restructuring transaction -- -- -- | 34,831,263
Net income (loss) (3,143,236) (2,903,328) (1,727,698) | 36,308,787
</TABLE>

F-25
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

10. 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

The authorized common stock of the Company consists of 2,154,000 shares, of
which 107,700 shares are issued and outstanding. 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 LTIP. 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

The authorized preferred stock of the Company consists of 65,524.4135 shares,
all of which are issued and outstanding. 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.

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.

F-26
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

10. CAPITAL STOCK (CONTINUED)

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.

11. COMMITMENTS

The Company has entered into contracts to purchase rights to air certain
programs at future dates. The Company records these contracts as assets and
corresponding liabilities when the license period begins, which totaled
$1,017,375, $969,630 and $959,010 in fiscal 1997, 1996 and 1995, respectively.
The aggregate amount of these contracts entered into but not yet recorded at
December 28, 1997 is approximately $3,031,795.

12. BUSINESS SEGMENTS

On December 27, 1996 the Company sold substantially all of the assets of its
printing segment, Winnebago Color Press. Because of this sale, the Company now
operates only in the television segment. For the year ended December 29, 1996
and the period from May 3, 1995 through December 31, 1995, the loss on the sale
of the printing segment and its results of operations have been included as
discontinued operations in the accompanying respective statements of operations
(see Note 4).

F-27
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

12. BUSINESS SEGMENTS (CONTINUED)

<TABLE>
<CAPTION>
PRE-EFFECTIVE
DATE
FISCAL PERIOD
FROM
JANUARY 2,
1995 THROUGH
MAY 2, 1995
-------------
<S> <C>
Net revenue:
Television $12,141,986
Printing 2,368,909
-----------
$14,510,895
===========
Depreciation and amortization:
Television $ 1,631,472
Printing 144,600
-----------
$ 1,776,072
===========
Income from operations:
Television $ 3,810,498
Printing 123,388
-----------
$ 3,933,886
===========
Capital expenditures:
Television $ 450,106
Printing 47,622
-----------
$ 497,728
===========
</TABLE>

F-28
<PAGE>

Busse Broadcasting Corporation

Notes to Consolidated Financial Statements (continued)

13. SUBSEQUENT EVENTS

On February 13, 1998 the Company, its stockholders and Gray Communications
Systems, Inc., a Georgia Corporation ("Gray"), entered into a definitive
purchase agreement (the "Stock Purchase Agreement") whereby Gray agreed to
acquire, and the stockholders agreed to sell, all of the capital stock of the
Company for the aggregate purchase price of (i) $112 million, plus (ii) the
Company's cash and cash equivalents, less (iii) the aggregate amount of the
Company's indebtedness and accrued and unpaid interest thereon, including the
accreted amount of the Company's 11 5/8% Secured Senior Notes due 2000. The
value of the Company's cash, cash equivalents and aggregate indebtedness will be
determined as of the close of business on the business day immediately preceding
the closing date of the Stock Purchase Agreement.

Consummation of the transactions contemplated by the Stock Purchase Agreement is
subject to the receipt of requisite governmental approvals, including the
approval of the Federal Communications Commission. The Company can make no
assurance as to whether the transactions contemplated by the Stock Purchase
Agreement will be completed, but currently anticipates that such transactions
will close on or before September 1, 1998.

F-29
<PAGE>

Report of Independent Auditors

The Board of Directors
Busse Broadcasting Corporation

We have audited the accompanying consolidated balance sheets of KOLN/KGIN,
Inc., a wholly owned subsidiary of Busse Broadcasting Corporation (the
Company) (Post-Effective Date) as of December 28, 1997 and December 29, 1996
and the related consolidated statements of operations and
stockholder's/divisional equity, and cash flows for the years ended December
28, 1997 and December 29, 1996 and the period from May 3, 1995 through
December 31, 1995. We have also audited the accompanying consolidated
statements of operations and stockholder's/divisional equity, and cash flows
of KOLN/KGIN, Inc. (Pre-Effective Date) for the period from January 2, 1995
through May 2, 1995. These financial statements are the responsibility of
KOLN/KGIN, Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of KOLN/KGIN, Inc.
(Post-Effective Date) at December 28, 1997 and December 29, 1996 and the
consolidated results of its operations and its cash flows for the years ended
December 28, 1997 and December 29, 1996 and the period from May 3, 1995
through December 31, 1995 in conformity with generally accepted accounting
principles; and the consolidated results of its operations and its cash flows
(Pre-Effective Date) for the period from January 2, 1995 through May 2, 1995,
in conformity with generally accepted accounting principles.

Ernst & Young LLP

Milwaukee Wisconsin
February 19, 1998

F-30
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Consolidated Balance Sheets

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 373,716 $ 299,008
Receivables, net 2,375,565 2,343,022
Program contract rights 441,825 438,219
Other current assets 40,600 29,919
-----------------------------
Total current assets 3,231,706 3,110,168

Property, plant and equipment, net 7,444,901 8,213,165
Due from Parent 464,096 237,465
Deferred charges and other assets 4,776 5,038
Intangible assets and excess reorganization value 32,404,597 34,992,682
-----------------------------
Total assets $43,550,076 $46,558,518
=============================
LIABILITIES AND COMMON STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 631,201 $ 609,878
Program contracts payable 369,733 364,094
-----------------------------
Total current liabilities 1,000,934 973,972

Deferred tax liabilities 1,783,000 1,958,000

Commitments

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 (5,802,445) (2,942,041)
-----------------------------
Total stockholder's equity 40,766,142 43,626,546
-----------------------------
Total liabilities and stockholder's equity $43,550,076 $46,558,518
=============================
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-31
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Consolidated Statements of Operations and Stockholder's/Divisional Equity

<TABLE>
<CAPTION>
POST-EFFECTIVE DATE |PRE-EFFECTIVE
| DATE
--------------------------------------------------------|---------------
FISCAL PERIOD | FISCAL PERIOD
FROM MAY 3, |FROM JANUARY 2,
FISCAL YEAR ENDED FISCAL YEAR ENDED 1995 THROUGH | 1995 THROUGH
DECEMBER 28, 1997 DECEMBER 29, 1996 DECEMBER 31, 1995| MAY 2, 1995
--------------------------------------------------------|---------------
<S> <C> <C> <C> | <C>
Net revenue $11,592,713 $11,212,061 $ 6,511,481 | $ 3,489,390
|
Operating costs and expenses, excluding depreciation |
and amortization 5,338,579 5,089,462 3,220,927 | 1,741,340
Depreciation 1,053,878 1,033,581 765,399 | 486,000
Amortization of intangibles and excess |
reorganization value 2,588,085 2,588,085 1,732,545 | 63,000
Corporate expenses 903,839 856,936 545,009 | 98,000
--------------------------------------------------------|-------------
Total operating costs and expenses 9,884,381 9,568,064 6,263,880 | 2,388,340
--------------------------------------------------------|-------------
|
Income from operations 1,708,332 1,643,997 247,601 | 1,101,050
|
Other income (expense): |
Interest income 21,060 17,749 10,231 | --
Gain (loss) on disposition of assets (107,040) (44,874) (967) | 2,074
Other (expense) (7,756) (7,730) (9) | (4,152)
--------------------------------------------------------|-------------
Other income (expense) (93,736) (34,855) 9,255 | (2,078)
--------------------------------------------------------|-------------
1,614,596 1,609,142 256,856 | 1,098,972
Reorganization item - gain on restructuring |
transaction (NOTE 1) -- -- -- | 34,831,263
--------------------------------------------------------|-------------
Income before income taxes 1,614,596 1,609,142 256,856 | 35,930,235
|
(Provision) benefit for income taxes: |
Current (4,650,000) (4,385,000) (2,098,101) | (582,000)
Deferred 175,000 106,000 166,000 | 1,466,000
--------------------------------------------------------|-------------
(4,475,000) (4,279,000) (1,932,101) | 884,000
--------------------------------------------------------|-------------
Net income (loss) (2,860,404) (2,669,858) (1,675,245) | 36,814,235
|
Stockholder's/divisional equity at beginning of period 43,626,546 46,296,404 47,632,491 | 11,747,254
Net intercompany transactions -- -- 339,158 | (928,998)
--------------------------------------------------------|-------------
Stockholder's/divisional equity at end of the period $40,766,142 $43,626,546 $46,296,404 | $47,632,491
========================================================|=============
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-32
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Consolidated Statements of Cash Flows

<TABLE>
<CAPTION>
POST-EFFECTIVE DATE |PRE-EFFECTIVE
| DATE
--------------------------------------------------------|---------------
FISCAL PERIOD | FISCAL PERIOD
FROM MAY 3, |FROM JANUARY 2,
FISCAL YEAR ENDED FISCAL YEAR ENDED 1995 THROUGH | 1995 THROUGH
DECEMBER 28, 1997 DECEMBER 29, 1996 DECEMBER 31, 1995| MAY 2, 1995
--------------------------------------------------------|---------------
<S> <C> <C> <C> | <C>
OPERATING ACTIVITIES |
Net income (loss) $(2,860,404) $(2,669,858) $(1,675,245) | $36,814,235
Adjustments to reconcile net income (loss) to net |
cash provided by operating activities: |
Depreciation and amortization 3,641,963 3,621,666 2,497,944 | 549,000
Program payments (over) under program amortization 2,033 (19,825) (12,159) | 4,056
(Gain) loss on disposition of assets 107,040 44,874 967 | (2,074)
Gain on pension plan curtailment (172,391) -- -- | --
Deferred income taxes (175,000) (106,000) (166,000) | (1,466,000)
Reorganization item - gain on restructuring transaction -- -- -- | (34,831,263)
Change in current assets and liabilities: |
Receivables (32,543) (193,712) (227,626) | 207,244
Other current assets (10,681) (2,359) 3,063 | 21,517
Accounts payable and accrued expenses 21,323 (8,094) 183,625 | (37,963)
-----------------------------------------------------|-------------
Net cash provided by operating activities 521,340 666,692 604,569 | 1,258,752
|
INVESTING ACTIVITIES |
Capital expenditures (392,655) (694,444) (587,652) | (209,259)
Proceeds from disposition of assets -- 15,113 5,694 | 2,798
Decrease in other assets 263 1,445 817 | 295
-----------------------------------------------------|-------------
Net cash used in investing activities (392,392) (677,886) (581,141) | (206,166)
|
FINANCING ACTIVITIES |
Net intercompany transactions -- -- 339,158 | (928,998)
Increase in due from Parent (54,240) (70,736) (166,729) | --
-----------------------------------------------------|-------------
Net cash provided by (used in) financing activities (54,240) (70,736) 172,429 | (928,998)
-----------------------------------------------------|-------------
|
Net increase (decrease) in cash and cash equivalents 74,708 (81,930) 195,857 | 123,588
Cash and cash equivalents at beginning of period 299,008 380,938 185,081 | 61,493
-----------------------------------------------------|-------------
Cash and cash equivalents at end of period $ 373,716 $ 299,008 $ 380,938 | $ 185,081
=====================================================|=============
|
Supplemental information |
Income taxes paid $ 4,650,000 $ 4,385,000 $ 2,098,101 | $ 582,000
=====================================================|=============
</TABLE>

SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

F-33
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements

December 28, 1997

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 included net intercompany
balances that resulted from various transactions between KOLN/KGIN-TV and the
Company. There were no terms of settlement or interest charges associated with
these balances. The balances were 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. 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 $350,781, $202,097 and $83,364 due from the Parent during fiscal
1997, 1996 and the period from October 20, 1995 through December 31, 1995,
respectively.

F-34
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

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 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.

The adjustments to adopt Fresh Start Accounting resulted in a total gain on
restructuring transaction of $34,831,263 in the accompanying statement of
operations and stockholder's/divisional equity for the period from January 1,
1995 through May 2, 1995. This gain resulted from adjustments to assets to
reflect adoption of Fresh Start Accounting.

F-35
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

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 years ended December 28, 1997 and December 29,
1996 and the fiscal period from May 3, 1995 through December 31, 1995 are not
comparable to any of KOLN/KGIN-TV's fiscal periods ended on or prior to May 2,
1995 and accordingly, Pre-Effective date and Post-Effective date financial
statements are separated by a vertical line.

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.

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.

F-36
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

2. FORMATION OF SUBSIDIARY AND CONTRIBUTION OF ASSETS AND LIABILITIES OF
KOLN/KGIN-TV (CONTINUED)

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.

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.

F-37
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH AND CASH EQUIVALENTS

The Company considers all highly liquid debt instruments purchased with a
maturity of three months or less to be cash equivalents.

TELEVISION PROGRAM CONTRACT RIGHTS

PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is carried at cost net of accumulated
depreciation. Depreciation is generally calculated on the straight-line method
based on the following useful lives:

<TABLE>
<CAPTION>
POST-EFFECTIVE | PRE-EFFECTIVE
---------------|--------------
YEARS | YEARS
---------------|--------------
<S> <C> | <C>
Leasehold and land improvements 5-20 | 5-10
Buildings 20 | 30
Machinery and equipment 1-20 | 10-20
Vehicles 1-3 | 3-7
</TABLE>

INTANGIBLE ASSETS AND EXCESS REORGANIZATION VALUE

F-38
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

INDEBTEDNESS

The Company has not allocated its indebtedness to its operating divisions or
subsidiary and consequently does not charge the divisions or subsidiary
interest.

INCOME TAXES

KOLN/KGIN-TV is included in the consolidated federal income tax return of the
Company. For financial reporting purposes KOLN/KGIN-TV has provided for federal
income taxes as if it filed a separate income tax return. Deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.

USE OF ESTIMATES

F-39
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

ADVERTISING

Advertising costs are expensed as incurred and totaled, $144,852, $154,169 and
176,366 for fiscal 1997, 1996, and 1995, respectively.

REPORTING PERIOD

The Company's fiscal year is the 52/53 week period ending on the Sunday nearest
December 31.

4. SUPPLEMENTARY BALANCE SHEET INFORMATION

The composition of receivables is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
-----------------------------
<S> <C> <C>
Receivables:
Trade $2,333 $2,293
Other 83 90
-----------------------------
2,416 2,383
Less allowance for doubtful accounts (40) (40)
-----------------------------
$2,376 $2,343
=============================
</TABLE>

The composition of property, plant and equipment is as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 28, DECEMBER 29,
1997 1996
-----------------------------
<S> <C> <C>
Property, plant and equipment:
Land, land improvements, buildings and $ 1,698 $1,698
improvements
Machinery and equipment 7,574 7,443
Office equipment 549 491
Vehicles 287 277
Construction in process 10 --
-----------------------------
10,118 9,909
Accumulated depreciation (2,673) (1,696)
-----------------------------
$ 7,445 $8,213
=============================
</TABLE>

F-40
<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

5. INCOME TAXES

The income tax provisions consist of the following (in thousands):

<TABLE>
<CAPTION>
POST-EFFECTIVE DATE | PRE-EFFECTIVE
| DATE
----------------------------------------------|---------------
FISCAL PERIOD | FISCAL PERIOD
FROM MAY 3, | FROM
1995 THROUGH | JANUARY 2,
DECEMBER 28, DECEMBER 29, DECEMBER 31, | 1995 THROUGH
1997 1996 1995 | MAY 2, 1995
----------------------------------------------|---------------
<S> <C> <C> <C> | <C>
Current - federal $3,725 $3,510 $1,680 | $ 466
Current - state 925 875 418 | 116
Deferred (175) (106) (166) | (1,466)
----------------------------------------------|---------------
$4,475 $4,279 $1,932 | $ (884)
==============================================|===============
</TABLE>

The income tax provisions differ from the amount computed by applying the U.S.
statutory rate due to the following (in thousands):

<TABLE>
<CAPTION>
POST-EFFECTIVE DATE | PRE-EFFECTIVE
| DATE
----------------------------------------------|---------------
FISCAL PERIOD | FISCAL PERIOD
FROM MAY 3, | FROM
1995 THROUGH | JANUARY 2,
DECEMBER 28, DECEMBER 29, DECEMBER 31, | 1995 THROUGH
1997 1996 1995 | MAY 2, 1995
----------------------------------------------|---------------
<S> <C> <C> <C> | <C>
Provision at federal statutory rate $ 549 $ 547 $ 87 | $ 12,216
State taxes, net of federal benefit 610 564 254 | (116)
Gain on restructuring transactions and |
related items -- -- -- | (12,984)
Intercompany interest recorded for tax |
purposes 2,503 2,227 1,020 | --
Non-deductible amortization of intangible |
assets and excess reorganization values |
and other items |
813 941 571 | --
----------------------------------------------|---------------
$ 4,475 $ 4,279 $1,932 | $ (884)
==============================================|===============
</TABLE>

F-41

<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

5. INCOME TAXES (CONTINUED)

Property, plant and equipment basis differences represent the significant
component of KOLN/KGIN-Inc.'s deferred tax liabilities.

6. PENSION PLAN TERMINATION

On July 1, 1997 the Company amended its defined benefit plan (the "Pension
Plan") to freeze all benefit and service accruals thereunder and to
terminate, subject to governmental approval, the Pension Plan effective as of
September 28, 1997. KOLN/KGIN, Inc. participates in the Company's Pension
Plan and, accordingly, recorded a gain of $172,391 for the year ended
December 28, 1997 for the curtailment of the Pension Plan. Such gain is
included as an offset to operating costs and expenses in the respective
statement of operations. Additional charges or gains, if any, for the
settlement of the Pension Plan will be recorded upon final settlement of the
Pension Plan obligations. Termination and settlement of the Pension Plan is
subject to various government agency approvals and the Company does not
currently anticipate such settlement to occur prior to the second half of
fiscal 1998.

In anticipation of the settlement of the Pension Plan, in September 1997 the
Company contributed $500,000 to the Pension Plan's trust fund.

The Company currently anticipates that the present value of all vested
benefit obligations will exceed the fair value of the pension plan trust
assets at the future settlement date and as such the Company expects to be
required to fund such difference, the "Settlement Funding". The settlement
date cannot be determined until the IRS and PBGC approve the Company's
termination applications. Any Settlement Funding to the pension trust by the
Company will not be calculable as a sum certain until the settlement date is
established according to the applicable governmental regulations since such
calculations are dependent upon certain governmentally prescribed settlement
interest rates in effect 60 days prior to the settlement date.

F-42

<PAGE>

KOLN/KGIN, Inc.
(A Wholly-Owned Subsidiary of Busse Broadcasting Corporation)

Notes to Consolidated Financial Statements (continued)

7. COMMITMENTS

The Company has entered into contracts to purchase rights to air certain
programs at future dates. The Company records these contracts as assets and
corresponding liabilities when the license period begins, of which amounts
pertaining to KOLN/KGIN, Inc. totaled $633,260, $606,670 and $578,070 in
fiscal 1997, 1996 and 1995, respectively. The aggregate amount of these
contracts entered into but not yet recorded at December 28, 1997 is
approximately $1,832,025.

8. SUBSEQUENT EVENTS

On February 13, 1998 the Company, its stockholders and Gray Communications
Systems, Inc., a Georgia Corporation ("Gray"), entered into a definitive
purchase agreement (the "Stock Purchase Agreement") whereby Gray agreed to
acquire, and the stockholders agreed to sell, all of the capital stock of the
Company for the aggregate purchase price of (i) $112 million, plus (ii) the
Company's cash and cash equivalents, less (iii) the aggregate amount of the
Company's indebtedness and accrued and unpaid interest thereon, including the
accreted amount of the Company's 11 5/8% Secured Senior Notes due 2000. The
value of the Company's cash, cash equivalents and aggregate indebtedness will
be determined as of the close of business on the business day immediately
preceding the closing date of the Stock Purchase Agreement.

Consummation of the transactions contemplated by the Stock Purchase Agreement
is subject to the receipt of requisite governmental approvals, including the
approval of the Federal Communications Commission. The Company can make no
assurance as to whether the transactions contemplated by the Stock Purchase
Agreement will be completed, but currently anticipates that such transactions
will close on or before September 1, 1998.

F-43

<PAGE>

Busse Broadcasting Corporation

Schedule II
Valuation and Qualifying Accounts Information

For the years ended December 28, 1997, December 29, 1996 and for the period
from May 3, 1995 through December 31, 1995, Post-Effective Date; the period
from January 2, 1995 through May 2, 1995, Pre-Effective Date
(IN THOUSANDS)

<TABLE>
<CAPTION>
Deductions Due to
Write Off of Certain
Balance at Additions Receivables Against Balance at
Beginning of Charged to Costs the Allowance for Other end of
Description Period and Expenses Doubtful Accounts Deduction (1) Period
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Post-Effective Date:

Year ended December 28, 1997 - Allowance
for doubtful accounts $ 61 $11 $11 $ -- $ 61

Year ended December 29, 1996 - Allowance for
doubtful accounts 210 72 96 125 61

For the period from May 3, 1995 through
December 31, 1995 - Allowance for doubtful
accounts 222 64 76 -- 210

Pre-Effective Date:
For the period from January 2, 1995
through May 2, 1995 - Allowance for
doubtful accounts 294 36 12 96 222

</TABLE>

(1) Reduction reflects an elimination of the allowance for doubtful accounts
relating to the accounting for the sale of WWMT-TV ($96) and the sale of
WCP ($125).

S-1

<PAGE>

BUSSE BROADCASTING CORPORATION
141 EAST MICHIGAN AVENUE, SUITE 300
KALAMAZOO, MICHIGAN 49007

THIRD AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AS OF FEBRUARY 13, 1998

This Third Amendment, to that certain Amended and Restated Employment
Agreement between Busse Broadcasting Corporation ("BBC") and Lawrence A.
Busse ("Employee") dated February 20, 1995 and as amended as of December 27,
1996 (the "First Amendment") and as of February 6, 1997 (the "Second
Amendment") attached as Exhibit A hereto (collectively, the "Employment
Agreement"), is entered into as of the date first above written (the "Third
Amendment").

All capitalized terms not defined herein shall have the same meaning as
ascribed to such terms in the Employment Agreement.

BBC and Employee mutually agree to amend the Employment Agreement by
deleting the phrase "December 31, 1998" in the second sentence of Section 4.
TERM OF AGREEMENT, as amended by the Second Amendment, and replacing the
deleted phrase with "the later of December 31, 1998 or one (1) year following
the effective date of a "Trigger Event" as such term is defined in that
certain BBC Long Term Incentive Plan, as amended May 31, 1996; provided
however, in the event this agreement would otherwise terminate pursuant to
the foregoing clause and the Company or its stockholders shall have entered
into an agreement contemplating a Trigger Event, the terms of this agreement
shall be extended until the earlier termination of such agreement or the date
one (1) year from the consummation of such agreement."

All other terms and conditions of the Employment Agreement will remain
in full force and effect and are hereby restated, confirmed and ratified.

IN WITNESS WHEREOF, this Third Amendment has been duly executed as of
the date first above written.

Busse Broadcasting Corporation,
a Delaware Corporation

By: /s/ James C. Ryan
--------------------------
James C. Ryan
Treasurer

By: /s/ Lawrence A. Busse
--------------------------
Employee

<PAGE>

BUSSE BROADCASTING CORPORATION
141 EAST MICHIGAN AVENUE, SUITE 300
KALAMAZOO, MICHIGAN 49007

SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AS OF FEBRUARY 13, 1998

This Second Amendment, to that certain Amended and Restated Employment
Agreement between Busse Broadcasting Corporation ("BBC") and James C. Ryan
("Employee") dated February 20, 1995 and amended as of February 6, 1997 (the
"first Amendment") both attached as Exhibit A hereto (collectively, the
Employment Agreement"), is entered into as of the date first above written
(the "Second Amendment").

All capitalized terms not defined herein shall have the same meaning as
ascribed to such terms in the Employment Agreement.

BBC and Employee mutually agree to amend the Employment Agreement by
deleting the phrase "December 31, 1998" in the second sentence of Section 4.
TERM OF AGREEMENT, as amended by the First Amendment, and replacing the
deleted phrase with "the later of December 31, 1998 or one (1) year following
the effective date of a "Trigger Event" as such term is defined in that
certain BBC Long Term Incentive Plan, as amended May 31, 1996; provided
however, in the event this agreement would otherwise terminate pursuant to
the foregoing clause and the Company or its stockholders shall have entered
into an agreement contemplating a Trigger Event, the terms of this agreement
shall be extended until the earlier termination of such agreement or the date
one (1) year from the consummation of such agreement."

All other terms and conditions of the Employment Agreement will remain
in full force and effect and are hereby restated, confirmed and ratified.

IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the date first above written.

Busse Broadcasting Corporation,
a Delaware Corporation

By: /s/ Lawrence A. Busse
--------------------------
Lawrence A. Busse
President

By: /s/ James C. Ryan
--------------------------
Employee

<PAGE>

KOLN/KGIN, INC.
141 EAST MICHIGAN AVENUE, SUITE 300 KALAMAZOO, MICHIGAN 49007

SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AS OF FEBRUARY 13, 1998

This Second Amendment, to that certain Amended and Restated Employment
Agreement between Busse Broadcasting Corporation ("BBC") and Frank Jonas
("Employee") dated February 20, 1995 and amended as of February 6, 1997 (the
"First Amendment") both attached as Exhibit A hereto (collectively, the
"Employment Agreement"), is entered into as of the date first above written
(the "Second Amendment").

All capitalized terms not defined herein shall have the same meaning as
ascribed to such terms in the Employment Agreement.

The Company and Employee mutually agree to amend the Employment
Agreement by deleting the phrase "December 31, 1998" in the second sentence
of Section 4. TERM OF AGREEMENT, as amended by the First Amendment, and
replacing the deleted phrase with "the later of December 31, 1998 or one (1)
year following the effective date of a "Trigger Event" as such term is
defined in that certain BBC Long Term Incentive Plan, as amended May 31,
1996; provided however, in the event this agreement would otherwise terminate
pursuant to the foregoing clause and the Company or its stockholders or BBC
or its stockholders shall have entered into an agreement contemplating a
Trigger Event, the terms of this agreement shall be extended until the
earlier termination of such agreement or the date one (1) year from the
consummation of such agreement."

All other terms and conditions of the Employment Agreement will remain
in full force and effect and are hereby restated, confirmed and ratified.

IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the date first above written.

KOLN/KGIN, Inc.
a Delaware Corporation

By: /s/ James C. Ryan
--------------------------
James C. Ryan
V.P. - CFO

By: /s/ Frank Jonas
--------------------------
Employee

<PAGE>

BUSSE BROADCASTING CORPORATION
141 EAST MICHIGAN AVENUE, SUITE 300
KALAMAZOO, MICHIGAN 49007

SECOND AMENDMENT TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AS OF FEBRUARY 13, 1998

This Second Amendment, to that certain Amended and Restated Employment
Agreement between Busse Broadcasting Corporation ("BBC") and Cheryl Weinke
("Employee") dated February 20, 1995 and amended as of February 6, 1997 (the
"first Amendment") both attached as Exhibit A hereto (collectively, the
Employment Agreement"), is entered into as of the date first above written
(the "Second Amendment").

All capitalized terms not defined herein shall have the same meaning as
ascribed to such terms in the Employment Agreement.

BBC and Employee mutually agree to amend the Employment Agreement by
deleting the phrase "December 31, 1998" in the second sentence of Section 4.
TERM OF AGREEMENT, as amended by the First Amendment, and replacing the
deleted phrase with "the later of December 31, 1998 or one (1) year following
the effective date of a "Trigger Event" as such term is defined in that
certain BBC Long Term Incentive Plan, as amended May 31, 1996; provided
however, in the event this agreement would otherwise terminate pursuant to
the foregoing clause and the Company or its stockholders shall have entered
into an agreement contemplating a Trigger Event, the terms of this agreement
shall be extended until the earlier termination of such agreement or the date
one (1) year from the consummation of such agreement."

All other terms and conditions of the Employment Agreement will remain
in full force and effect and are hereby restated, confirmed and ratified.

IN WITNESS WHEREOF, this Second Amendment has been duly executed as of
the date first above written.

Busse Broadcasting Corporation,
a Delaware Corporation

By: /s/ James C. Ryan
--------------------------
Name: James C. Ryan
Title: Treasurer

By: /s/ Cheryl Weinke
--------------------------
Employee

<PAGE>

February 13, 1998

Mr. Lawrence A. Busse
Busse Broadcasting Corporation
141 East Michigan Avenue
Suite 300
Kalamazoo, Michigan 49007

Re: INCENTIVE FEE PLAN

Dear Mr. Busse:

This letter agreement will confirm our understanding that, upon the
closing of any sale of Busse Broadcasting Corporation (the "Company"), the
Company shall pay an incentive fee in accordance with the schedule set forth
below. Such an incentive fee shall be payable to and allocated among those
employees of the Company as you may determine in your sole discretion.

<TABLE>
<S> <C>
AGGREGATE CONSIDERATION INCENTIVE FEE

Up to $110,000,000 $0

$110,000,000 - $115,000,000 $350,000

$115,000,000 or Higher $500,000
</TABLE>

For purposes hereof, the term Aggregate Consideration shall mean the
total amount of cash paid to the holders of the debt and equity securities of
the Company (including, without limitation, amounts paid or payable pursuant
to covenants not to compete) before deduction for transaction related fees
and expenses, including, without limitation, any fees payable to Morgan
Stanley & Co. Incorporated or hereunder. Aggregate Consideration shall also
include the value of any long-term liabilities and accrued interest thereon
of the Company (including the principal amount of any indebtedness for
borrowed money) repaid or assumed in connection with or in

<PAGE>

anticipation of the sale of the Company (without duplication of the amounts
in the preceding sentence).

Very truly yours,

BUSSE BROADCASTING CORPORATION

By: /s/ James C. Ryan
-------------------------
James C. Ryan
Treasurer and Assistant Secretary

Accepted and agreed to this
13th day of February, 1998.

/s/ Lawrence A. Busse
- ----------------------------
Lawrence A. Busse

<PAGE>

February 13, 1998

Mr. Lawrence A. Busse
Busse Broadcasting Corporation
141 East Michigan Avenue
Suite 300
Kalamazoo, Michigan 49007

Re: OPTION TO ACQUIRE CERTAIN ASSETS

Dear Mr. Busse:

This letter agreement will confirm our understanding that upon the
termination of your employment by the Company without Cause or by you for
Good Reason (each as defined in that certain Amended and Restated Employment
Agreement dated February 20, 1995 between you and Busse Broadcasting
Corporation (the "Company"), as amended from time to time), you, or your
assignee, shall have the option, exercisable within 90 days following the
occurrence of such event, to acquire all of the Company's right, title and
interest in and to any or all the assets set forth on Exhibit A hereto (the
"Corporate Assets") for an aggregate purchase price of $10.00 in cash. In
connection with any transfer of the Corporate Assets, the Company and you, or
your assignee, as applicable, shall execute such instruments of transfer as
the other party shall deem necessary and appropriate.

In order to exercise the option granted hereby, you or your assignee
shall deliver to the Company written notice of your or its intention to
exercise such option, which notice shall identify the Corporate Assets to be
transferred as well as the proposed date of such transfer (such date not to
be less than 5 nor more than 10 business days following the delivery of such
written notice).

<PAGE>

The parties agree that the Corporate Assets shall be transferred free
and clear of any liens or encumbrances but otherwise in "as is, where is"
condition without warranty of merchantability or fitness for a particular
purpose.

Very truly yours,

BUSSE BROADCASTING CORPORATION

By: /s/ James C. Ryan
--------------------------
James C. Ryan
Treasurer and Assistant Secretary

Accepted and agreed to this
13th day of February, 1998.

/s/ Lawrence A. Busse
- ----------------------------
Lawrence A. Busse

<PAGE>

EXHIBIT A

BROADCAST EQUIPMENT

Sony 19" Color TV
Quasar VCR
Sony VP-5020 U-Matic VCR

OFFICE EQUIPMENT

Royal 248-PD II Calculator
IBM Wheelwriter 30
NEC NE Fax 462
Sprint Phone System & Voice Mail
DBS Receiver & Antenna System

COMPUTER EQUIPMENT

Printer - Epson LQ 1000
Printer - Epson LQ 1000
486 PC & Tape Backup
Epson LQ 1050
386 PC
Laptop PC
HP Deskjet 310 Printer
FCMICA Fax Card
386 PC
Canon 33-200 Bubble Jet
3 Pentium 133 Boards and Network System
Laser Printer KXP4440 - '1.2 GB Drive & 2 Mice
3.5" H.D. Drive
400 Meg Drive
Surge Suppressor

FURNITURE & FIXTURES

Wall Art
Conference Table
Conference Chairs (07)
Wood Chest
Desk & Return (03)
Chair (03)
Desk Set (03)
Bookcase (03)

<PAGE>

FURNITURE & FIXTURES (CONT'D.)

Metal Shelves
5 Drawer Lateral File (White)
Armchair (02)
Armchair (02)
Armchair (02)
Wood Cabinet (02)
Wood Cabinet (02)
Wood Credenza (02)
Printer Stand (02)
Trash Can (02)
Carpet Protector (02)
Desk W/Return & Cabinet (02)
AC Strip (02)
Wood Cabinet
Leather Armchair
Leather Armchair
Leather Armchair
Wood Wall Unit
Wood Printer Table
Carpet Protector
Executive Wood Desk
Trash Can
Wood Clock
Desk Set
5 Drawer Lateral File
Typing Table (R)
Printer Stand (R)
Wood Desk W/Return (R)
Carpet Protector (R)
Armchair (R)
Trash Can (R)
Walnut Lateral File
3 Drawer Metal Lateral File
2 Conference Room End Tables
3 Drawer Metal Lateral File
Reception Chairs (3)
Vertical Blinds (Windows)
Desk Chair

<PAGE>

AUTOMOBILE

BMW 540i (VID No. WBAHE6324SGF34584)

ENTERTAINMENT

4 season tickets to the NEW YORK YANKEES baseball
games (i) for the 1998 season and (ii) to the extent
Mr. Busse elects to pay the purchase price for such
tickets in any future season, for each such future season

NAME

The name "Busse Broadcasting Corporation" and
any derivation thereof

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BUSSE
BROADCASTING CORPORATION AUDITED CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR
ENDED DECEMBER 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> DEC-28-1997
<CASH> 8,974,699
<SECURITIES> 0
<RECEIVABLES> 3,865,310
<ALLOWANCES> (60,900)
<INVENTORY> 0
<CURRENT-ASSETS> 14,122,592
<PP&E> 18,073,042
<DEPRECIATION> 4,846,975
<TOTAL-ASSETS> 77,936,288
<CURRENT-LIABILITIES> 4,161,712
<BONDS> 60,918,857
0
26,816,584
<COMMON> 1,077
<OTHER-SE> (13,961,942)
<TOTAL-LIABILITY-AND-EQUITY> 77,936,288
<SALES> 0
<TOTAL-REVENUES> 18,971,040
<CGS> 0
<TOTAL-COSTS> 15,753,999
<OTHER-EXPENSES> (406,178)
<LOSS-PROVISION> 11,274
<INTEREST-EXPENSE> 8,340,845
<INCOME-PRETAX> (4,717,626)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,717,626)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,717,626)
<EPS-PRIMARY> (88.58)
<EPS-DILUTED> 0

</TABLE>